US lawyers aren't worried about the indictment of Mayer Brown partner Joseph Collins over Refco. Most in the market assume that this was an isolated case of active fraud.
Derivatives head Collins was charged with securities fraud and conspiracy over allegations that he helped hide losses from investors in commodities broker Refco.
There were fears that the case might increase scrutiny of disclosure. But until the case comes to court and it is proven that Collins was misled by his client, the attitude is that there is nothing wrong with the extent of trust usually extended to clients in this position.
Collins' attorney William Schwartz, partner at Cooley Godward Kronish, started the debate about trust in a statement released in December. He said "this indictment should send a chill down the spine of every transactional lawyer who believes he or she is representing an honest client."
Yet transactional lawyers are not worried. They say this may have involved more than trust. The US attorney Michael Garcia claims that Collins played an active role in inducing the fraud, and so it was more than a trust issue.
Collins was charged with helping to cover up more than $1 billion of client losses. Collins was also sued by the Securities and Exchange Commission (SEC) for assisting in Refco's violations of antifraud provisions.
Collins pleaded not guilty, and Mayer Brown released a statement, which said: "Our review of the evidence available to us shows that the firm acted in a professional, competent and ethical manner in its work on behalf of Refco."
Until the case is settled, the question remains whether this lawsuit is the result of misplaced trust in a client, or a lawyer's fraudulent practice.
"In a transactional setting, you learn to establish trust with client and recognise scepticism if your client is doing something improper. Sometimes those things conflict," said David Bernstein, partner at Clifford Chance. LB