Former Refco Executives Sued

That sound you hear is yet another shoe dropping at beleaguered Refco(RFXCQ).

Late Monday, The Wall Street Journal's Web site reported that Thomas H. Lee Partners, a private-equity firm with a more-than-40% stake in the commodity-brokerage company, filed a federal lawsuit in Manhattan to recover $245 million in losses allegedly sustained by a plan to mask losses at Refco.

The suit was filed against former CEO Phillip R. Bennett, former CEO and President Santo C. Maggio, and President Tone Grant, the Journal reported.

Bennett was indicted last Friday by a federal grand jury on eight counts, including conspiracy to commit securities fraud, wire fraud and with making false statements to securities regulators. The indictment followed his arrest a month earlier for his alleged role in "renting" the balance sheet of a Refco customer to make it appear that Refco was owed money by the customer, rather than Bennett himself.

The suit alleges Bennett and Maggio engaged in a massive accounting fraud that masked Refco's debts. "We are taking action against Bennett and Maggio as perpetrators of the sophisticated and long-concealed fraud that led to Refco's collapse, and against Grant who pocketed hundreds of millions of dollars from the Fund's investment in Refco," Scott Schoen, senior managing director at Thomas H. Lee, said in a prepared statement, the Journal reported.

The suit also alleges Bennett and Maggio failed to disclose the debts in both verbal and written discussions with Thomas H. Lee and its advisers.

Thomas H. Lee Partners says it invested $507 million in Refco in June 2004 after spending $10 million and devoting thousands of man hours to conduct extensive due diligence performed by a number of paid advisers.

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