'Who Did You Rep During the Global Financial Meltdown, Daddy?'
How an all-star line-up of lawyers helped ensure that Bear Stearns and Lehman Brothers were bought, and someone, somewhere, cared about Bernie Madoff
Published in 2009 New York Metro Super Lawyers magazine
on September 24, 2009
Updated on March 10, 2021
They’ve been vilified—even threatened—by a cash-strapped public for their roles defending the accused white-collar crooks and bailout and bonus recipients of Wall Street. But these lawyers in banking, bankruptcy, mergers and acquisitions, and criminal defense have been working at a frantic, often sleepless pace to salvage jobs, stock values and the very institutions the world economy depends on.
H. Rodgin Cohen
Sullivan & Cromwell
When they finally write the history of the Global Financial Meltdown, they’d better interview Sullivan & Cromwell chairman H. Rodgin Cohen. He was in the thick of it.
“The most intense period [for me] started the Friday of the conservatorship of Fannie Mae and Freddie Mac,” he says. “I worked the entire weekend—after Labor Day 2008—on that. That’s followed by the Lehman weekend, when Lehman Brothers collapses and the government does not rescue it. That was followed several days later by the government assistance program for AIG, which was followed, the end of that week, by the bank holding company formation of Goldman Sachs, which is followed by the failure of Washington Mutual the next week, and then that weekend of financial difficulties with Wachovia, and the deal between Wachovia and Citi, and at the end of the next week the Wachovia-Wells Fargo deal.”
He pauses before adding, “That’s the most intensive period.”
Cohen was there for it all. He’s always been sought-after—as early as 1989, The New York Times called him “the counselor banks call in a crisis”—but last fall was the first time he worked 10 straight weeks, day and night, without a break. He represented Fannie Mae as it negotiated with the federal government on conservatorship. He represented Lehman Brothers the week preceding its bankruptcy, and then Barclays when it acquired Lehman brokerage. “We went to Lehman and asked if we could be released,” he says. “They were pleased because they knew we could help expedite the deal and it was very important to get that deal done. It saved 10,000 jobs.”
He negotiated with the government on behalf of AIG. He repped Goldman Sachs Group when it converted to a bank holding company. He represented Bear Stearns during its sale to JPMorgan Chase, and JPMorgan Chase when it bought Washington Mutual. For Wachovia, Cohen worked on its preliminary merger talks with Morgan Stanley, as well as the deal with Citigroup. Then he advised the company to be acquired by Wells Fargo.
“Whatever I do, frankly there are people—particularly those in the public sector—who are doing a lot more and are much more important than I am,” Cohen says. “But basically what we’re doing, case by case, all of us are working to try and resolve this crisis with the least loss to the taxpayer and the economy. That’s the common goal. People will definitely differ on methodology and implementation and various risks that should be run, but I don’t think there’s anybody who would disagree with that as the basic objective.”
Cohen says problems in the banking industry over the last 30 years were not as serious as today’s problems, but they taught him what to expect and how to deal with the current crisis.
“In the fall, so much was coming at everyone so quickly that it was difficult to do anything other than be reactive,” he says. “You had a crisis and you had to deal with it. Now, because it’s not this crisis every week, every day, there is an opportunity to develop a much more comprehensive and more proactive approach. And that, I think, is what the [Obama] administration is attempting to do.”
One thing experience has taught Cohen is that half measures don’t work. “You have to be as aggressive as you can be,” he says.
Ira Lee Sorkin
Ira Sorkin has had some high-profile clients in his career, but he’s never represented anyone who ignited the wrath of the public the way Bernie Madoff did. The number of anti-Semitic tirades and death threats flung Sorkin’s way was unprecedented. “In many respects, I feel very badly for people who have contacted me who don’t really understand our system,” he says. “They’ve sent e-mails that in substance say, ‘How can you represent thieves?’ They ought to go back and read the Bill of Rights and take Civics 101 to understand the role defense lawyers play in preserving the best system yet devised by mankind.
“We have historically represented people who have been alleged to have done, or admitted to doing, very bad things. We have represented people who have been vilified and despised and hated, been considered the dregs of society, going all the way back to John Adams, who represented British soldiers who fired on colonists. He wasn’t a popular guy then. That’s the role we play. By defending people who do bad things, we are protecting people who don’t do bad things.”
Even though Madoff has already pleaded guilty to fraud charges, Sorkin, a partner at Dickstein Shapiro, says there are still things he can do for his client. “There’s no such thing as a hopeless case,” he says. “You can protect family, protect assets for family, try to see to it that he is sentenced to something less than the most severe prison. There’s also an emotional and psychological role we play.”
At one time, Sorkin had actually, unknowingly, been invested with Madoff through his law firm’s pension fund. Sorkin’s father had invested with Madoff, too, before he passed away; the accounts were closed when his mother died and the money distributed to trust funds for Sorkin’s two sons. But Madoff still sought Sorkin out and told a judge he wished to retain him even after those potential conflicts of interest were identified.
As an intern in the U.S. attorney’s office in 1967, half of Sorkin’s time was spent in the narcotics unit, the other half in securities frauds, and he knew which one he liked. “The fraud unit just had the smartest defense lawyers and most sophisticated defendants or targets,” he says. “The cases were complex and I thought it was more fascinating. Edward Teller, the theoretical physicist, once said that the investigation was always more exciting than the discovery, and that in part is what white-collar stuff is about: investigating it [and] figuring it out is sometimes more gratifying than getting the answer.”
The 10 years Sorkin spent on the government side of criminal prosecutions, including a two-year stint as director of the New York office of the Securities and Exchange Commission (SEC) in the mid-1980s, puts him in a unique position vis-à-vis his former agency, which has been criticized for not stopping his client sooner. “Historically, the SEC has been the best administrative agency, with, by and large, the brightest people,” he says. “But they have a mandate they just cannot accomplish with the staff size that they have. That’s one problem. The other problem is the scope of what they do and how they go about doing it. … They have not kept pace to regulate the markets that have become complex and diversified in the last 10 years.”
Dennis J. Block
Cadwalader, Wickersham & Taft
Dennis Block remembers Thursday, March 13, 2008.
It was late afternoon and, after a meeting in New Jersey, he returned to Cadwalader, Wickersham & Taft when a senior official at Bear Stearns phoned and asked him to come to their office. Immediately. On the way, he received another phone call: “Could you bring your bankruptcy partner, too? Just in case.”
When Block got to Bear at 6 p.m., he learned that the banking giant had lost an enormous amount of capital during the day. “There was an issue with respect to opening the business the next day,” he says. “We had to talk through what our options were, including the possibility of selling the business.”
He stayed through the night, preparing for alternatives and working with federal government officials. “We were trying to get the Fed to let us borrow based on very marketable securities that the company had in-house,” Block says. “Happily that Friday morning, between 4 and 6 a.m., the Fed told us that J.P. Morgan would guarantee our Bears debt going forward for up to 28 days and the Fed would guarantee the borrowings, which, in a sense was what we were looking for.” Block issued a press release and returned to his office at 9 a.m.—only to learn that Treasury Secretary Henry Paulson Jr. and New York Federal Reserve Bank President Timothy Geithner had called Bear’s chief executive to say the company needed to have a deal in place by the end of the weekend. Twenty-eight days became one. “I went back to Bear for the rest of the weekend,” he says. “Sometime in the wee hours of the morning, Monday, we reached an agreement with J.P. Morgan.” Block finally went home to sleep. But on Wednesday, he says, “I learned the deal was in trouble and [so] did the same thing for a second week. I didn’t sleep that weekend either.”
Block was well aware of what failure would mean. “It would have been difficult to drag the economy out of what would have happened,” he says. “It was a very tough couple of weeks.”
Finally, a new—and, Block adds, a much better—deal was reached and J.P. Morgan acquired Bear Stearns. “The deal has been consummated and the business and a lot of the assets have been saved by virtue of the transaction with J.P. Morgan,” Block says. “For the good of the world, the making of that deal was very, very significant.”
Since then acquisitions have been difficult to consummate. “You need financing to do transactions,” he says, adding that confidence is at an all-time low, and it’s hard for someone experiencing difficulty in their own business to go out and pick up somebody else’s troubled business.
Still, in this difficult M&A climate, Block was able to marry pharmaceutical giants Pfizer (his client) and Wyeth. Unlike the quick sale of Bear, this one took a while; negotiations ran from June 2008 until January 2009.
“It lays out the difficulties in doing deals in this kind of economy,” Block says. “It had to be crafted differently than transactions up until now.” Creative assurances, like a reverse breakup fee for failing to obtain financing, were given to the seller. “There was a lot of newness to the way it was done,” Block says. “The buyer protected itself nicely while still getting the seller comfortable to do the transaction. The Pfizer move will be something that I think generates a lot of consolidation in the pharmaceutical industry.”
Block is confident that M&As will rebound. “Wall Street’s always been very good at keeping the economy going,” he says. “I think we’re going to see complicated but interesting forms of financing that will advance the ability to do transactions. … Consolidation will be the answer to strengthening our companies. If you don’t have the ability to consolidate, you have liquidation.”
Robert J. Cleary
Shortly after the Lehman Brothers bankruptcy in September 2008, Erin Callan—the CFO who had resigned from her post for hedge fund short-selling prior to the filing—contacted Robert Cleary of Proskauer Rose to represent her in the investigations getting under way.
In October, news broke that she and a dozen other Lehman executives had been subpoenaed in a federal probe. Since then, news on Callan has been quiet; Cleary says she’s cooperated with regulators and will continue to do so.
The less Callan is in the news, the better job Cleary is doing defending her. The same goes for other clients with other major financial institutions he won’t name. With all of those cases, he’s emphasizing the same point: “We’re in the midst of the worst financial crisis since the Great Depression. A lot of the problems for business are the result of an economic financial crisis that no one saw coming, not even the experts.” His role, and that of prosecutors and regulators, he says, is to draw a distinction between the effects of an unpredictable credit and liquidity crisis versus the question of whether there was fraud.
Cleary, who was recently appointed co-chair of his firm’s 250-lawyer litigation department, knows something of the mind of a prosecutor, since, for 18 years, he was one, focusing on white-collar crimes. (An exception was memorable: He was the lead prosecutor on the Unabomber case.)
“One of the things that’s not well known that you do as a prosecutor, particularly white-collar prosecutors, is really analyze each case to decide whether it’s a provable crime and a crime that should be prosecuted, because there’s a limited amount of prosecutorial resources,” Cleary says. “In management, you frequently find yourself arguing the other side—that this is not a provable case, or it’s provable but one we shouldn’t be spending our time prosecuting.”
As a prosecutor, Cleary was adept at proving to his sometimes gung-ho colleagues that a case was not justified in going forward. What should be prosecuted, he says, are “cases that really matter, cases having a deleterious effect on individuals or the broader market or society at large, cases where there’s a risk of recurring lack of compliance. … My view of that remains the same today even on the defense side.”
Representing someone like Callan, Cleary approaches the case as if he were the prosecutor. “I do my own investigation, gather all the facts I can, interview witnesses, gather documents, and then I make a very detailed presentation to usually the head of the office, whether that’s the U.S. attorney or district attorney or SEC. I make a detailed presentation with a brief I write, attaching all exhibits, sometimes making a PowerPoint, and I take them through the allegations they have and why they would never be able to prove them in a court of law. It’s a great feeling when you can go in there and convince them that you’re right and their people working the case in the trenches are just wrong.”
Of course, Cleary skips these meeting if he thinks he has no shot at persuading the government; he’d rather save his hand for trial. “You’re giving up the element of surprise, but [you’re] doing it for a chance to prevent the indictment,” he says. “That alone can be devastating to businesses and personal lives, so you’re trying to fend that off as best you can.”
Barry H. Berke
Kramer Levin Naftalis & Frankel
When two of Bear Stearns’ investment funds collapsed suddenly in July 2007—before things got really nasty—Barry Berke, a partner and co-chair of Kramer Levin Naftalis & Frankel’s white-collar defense and regulatory practice, got a quick education in the Collateralized Debt Obligation (CDO) market. Bear CEO Jimmy Cayne—who was infamously at a bridge tournament when the funds collapsed—hired Berke to represent the banking giant in the subsequent government investigation and civil cases brought by shareholders. Cayne would also seek Berke’s representation individually in separate litigation.
Berke continues to represent both the company and Cayne. All along his defense has been that the collapse of the CDO market affected the entire industry, that virtually every financial institution in the country placed trust and faith in the structured credit markets and made assumptions that turned out to be incorrect. In other words, the harm—to shareholders and the economy—was caused by mistakes that were occurring industry-wide, not by actual misconduct.
“It’s been an intensive representation and it continues to be,” he says. “Because of the pace of investigations, we were fairly quickly able to understand what happened in the market and how those actions related to what happened in other companies.”
Berke’s role has been to juggle investigations coming at his clients from multiple sources, balance their demands, predict which are more likely to become active, identify all possible defenses, and determine if it makes sense to persuade investigators that they’re wrong. “It has been the most extreme situation I’ve seen in my legal career,” he says. “There has never been industry-wide issues that are as complex or pervasive or result in as much harm to the economy and country.”
Among Berke’s past successes is his representation of AIG—the entity and individual officials—in past investigations, beginning in 2004, involving stock-price manipulation that never resulted in indictments. Recently, he had most of the charges dropped against client David Pinkerton, a managing director of AIG’s private equity group, in a Foreign Corrupt Practices Act case in which Pinkerton was accused of bribing the president of Azerbaijan to sell his country’s oil holdings. Berke had maintained that Pinkerton was wrongfully accused based on a passive investment.
“I love what I do,” Berke says. “I live the challenge of being the person that stands between my client and the government and being their gladiator. The challenge is greater in these times because of the amount of energy and resources the government is willing to spend. I find it to be an extraordinarily interesting time to be practicing in this area.”
Marcia L. Goldstein
Weil Gotshal & Manges
Marcia Goldstein, head of the bankruptcy group at Weil Gotshal & Manges, is currently the lead attorney advising AIG’s restructuring, as well as that of Iceland’s largest bank, Kaupthing Bunadarbanki hf, since it was seized by its government last year. She’s also the lead counsel in the Chapter 11 cases of Washington Mutual, LandSource, BearingPoint and General Growth Properties.
And those are just the cases that have been written about, she adds. Much of her work in restructuring is not known to the public, since companies would rather not advertise their debt issues. Like many in her field, some of her most successful work never comes to light.
“Clearly, this has been an extraordinary time for restructuring professionals,” she says. “Many, many demands are being made on myself and my partners in terms of client needs. The only analogy I can make in terms of a prior period was the time when we were simultaneously representing WorldCom, Enron, Armstrong, Bethlehem Steel and Global Crossing. And that was not our entire workload.”
She says the size of her business, finance and restructuring department—one of the largest of its kind in the country—puts it in an excellent position to be able to handle multiple large debtors.
Goldstein came to Weil Gotshal straight out of law school, 34 years ago, before bankruptcy was a hot field. “This practice was one of the options, and I spoke to people in the firm and it sounded like an interesting area,” she says. “It was somewhat instinctive and it turned out to be a good choice, probably by accident. I was in practice when the ’78 code came into place, which made Chapter 11 more available, and was able to develop expertise right at the offset of a new practice area.”
Goldstein expects to see a robust debt-restructuring practice for at least another two or three years. “In today’s market, outside circumstances, primarily the lack of available credit, is forcing some companies to use Chapter 11, which would not have been necessary had there been a robust credit market,” she says. “Significant amounts of debt are coming due and there isn’t a robust market for refinancing and that’s why you’re seeing Chapter 11 across many industry sectors. But there are many companies that are finding other options to restructure their debt and that’s part of what we do as well.”
Dewey & LeBoeuf
General Motors hired Dewey & LeBoeuf’s Martin Bienenstock late last year to help the company transition into the 21st century. “Conceptually, we came up with methods of launching a globally competitive state-of-the-art automaker,” he says. “I know we’ve provided a viable option and the future will tell us whether it’s used and whether it’s used successfully.”
That was in spring. In June, of course, GM filed for bankruptcy. Still, Bienenstock is confident that the company will survive into the next century.
Bienenstock calls this state-of-the-art automaker “New GM,” and, for the first half of this year, he was busy coordinating with multiple business and legal disciplines to make its creation and launch happen. “We collaborated with GM on the legal work encompassing design of corporate entities, governance, environmental compliance, ERISA compliance, real-estate transactions, and the bankruptcy motion and memorandum of law supporting the actual creation of New GM within the parameters of Chapter 11,” he says.
While Bienenstock is not representing the old GM in bankruptcy, it’s not for lack of experience. His biggest previous role was lead attorney representing Enron during its Chapter 11 bankruptcy. “There was so much value to preserve, but it was under a cloud of wrongdoing,” he says. “But we did save 22,000 jobs, virtually every business, and the creditors at the end of the day are frequently getting 85 cents or more on claims, especially those who had guarantees from more than one Enron entity. There were basically 25 different businesses to save. We used a unique system to liquidate claims that saved years and hundreds of millions of dollars.”
In 2007, Bienenstock left Weil Gotshal to create his current team at Dewey & LeBoeuf, which he calls a multidisciplinary brain trust. The concept of his business solutions and governance department, he says, is that, whether the client is facing financial distress or issues with creditors or potential investors, “instead of getting from us an analysis of what can be done in Chapter 11, they get a broad spectrum of solutions from multiple legal and business areas. Once they have an array of potential solutions, they choose the best and pursue them.
“So, number one, clients realize that when they come to us we are not predisposed to recommend Chapter 11.”
His clients include Chrysler Financial, Capmark Financial Group, MBIA and CityCenter, which is the joint venture of MGM Mirage and Dubai World in Las Vegas.
He knows he’ll be busy. “If you identify all the causes of significant financial distress [in the current crisis], the two biggest are lack of liquidity in the high-yield market and unplanned-for change, and what we have now is lack of liquidity on a massive scale,” Bienenstock says. “It’s unfortunately probably got two to four years left. It’s the high-yield market that the country’s growth was dependent on, and corporate America is dependent on, so we’re facing a financial hurricane. Right now there’s no solution on the horizon.”