A Manhattan federal judge has dismissed a complaint by Refco Inc's bankruptcy trustee to recover more than $500 million for creditors of the defunct futures and commodities broker from its legal and accounting advisers.
U.S. District Judge Gerard Lynch on Tuesday ruled that the trustee Marc Kirschner failed to show that Ernst & Young LLP [ERNY.UL], Grant Thornton LLP and the law firm Mayer Brown LLP knew about or substantially assisted in the fraudulent conduct that led to Refco's demise.
Grant Thornton had been an outside auditor for Refco, and given the company clean bills of health for the 2003, 2004 and 2005 fiscal years. Mayer Brown was Refco's primary law firm, and Ernst provided tax services to various Refco entities.
Refco and 23 affiliates filed for Chapter 11 bankruptcy protection in October 2005, two months after going public and a week after revealing that former Chief Executive Philip Bennett hid $430 million of debt.
Bennett is serving a 16-year prison sentence, while former Refco president Tone Grant is serving a 10-year term. Refco's bankruptcy is one of the largest in U.S. history, according to BankruptcyData.com.
Lynch gave Kirschner another chance to plead his case, and set a Sept. 25 deadline for him to decide whether he plans to do so.
Kirschner's lawyer, Grant Thornton and Mayer Brown did not immediately return requests for comment. An Ernst spokesman had no immediate comment.
The case is Kirschner v. Bennett et al, U.S. District Court, Southern District of New York (Manhattan), No. 07-8165. (Reporting by Jonathan Stempel; Additional reporting by Chelsea Emery in New York and Rachelle Younglai in Washington, D.C.)