Overcriminalization Hits the Corporate Bar


The Foundation has filed an amicus brief in support of defendant-appellant in United States v. Joseph Collins, a criminal case arising out of the acquisition of Refco Financial, once one of the world’s leading commodities brokerage firms, by Thomas H. Lee Partners (‘T. H. Lee’), a well-known private equity investor, and Refco’s subsequent collapse. The case is on appeal to the United States Court of Appeals for the Second Circuit.

Joseph Collins, the defendant, was a senior corporate partner of long-standing and substantial reputation in the Chicago office of Mayer Brown, a large national law firm. Collins was the ‘relationship partner’ for Refco at Mayer Brown. (There was no allegation that Collins materially benefited from Refco’s fraudulent conduct or his representation of Refco in the transaction.)

Refco held itself out as a thriving and profitable enterprise when, in fact, it was hiding hundreds of millions of dollars of intercompany debt that rendered the company insolvent. Refco’s principals were convicted of securities fraud in separate cases based on their direct participation in the accounting fraud that concealed Refco debt.

Collins was indicted on 14 counts of securities fraud, and after a seven week jury trial he was convicted on five counts, primarily for failing to disclose to T. H. Lee or its counsel the existence of a ‘Proceeds Participation Agreement’ (‘PPA’) that was allegedly wrongfully concealed during the 2004 leveraged buyout of Refco by T. H. Lee. Collins testified that, as a lawyer, he believed that the agreement did not need to be disclosed because it obligated an affiliate of Refco, not Refco itself, that he had been assured by executives of Refco that it was not ‘material,’ and because if the T. H. Lee acquisition were consummated the PPA would become moot.

On appeal, Collins argues that the trial court ‘hamstrung’ the defense with respect to the central question in the case – whether Collins had crossed the line from good faith legal representation of Refco’s interests to knowing participation in Refco’s fraud. The government called a number of Refco’s outside lawyers and lawyers for an Austrian bank that was involved in the transaction as fact witnesses. Several of them testified, over objection, that in their lay opinion the PPA should have been disclosed. Collins argues on appeal that the defense was improperly precluded from eliciting from these and other government witnesses, also experienced lawyers who had participated in the transactions, that, in their opinion, the PPA was not material and its disclosure was not mandatory. Collins also argues that he was also improperly precluded from calling an expert in transactional law who would have provided a framework and independent corroboration of Collins’s explanation of his actions as a lawyer, that these evidentiary rulings resulted in an unbalanced and misleading record, and prevented Collins from effectively presenting his defense.

Atlantic Legal’s amicus brief, co-authored with well-known securities litigator Jack Auspitz, a senior partner at Morrison & Foerster, addresses a general theme related to all these issues: That lawyers can reasonably disagree with each other and take opposing positions about decisions whether a document or a transaction is ‘material’ and whether it need be disclosed during a transaction, and that the well-reasoned decision by a lawyer that a document or a transaction need not be disclosed does not prove or imply that the lawyer was acting in bad faith. Our amicus brief stresses that the legal profession as a whole is at risk when prosecutors act as if the decisions lawyers make can be ‘criminalized’ and that the criminalization of those decisions will result in a loss of trust between lawyers and their clients, who might conclude that a lawyer’s advice is influenced by the lawyer’s fear of prosecution, not by objective evaluation of the best course of action for the client. The main theory of the prosecution on which the conviction rested was that Collins failed to insist on disclosure of a document that in his judgment was not material, and that theory that could be turned against any transactional lawyer who makes a difficult judgment call. We argued that there are no bright line rules in this context: such issues inherently call for professional judgment, and when reasonable minds might disagree about a matter of professional judgment there cannot be criminal mens rea.

The Foundation’s amicus brief also argues that the trial judge improperly limited the defense’s cross-examination of key prosecution witnesses on the central issue of the materiality of the PPA and improperly excluded defendant’s proffered expert, who would have testified to the general practice of transactional lawyers in making disclosure determinations as evidence that Collins’ approach was reasonable under the circumstances.

To read Atlantic Legal’s amicus brief, click here.