UPDATE 4-Mayer Brown partner charged in Refco case

(Updates with plea, adds details from hearing, lawyer's comment)

By Paritosh Bansal and Christine Kearney

NEW YORK, Dec 18 (Reuters) - U.S. authorities charged a partner at law firm Mayer Brown LLP on Tuesday with fraud for his role in an alleged scheme that led to the collapse of futures and commodities broker Refco Inc.

Joseph Collins, 57, who was a long-time attorney for Refco, was charged with conspiracy, securities fraud and other charges for helping hide the true financial health and economic structure of Refco, according to an 11-count indictment filed in U.S. District Court in Manhattan.

Collins, who lives in Winnetka, Illinois, pleaded not guilty to the charges before U.S. District Judge Leonard Sand and was granted bail secured by a $1 million bond.

Refco and 23 affiliates filed for Chapter 11 bankruptcy on Oct. 17, 2005, a week after revealing that former Chief Executive Phillip Bennett had hidden $430 million of bad customer debt. It later liquidated its operations.

The U.S. Securities and Exchange Commission sued Collins separately for allegedly aiding and abetting Refco's violations of the antifraud provisions of the federal securities laws.

"He was not merely a lawyer whose client was committing fraud and who should have caught on," U.S. Attorney Michael Garcia said. "Collins instead played an active and crucial part in perpetrating the Refco fraud."

His lawyer, William Schwartz, said Collins was an innocent victim of the Refco fraud.

"This indictment should send a chill down the spine of every transactional lawyer who believes he or she is representing an honest client," Schwartz said.

Maximum sentences associated with the criminal charges against him range from 5 to 30 years. He also faces forfeiture of $2.4 billion, representing money obtained as a result of the charged offenses, according to the indictment.

Collins, who is head of Mayer Brown's derivatives practice group, helped hide Refco's losses by drafting loan documents that temporarily transferred the losses off Refco's books during its fiscal year end, Garcia said.

He also helped Bennett "commit a massive fraud" against private equity firm Thomas H. Lee Partners by leading them to believe Bennett's holding company owed Refco no more than $108 million, when it actually owed Refco at least $1 billion, Garcia said.

Thomas H. Lee Partners bought a majority interest in Refco through a $1.9 billion leveraged buyout in August 2004.

Garcia said Collins also helped Bennett conceal that Refco had received a cash infusion of more than $450 million to help pay off Bennett's debt from the Austrian bank Bawag in return for the bank holding a 47 per cent interest in the broker.

"Acting hand-in-hand with Bennett, Collins made affirmative misrepresentations, material omissions, and told deceptive half-truths, all to assist Bennett's scheme to steal more than $2.4 billion from potential investors and lenders," according to the indictment.