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Pastimes : Investment Chat Board Lawsuits -- Ignore unavailable to you. Want to Upgrade?

To: Jeffrey S. Mitchell who wrote (3240)	6/3/2002 11:46:33 AM
From: Jeffrey S. Mitchell	Respond to of 12465

Re: 12/28/01 - Law.com: Wrestling a Centipede; Fighting an SEC enforcement action is dicey: Your opponent is also your judge Wrestling a Centipede Fighting an SEC enforcement action is dicey: Your opponent is also your judge Paul Braverman The American Lawyer 12-28-2001 In 1993 Smith Barney Inc. managing director Michael Lissack began giving the FBI anonymous information about broker-dealers' "yield-burning" -- manipulation of the municipal bond market to capture illegal profits. In 1995 he was fired by Smith Barney, either because he was threatening to reveal violations by that firm, as he claims, or because he was a disgruntled employee unhappy about his bonus, as Smith Barney maintains. Shortly afterwards, Lissack brought a qui tam suit -- which allows a private citizen to sue companies for ripping off the federal government and to keep a percentage of the amount recovered -- against 17 broker-dealers. Three long-standing clients of New York's Davis Polk & Wardwell were among the defendants: Morgan Stanley & Co., Smith Barney and Prudential Securities. The suit got the attention of the federal government, and an assortment of agencies -- including the Securities and Exchange Commission, the Justice and Treasury Departments and the Internal Revenue Service -- began investigating. In April 2000, after five grueling years of litigation, the case settled, and the Davis Polk clients walked away, relieved if not unscathed. At Davis Polk, there was no question that Gary Lynch, the firm's securities enforcement litigation star, would oversee the case. Before joining the firm, he had been head of enforcement at the SEC, where he led the insider trading probes against Michael Milken and Ivan Boesky. Also on the case was Susan Merrill. Although she'd been named partner only a year earlier, as an associate she had led Salomon Brothers through a complex SEC enforcement action. Rounding out the team was Sharon Katz, who had previously represented broker-dealers in matters involving municipalities. Each lawyer had primary responsibility for one client: Lynch for Morgan Stanley; Merrill for Prudential Securities; and Katz for what is now Salomon Smith Barney Holdings Inc. Securities enforcement litigation requires a delicate touch. "The SEC is both your opponent and your judge," says Arthur Golden, a member of the firm's management committee. "You can't be a wimp, or they'll walk all over you. And you can't be too aggressive, or they won't trust you." Complicating the case was the multiplicity of federal agencies involved and private actions: Lissack's suit in Manhattan and bond purchasers' class actions in Chicago and Florida. "Some cases have so many arms they're like an octopus," says Merrill. "This was like a centipede." Davis Polk was ready for all those limbs. Lynch has an unusual ability to see the big picture, according to both co-counsel and lawyers for the SEC, and was able to negotiate successfully with all of the agencies involved, despite their different jurisdictions and agendas. His SEC experience was key. "He had the vision not to conduct a scorched-earth campaign," says an SEC official who worked on the case and would speak only on condition of anonymity. "He was able to think about the whole broker-dealer industry, not just his client's parochial interest." Unfortunately for Davis Polk, Lynch left the firm in August to become general counsel of Credit Suisse First Boston. Davis Polk supported Lynch and the yield-burning team with an array of expertise, including some lawyers not strictly defined as litigators. Besides the securities enforcement group, the firm's class action defense and tax practices worked on the case and, if things had gone badly, their white-collar criminal defense group would have been drafted. They also had the bodies to throw at the case: At its peak, about 20 lawyers were working on it. In total, the 17 defendants paid about $140 million; Salomon Smith Barney paid $38 million to lead the way. But the case has to be seen as a victory for the defendants, given an exposure that could have run into the billions. Of course, whistleblower Lissack may also consider it a victory. Although he's now a pariah on Wall Street, his cut may have been as high as $30 million. SIZE OF DEPARTMENT: Partners: 35 Counsel: 6 Associates: 134 DEPARTMENT AS PERCENT OF FIRM: Partners: 25 percent Associates: 27 percent Counsel: 18 percent CASES TRIED TO VERDICT SINCE 1/1/00: 3 EST. PERCENT OF FIRM REVENUE, 2001: Undisclosed DEPARTMENT HIGHLIGHTS: Led defense of Hoffmann-LaRoche against far-ranging vitamin price-fixing allegations -- resulting in $500 million settlement with Department of Justice and class action plaintiffs; won pretrial dismissal of claims against Deloitte & Touche in two securities fraud class actions; defended former Sotheby's chairman A. Alfred Taubman at federal criminal conspiracy trial. PRO BONO HIGHLIGHT: Counsel for children and indigent adults will receive financial boost if firm succeeds in a suit brought against the state of New York on behalf of the New York County Lawyers' Association. The suit claims that the state fails to ensure the meaningful assistance of counsel required by the Constitution. law.com