Former Refco owner Tone Grant has been convicted of five felony counts of fraud and conspiracy for his part in a $2.4 billion (€1.5 billion) accounting scandal that defrauded private equity firm Thomas H Lee Partners.
Grant, 64, faces the possibility of life in prison after being convicted of one count each of securities fraud, wire fraud, bank fraud, money laundering, and conspiracy. The Chicago native is scheduled to be sentenced in August, at which point he may be forced to pay several million dollars in additional fines and penalties.
A jury in Manhattan federal court found Grant guilty of misleading TH Lee about the true financial health of Refco during the Boston-based buyout group’s $2.4 billion acquisition of the commodities broker in 2004. Grant reaped $16 million in proceeds from the buyout.
Grant’s conviction represents the latest episode in the tumultuous legal drama surrounding the once-mighty Refco’s fall from grace.
TH Lee took the Manhattan-based company public in 2005 for $22 per share, nearly tripling the value of its initial investment. However, later that year TH Lee discovered that a holding company owned by Grant and then chief executive officer Phillip Bennet owed Refcoe roughly $430 million in debt.
It was subsequently revealed that Grant, Bennet, and other Refco execs had since 1999 been masking hundreds of millions of dollars in trading losses by transferring them to the holding group.
After watching its stock price plummet and customer base flee, Refco filed for Chapter 11 bankruptcy protection in October 2005, two months after its public debut. Just before the bankruptcy, Refco was purchased by a JC Flowers-led consortium for $768 million.
TH Lee lost roughly $245 million in the debacle.
A cascade of criminal and civil litigation followed the bankruptcy. Bennet and chief financial officer Robert Trosten both pled guilty to criminal charges in February, and await sentencing in May.
Former executive vice president Santo Maggio pled guilty in December, forfeiting $23 million. Refco general counsel Joseph Collins is also facing charges.
The criminal investigations have been accompanied by a flurry of civil litigation in which TH Lee has played a prominent role on both sides.
TH Lee sued Refco’s former management to recoup its $245 million loss, and then sued Refco’s legal counsel for another $245 million. Austrian bank Bawag settled with TH Lee to the tune of $100 million after TH Lee accused the bank of aiding and abetting Grant and Bennet.
TH Lee is also a co-defendant in an ongoing suit filed on behalf of Refco’s creditors that alleges several senior TH Lee executives that served on Refco’s board of directors were aware of the company’s legal and regulatory problems.
In New York state court, a French businessman who says he assisted in setting up Refco European operations is suing Refco and TH Lee for $1.4 billion.