CMKM Diamonds Inc (fka CMKX)

[jetfish]

Could this be the lawsuit Easter Bunny mentioned last week?

Refco fraud could have been found sooner-investors
Tue Apr 4, 2006 7:28 PM ET

By Dan Wilchins

NEW YORK, April 4 (Reuters) - Refco Inc.'s auditors and underwriters ignored documents that should have raised red flags about questionable loans involving the futures broker, according to a complaint filed by investors.

The complaint, filed Monday as part of a consolidated shareholder and bond investor lawsuit, blames dozens of parties including Credit Suisse Group Inc. <CSGN.VX>, Bank of America Corp. <BAC.N>, Deutsche Bank AG <DBKGn.DE> and auditor Grant Thornton for not uncovering Refco's fraud sooner.

According to the complaint, Grant Thornton in 2004 received confirmation that Refco Capital Markets lent $335 million to a customer just three days before the end of Refco's fiscal year in February 2002.

That $335 million loan was in fact designed to hide bad customer loans on Refco's balance sheet, the complaint said, and was one of 11 similar transactions involving Refco.

Refco's announcement in October 2005 of $430 million of bad loans to customers was the beginning of the end for the broker, which filed for bankruptcy protection the following week. A spokesman for Refco was not immediately available for comment.

Grant Thornton should have asked questions about a large loan taking place days before the end of the quarter, said Sean Coffey, a lawyer for Bernstein Litowitz Berger & Grossmann, one of the firms representing plaintiffs.

"Grant Thornton's audits amounted to no audits at all," Coffey said on Tuesday.

A spokeswoman for the accounting firm said in a statement that Grant Thornton notified Refco of deficiencies in its internal controls, and discovered the receivable that eventually led to uncovering the problem.

But the deception was well enough concealed by senior managers to evade inspections by "many of the most well-respected financial institutions in the country," the statement said.

Meanwhile, underwriters for the company's August 2005 stock offering and several bond offerings should have asked more questions when performing their due diligence, Coffey said.

"It appears to us that bankers were more interested in pocketing their fees than protecting their clients," Coffey said.

Representatives for Bank of America, Credit Suisse, and Deutsche Bank declined to comment.

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