According to an expert on shareholder activism, many angry investors are looking into taking legal action against mutual funds holding Refco. Lawsuits have already been filled against Grant Thornton, Refco's auditor, as well as investment banks who disregarded the initial public offering by the futures broker a few months ago, and now more lawsuits are a possibility, MarketWatch reports.
"As we move down the food chain, I'm sure some investors will start looking sideways at their investment managers and the mutual funds in which they invest, so it's inevitable that some suits will be brought," said Patrick McGurn, senior vice president and special counsel at Institutional Shareholder Services.
However, a number of lawyers, including those who sued mutual fund companies for market timing, say that it would be hard to put any investment manager on trial for not spotting trouble at Refco. "I think that would be a very difficult case," said Melvyn I. Weiss, founding partner of
Barry Barbash, a partner at
Further, most fund companies' exposure to Refco has been minimal.
"From the standpoint of the shareholders suing, it doesn't happen unless you have special facts that show that the advisor was grossly negligent," said Michael Rosella, a partner in the law firm
In fact, fund investors usually see corporate fallouts as a non-event, said Roy Weitz, publisher of
The Refco mess will spur more talk on the due-diligence topic, according to McGurn. "Refco is going to be the wake-up call for IPOs," said McGurn. "It begs the question of whether you can be sold a pig in a poke in the IPO market."
