Refco claims upheld in multi-million dollar suit against Cantor Fitzgerald

By Caroline Salls

Pittsburgh, June 17 – A federal judge upheld all of the key claims in Refco Inc.’s bankruptcy estate’s lawsuit filed against Cantor Fitzgerald and its primary owner and chief executive officer Howard Lutnick, according to a news release from Refco counsel Grant & Eisenhofer PA.

The bankruptcy estate’s suit seeks tens of millions of dollars in compensatory and punitive damages.

The suit, filed in the Southern District of New York in 2013, alleges that Cantor’s Nevada gaming businesses acquired proprietary technology and other assets from a subsidiary in which Refco held a 10% stake without ever compensating the subsidiary and depriving Refco of its interest in the assets.

In an 80-page ruling on Cantor’s motion to dismiss, U.S. District Judge Ronnie Abrams allowed the Refco bankruptcy estate’s conversion, waste, breach of fiduciary duty, aiding and abetting and other claims to survive against Cantor Fitzgerald and several of its subsidiaries and executives.

The named individual defendants are Lutnick, Cantor Gaming president Lee Amaitis and Cantor general counsel and Cantor Index Holdings (CIH) director Stephen Merkel.

Grant & Eisenhofer said the lawsuit contends that in 2002, Refco invested $8 million in Cantor Fitzgerald subsidiary CIH in exchange for a 10% partnership interest.

The firm said CIH developed successful gaming technology over the next several years.

The Refco bankruptcy estate alleged that Cantor Gaming ultimately shut down CIH and took the rights of its core assets and intellectual property for its own profit, developing valuable businesses in Nevada and elsewhere – while failing to provide any compensation to the bankruptcy estate to reflect its 10% stake in CIH.

The complaint said Cantor defendants repeatedly represented to regulators, analysts and the press that the technology developed by CIH and its subsidiaries in the United Kingdom was critical to the successful build-out of Cantor’s Nevada operations.

Claims upheld

In allowing the case to go forward, judge Abrams upheld the following major claims against the defendants:

• Against Cantor Fitzgerald, LP and its affiliates/subsidiaries Cantor Index Holdings, LP, Cantor Index Ltd., Cantor Fitzgerald Game Holdings LLC and Cantor Fitzgerald Securities, Abrams upheld claims that they aided and abetted a breach of fiduciary duty and engaged in the tort of Conversion;

• Against Lutnick and Amaitis claims for aiding and abetting breach of fiduciary duty will proceed, and against Lutnick, Amaitis and Merkel, unjust enrichment, waste and conversion claims will go forward;

• Against Cantor Index Holdings LP LLC, breach of fiduciary duty, waste and conversion claims will go forward; and

• Against Cantor G&W (Nevada) LP, unjust enrichment and conversion claims will go forward.

Next step

The litigation parties will be required to jointly submit to the court a proposed case management plan and scheduling order. A conference is scheduled for June 24.

“We are prepared to move forward with our litigation, to prove that Cantor still owes Refco’s bankruptcy estate for the value of assets which Refco helped to finance more than a decade ago,” Grant & Eisenhofer co-managing director Jay Eisenhofer said in the release.

“Cantor’s success in the mobile gaming sector has depended heavily on the technologies that Refco helped bankroll and we will continue to press for recovery for the fair value of that investment.”

Refco, a New York-based commodities brokerage company, emerged from Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York on Dec. 26, 2006.

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