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plaintiffdefendantliabilitymotionmotion to dismiss
plaintiffdefendantliabilitymotionmotion to dismiss

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Thomas H. Lee Equity Fund V, L.P. v. Mayer Brown, Rowe & Maw LLP, 612 F.Supp.2d 267, Fed. Sec. L. Rep. P 95,100, RICO Bus.Disp.Guide 11,646

Facts

The THL Funds, which invested over $450 million in Refco and acquired a majority of its stock through a leveraged buy-out in August 2004, alleged that Mayer Brown, Refco's principal outside counsel, made numerous misrepresentations during the due diligence process. Following Refco's collapse in 2005, the THL Funds claimed losses exceeding $245 million and accused Mayer Brown of knowingly concealing related-party transactions and providing false documents that misrepresented Refco's financial condition.

The THL Funds, which invested over $450 million in Refco and acquired a majority of its stock through a leveraged buy-out in August 2004, alleged that Mayer Brown, Refco's principal outside counsel, made numerous misrepresentations during the due diligence process. Following Refco's collapse in 2005, the THL Funds claimed losses exceeding $245 million and accused Mayer Brown of knowingly concealing related-party transactions and providing false documents that misrepresented Refco's financial condition.

Issue

Did Mayer Brown make material misrepresentations or omissions that would subject it to liability under § 10(b) of the Securities Exchange Act and RICO?

Did Mayer Brown make material misrepresentations or omissions that would subject it to liability under § 10(b) of the Securities Exchange Act and RICO?

Rule

To establish a claim under § 10(b) and Rule 10b–5, a plaintiff must prove a material misrepresentation or omission, scienter, a connection between the misrepresentation and the purchase or sale of a security, reliance, economic loss, and loss causation.

To establish a claim under § 10(b) and Rule 10b–5, a plaintiff must prove a material misrepresentation or omission, scienter, a connection between the misrepresentation and the purchase or sale of a security, reliance, economic loss, and loss causation.

Analysis

The court found that the THL Funds' allegations did not sufficiently attribute the misstatements to Mayer Brown, as the statements made by Collins were merely relaying information from Refco's management without any endorsement from Mayer Brown. The court emphasized that for liability to attach under § 10(b), the misstatements must be directly attributable to the defendant, which was not the case here. Additionally, the court ruled that the THL Funds could not rely on Mayer Brown's conduct as it was too remote from the deceptive acts of Refco.

The court found that the THL Funds' allegations did not sufficiently attribute the misstatements to Mayer Brown, as the statements made by Collins were merely relaying information from Refco's management without any endorsement from Mayer Brown. The court emphasized that for liability to attach under § 10(b), the misstatements must be directly attributable to the defendant, which was not the case here. Additionally, the court ruled that the THL Funds could not rely on Mayer Brown's conduct as it was too remote from the deceptive acts of Refco.

Conclusion

The court granted Mayer Brown's motion to dismiss the claims under § 10(b) and RICO, concluding that the THL Funds failed to establish that Mayer Brown made actionable misstatements or omissions.

The court granted Mayer Brown's motion to dismiss the claims under § 10(b) and RICO, concluding that the THL Funds failed to establish that Mayer Brown made actionable misstatements or omissions.

Who won?

Mayer Brown prevailed in the case because the court found that the THL Funds did not sufficiently allege that Mayer Brown made material misstatements or omissions that would subject it to liability under the relevant securities laws.

Mayer Brown prevailed in the case because the court found that the THL Funds did not sufficiently allege that Mayer Brown made material misstatements or omissions that would subject it to liability under the relevant securities laws.

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