The NY AG Race: Sean Coffey’s Fundraising Numbers

On October 30 of last year I commented on former Bernstein Litowitz lawyer, Sean Coffey’s decision to run for Attorney General in New York.  On several occasions I’ve mentioned the unseemly though commonplace practice of soliciting business with state pension systems while simultaneously acting as benefactors to the politicians tasked with running those same pension systems (e.g. here, here, here and here).  Mr. Coffey’s former firm (and others cut from the same cloth as Milberg) have collected billions of dollars in fees because they’ve had the good fortune of being retained by large pension systems like New York’s.

In that context, Elizabeth Benjamin’s piece today at the NY Daily News reporting that Coffey managed to raise $1.5 million over the past six weeks hardly came as a surprise to those who know this industry.  Benjamin reports:

This puts Coffey on near-equal footing with former state Insurance superintendent Eric Dinallo, the only other of the potential Democratic AG candidates (so far) who has never before held elected office. Dinallo reported raising $1.75 million.

To date, the contender with the most amount of cash is Nassau County DA Kathleen Rice, who reported raising $1.4 million over the past six weeks…

With his personal wealth, copious political connections and the class action industrial complex fully behind him, I’d be surprised if his campaign coffers were unable to keep up with his more well known competitors.  What I’m curious to see is whether he can spin that spigot of campaign cash into name recognition and ultimately, votes.

Filed under: Law & Politics, Opinion, Bernstein, Milberg, pay-to-play, pension funds, securities

Unethical Fee Splitting Par for the Course

For an illuminating look at improper fee sharing arrangements at plaintiffs’ firms, check out Edward Siedle’s commentary in Forbes.

An offer of $800,000 up front and 10% of any class action legal fees: That’s what law firm Milberg Weiss Bershad Hynes & Lerach proposed paying me in July 2003 to serve as its Marketing Director….

…After working for the Securities and Exchange Commission, I’d spent two decades advising pension funds on investigating financial wrongdoing among money managers and had connections to the union members, cops, firefighters and various others who oversee such funds. Milberg Weiss’ offer had obvious financial appeal. However, I wasn’t about to risk getting involved in criminal activity, regardless of the monetary incentive.

The practices described by Mr. Siedle are all too common among plaintiffs firms.  Additional documented examples of such unethical arrangements will be forthcoming on this blawg in the near future.

Filed under: Law & Politics, Opinion, fee splitting, Milberg, pay-to-play, pension funds

SEC to Target Public Investment Influence Peddling

Today’s Pay to Play Law Blog has a piece on the waxing influence of the SEC in regulating the seedy intersection of public investment dollars and campaign cash (click the quoted text for the full article):

As we have recently reported, the SEC has announced its intentions to take a significantly more aggressive regulatory posture with regard to the confluence of campaign contributions and public investing. Just last week, the House Financial Services Committee saw to it that the SEC has the tools for the job when it voted to double the SEC’s budget and awarded the Commission significantly greater regulatory powers.

The Municipal Securities Rulemaking Board (“MSRB”) has also gotten into the act by recently announcing plans to file a rule change with the SEC to revise Rule G-37 to prohibit dealers from engaging in municipal securities business with issuers for two years if they make certain contributions to the political campaigns of officials of issuers. The proposed revision to Rule G-37 would require municipal securities dealers, their muni professionals, and political action committees to disclose the political contributions they make to bond ballot election campaigns.

It will be interesting to see how the class action industrial complex responds.  If private securities suits ride the coattails of these federal enforcement actions, the plaintiffs firms may be inviting additional scrutiny on their own political fundraising activities.

Filed under: Law & Politics, institutional investors, pay-to-play, pension funds, SEC

WSJ Calls Out Bernstein Litowitz

Today’s Wall Street Journal ran an opinion piece entitled Pay to Play Torts: Pension middlemen get investigated; lawyers get a pass. The column echoes many of the concerns outlined in this blog:

The Louisiana State Employees’ Retirement System is among the most litigious in the nation. John Kennedy, the state treasurer who helps decide when Louisiana’s major pension funds should bring a law suit, has received tens of thousands of dollars in political donations from Bernstein Litowitz, which has offices in New York, New Orleans and San Diego and was the country’s top-grossing securities class-action firm in 2008. The law firm has represented Louisiana’s public pension funds at least 13 times since 2004, and its partners donated nearly $30,000 to Mr. Kennedy’s two most recent campaigns, even though he ran unopposed both times.

In Mississippi, the state attorney general determines when the public employees retirement fund should bring a securities class action and which outside firms will represent the fund. Would you be shocked to learn that AG Jim Hood has frequently chosen law firms that have donated to his campaigns?

Mr. Hood is also partial to Bernstein Litowitz. On February 21, 2006, he chose the firm to represent the Mississippi Public Employees Retirement Fund in a securities class action against Delphi Corporation—just days after receiving $25,000 in donations from Bernstein Litowitz attorneys. The suit was eventually settled, and the lawyers on the case received $40.5 million in fees. Mr. Hood’s campaign would appear to deserve a raise.

 

 

Filed under: Law & Politics, Opinion, Bernstein, pay-to-play

Sean Coffey Running for New York AG: A Wolf in Sheep’s Clothing to Guard the Hen House?

The only thing I know about Sean Coffey’s political ideology is that he’s a Capitalist.  That said, his upcoming campaign to be New York’s next Attorney General is unlikely to emphasize the fortune he’s amassed as a senior partner of the law firm Bernstein Litowitz Berger & Grossman.  For those who don’t know, Mr. Coffey earns a living by collecting hundreds of millions of dollars in attorney fees for his part in bringing (and usually settling) lawsuits against companies (like WorldCom, for instance) over violations of securities laws.

I may be jumping the gun a bit but I’d give 20 to 1 odds that the central theme of Coffey’s campaign will be something along the lines of:  ”A tough fighter (and former Navy Captain) who has spent his career fighting corporate greed and corruption on behalf of the little guy.”  It sounds pretty good and some of it’s actually true!  Unfortunately the rest is a crock of shit.

I don’t question the propriety of punishing corporate malfeasance, but Sean Coffey is no Robin Hood. Unlike most attorneys in private practice, Mr. Coffey finds a defendant to sue before he finds a plaintiff to represent. And who are these plaintiffs willing to surrender outrageous fees to subsidize Mr. Coffey’s lifestyle?

Filed under: Law & Politics, Opinion, Bernstein, pay-to-play, pension funds

Are Securities Firms Pension Fund “Gatekeepers”?

We’ve discussed pay-to-play related issues, portfolio monitoring agreements and the lawyer-driven nature of securities suits where public pension funds are the nominal plaintiff. Edward Siedle’s recent article in Forbes is suggestive on these topics:

Another ethical swamp are the conflicts of interest that continue to surface involving the consultants who advise pension funds about which money managers to hire. The Securities and Exchange Commission, Department of Labor and state attorneys general are all investigating pay-to-play schemes involving these “gatekeepers.” At this point, there is absolutely no disputing that an unscrupulous pension consultant who corrupts the integrity of a fund’s investment process, for personal profit, can cause massive harm–far greater than the kickbacks he receives from the money managers. Yet I am perpetually amazed that most boards, even when confronted with the harm or damage will say, “We like him. He’s a good guy.”

Law firms may or may not advise their pension fund clients on which money managers to hire, but they certainly advise them on which class actions to pursue. Questionable campaign contributions along with contigency fee arrangements that leave the pension fund more or less where it was but earn the lawyers hundreds of millions in fees makes me wonder whether the firms themselves are the “gatekeepers” Siedle describes.

Filed under: Law & Politics, Opinion, institutional investors, monitoring agreements, pay-to-play, pension funds, securities

Investigating Securities Lawyers who Pay to Play?

Senator Bob Bennett hopes so. The NY Daily News reports:

A member of the powerful U.S. Senate banking committee wants to crack down on “pay-to-play” by law firms representing pension funds in mega-buck court cases.

“Pay-to-play by law firms … pose serious potential conflicts of interest that can harm the pension fund retirees who have spent their careers in public service jobs,” said Sen. Bob Bennett of Utah.

The Daily News reported last week that securities law firms gave nearly $1 million to three state controllers in the last 10 years. Class-action cases for the pension fund have yielded $520 million in legal fees.

Bennett asked the Securities and Exchange Commission to expand its investigation of “pay-to-play” involving investment firms to include securities law firms.

It’s nice to see this issue finally getting some attention.

Filed under: Law & Politics, Opinion, institutional investors, monitoring agreements, pay-to-play, pension funds

Pay-to-Play in New York …continued

On October 2, I reported on New York Comptroller DiNapoli’s decision to forbid the pension fund from doing business with money managers who contributed to the comptroller’s campaign.

Today’s Daily News coverage of New York State’s pay-to-play problem involving plaintiff’s firms and their pension fund clients is worth another look:

Lawyers representing the state pension fund in class-action suits have raked in $518.7million in fees over the past 10 years, records show.

The hefty payouts, contingent on winning, are the main reason securities law firms have donated big bucks to state controllers over the years, critics contend.

“There is a problem with pay-to-play,” Columbia Law School Prof. John Coffee said. “The plaintiff law firms know that to be considered to be on the list of eligible firms, they have to ante up.”

The Daily News reported Tuesday that state Controller Thomas DiNapoli has received $202,500 from securities law firms since he took office in 2007, including from two he hired in pending cases.

That’s a pittance compared with the $667,260 DiNapoli’s scandal-tainted predecessor, Alan Hevesi, received from such firms, records show. In his 2002 campaign, Hevesi got $110,000 from the firm Milberg Weiss. Three months after taking office, Hevesi picked the firm to represent the fund in a suit against Bayer AG Securities.

Milberg Weiss was fired in 2006 after an unrelated federal indictment was brought against the firm. Hevesi then hired Lowey Dannenberg, whose lawyers had given him more than $50,750 in campaign donations since 2000.

The Bayer case was settled in December for $18.5 million; more than $3 million was set aside for legal fees and expenses.

Hevesi’s predecessor, Carl McCall, took in at least $154,000 from securities law firms.

One case against Cendant Corp. resulted in a $3.2 billion settlement, which meant $262.5 million in lawyers’ fees. The judge later reduced the fees to $55 million.

The firm Bernstein Litowitz represented the state in that case. Firm lawyers have donated more than $112,000 combined to the past three controllers.

Bernstein Litowitz represented the pension fund in a $6 billion WorldCom settlement that resulted in $336 million in lawyers’ fees and a $1.04 billion settlement with McKesson HBOC that yielded $80 million in fees.

Controllers were not the only ones to get donations. Attorney General Andrew Cuomo, who is probing widespread corruption in the pension fund under Hevesi, got $199,000 from securities law firms.

Cuomo is poised to unveil a reform bill that includes restrictions on how much financial investment firms looking for pension fund business can donate. It does not seek similar restrictions on securities law firms.

“It’s the sort of thing you probably wouldn’t look at it because it’s going to cut off funding from people who are your allies,” University of Michigan securities law Prof. Adam Pritchard said.

Cuomo aides say they have no jurisdiction to go after law firms in class-action suits.

“While we agree that pay-to-play should have no place in government … our investigations must be based on evidence and the law – not supposition and theory,” Cuomo spokesman John Milgrim said.

In addition to receiving campaign dollars from plaintiff securities firms, many trustees are able to get high paying jobs from these law firms once their term ends.  For example, take former NY Comptroller Carl McCall mentioned in the Daily News article above.  In September I reported that after leaving office he became a paid lobbyist for Bernstein Litowitz Berger & Grossman.

Filed under: Law & Politics, Bernstein, monitoring agreements, pay-to-play, pension funds, PSLRA

Law Firms Squeezing Out Money Managers in New York?

I thought Bloomberg’s coverage of a recent executive order by the New York State Comptroller was worth quoting:  (click quoted text for the full story)

Sept. 23 (Bloomberg) — New York State Comptroller Thomas DiNapoli, the sole trustee of the $116.5 billion state pension fund, signed an executive order forbidding the fund from doing business with money managers who contribute to candidates for the office. DiNapoli, a Democrat who’s running for re-election next year, said the step was needed to restore public confidence in the pension fund, which has been rocked by allegations of kickbacks. The order, which applies to donations to incumbents as well, prohibits the fund from hiring investment advisers within two years after a contribution. The ban takes effect in 45 days, DiNapoli said today in a conference call from Albany…

Unfortunately, the most noteworthy part came later:

DiNapoli’s donation ban doesn’t apply to those seeking other statewide offices, such as governor and attorney general… The contribution ban also doesn’t apply to law firms hired to represent the pension fund in securities fraud litigation. DiNapoli said he voluntarily instituted “blackout periods” prohibiting contributions from law firms and others while the comptroller’s office is soliciting proposals…  Securities class-action firm Bernstein Litowitz Berger & Grossmann LLP has contributed $35,000 to DiNapoli, while Kaplan Fox & Kilsheimer LLP donated $10,000. Kirby McInerney LLP has given $6,000, according to New York campaign finance records…

 

 

Filed under: Law & Politics, Opinion, institutional investors, pay-to-play, pension funds, securities

The BacMerSaga – Agency Problems and the PSLRA

“Oscar Wilde once famously said that a cynic is someone “who knows the price of everything and the value of nothing.” Oscar Wilde, Lady Windermere’s Fan (1892). The proposed Consent Judgment in this case suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators.  And all this is done at the expense, not only of the shareholders, but also of the truth.” -Jed S. Rakoff (U.S.D.J.) in SEC vs. Bank of America 09 Civ. 6829 (JSR)

Judge Rakoff’s recent rejection of BofA’s $33 million dollar settlement with the SEC has the law blogs buzzing.  The WSJ Law Blog did an excellent job documenting what they have dubbed the “BacMerSaga” and followed up recently with a longer post entitled Looking at the Logic Behind Shareholder Class-Action Suits.  This piece was itself a follow-up to Michael Orey’s Sept. 17 noteworthy commentary in Businessweek, Do Shareholder Class Actions Make Sense?

Punishing current shareholders at the expense of previous (and sometimes still current) shareholders is like writing a check and putting it in your own piggy bank.  Others have documented this absurdity better than I can, but I take one of Rakoff’s points to be that such suits are an unlikely deterrent unless the actual human agents who made the false or misleading disclosures are held personally (or at least jointly) liable.

Filed under: Law & Politics, Litigation, Opinion, Bernstein, institutional investors, monitoring agreements, pension funds, PSLRA, securities

Portfolio Monitoring Agreements

Last Friday, I mentioned the recent controversy in the Merrill Lynch subprime class action regarding conflicts of interest that could result from the sorts of monitoring agreements routinely employed by plaintiffs firms looking for pension fund clients.  Here’s a redacted example of such an agreement:

Maybe I’m missing something but either this agreement is invalid for lack of mutual consideration or the pension fund is agreeing to retain the law firm if the fund decides to bring an action as a result of information provided by the firm under this monitoring agreement.  It’s no wonder the judge in the Merrill case based his decision on the testimony of the fund trustees rather than the mealy-mouthed language of the actual monitoring agreements.

Filed under: Law & Politics, Litigation, institutional investors, monitoring agreements, pension funds, PSLRA

Class Action Firms Paid to Play with Rod Blagojevich

Sources tell us that in 2004 at least two big names in the plaintiffs industry paid well known ex-pols to lobby indicted former Illinois governor, Rod Blagojevich, for business.  On February 14, 2004, the New York Times reported that disgraced former New Jersey Senator Bob Torricelli made a $10,000 campaign contribution to soon to be disgraced former Illinois Governor, Rod Blagojevich.  Two years later, the Chicago Sun Times revealed that Torricelli happened to be a paid consultant at that time for Barrack, Rodos & Bacine, a Philadelphia-based plaintiffs’ firm who was working hard to lobby the former Governor’s office in order to be retained by the Illinois Teachers Retirement System.

Stuart Levine, a former trustee of the ITRS who would later plead guilty on “pay-to-play” related charges, was illegally financing fund-raising trips for Blogojevich.  According to the Sun Times, in “October 2003 and December 2003, Levine paid for flights aboard private planes to get Blagojevich and supporters to the East Coast, state records show. Once there, Blagojevich met lawyers, investment bankers and media executives, many of whom wrote checks to his campaign fund.”  Those lawyers conspicuously included Mr. Barrack and, of course, Mel Weiss.

We have learned that on February 20, 2004, Levine himself held a meeting in Illinois with representatives from six of the big plaintiffs firms regarding an RFP which had been disseminated by the ITRS.  According to a well-placed source, it appears that Mr. Torricelli himself was present at that meeting on behalf of Barrack, Rodos & Bacine.

One of the other six firms at the meeting apparently was Bernstein, Litowitz, Berger and Grossman.  Although we haven’t yet been able to confirm who represented Bernstein Litowitz at the conference, we have learned that former New York Comptroller and gubernatorial candidate, Carl McCall (apparently a close friend of Levine) was on the firm’s payroll and actually lobbied Levine on behalf of the firm for ITRS business.

If anyone has additional relevant information about this or a related subject, email your anonymous tip to securitiesclassactionreport@gmail.com.

Filed under: Law & Politics, Bernstein, institutional investors, Milberg, pay-to-play, pension funds, PSLRA, securities

Investor Protection & Caviar: How Plaintiffs Firms Make New Friends

In major securities fraud cases against the likes Enron, WorldCom, Tyco and others, the plaintiffs’ lawyers who pocketed hundreds of millions of dollars in contingency fees were, for the most part, representing state and municipal pension funds.  Just to be clear, I’m talking about firms like Coughlin Stoia, Milberg, Bernstein Litowitz, Barrack, Rodos, Bernstein Liebhard, Berman DeValerio, and others, many of whom are mentioned in the 2008 SCAS Top 50.

So how did these law firms get themselves retained by the pension funds in the first place?  The answer, of course, is money and schmoozing (sometimes euphemized as “lobbying” or “marketing”).  This post is about the schmoozing.  The money is a much more complicated issue which we will continue to develop in future posts, but for a taste, see Neil Weinberg and Dan Fisher’s illuminating 2004 Forbes article, The Class Action Industrial Complex.

Unseemly and often improper relationships between state pension fund officials and money managers are no longer a very closely held secret.  The part played by securities class action firms in facilitating and profiting from these relationships, however, has remained more or less well-guarded.  Since the passage of the Private Securities Litigation Reform Act (PSLRA) in 1995, the courts’ selection of lead plaintiffs in securities class action lawsuits has been determined largely by the size of the prospective plaintiffs’ losses.

Pension Fund Monitoring Agreements
When equity or debt investments substantially decline in value, those holding the largest investments obviously lose the most.  Thus it should hardly surprise anyone that large institutional funds and investors have become the plaintiffs of choice for firms seeking lead counsel status (and therewith control over the distribution of enormous contingency fees).  And among these institutional investors, state and municipal pension funds are the most prolific lead plaintiffs in large securities class actions.

With a few exceptions, pension fund officials generally don’t decide sua sponte to pursue a class action lawsuit against a public company when in most cases the shares they own in that company comprise just a tiny percentage of their overall investment portfolio.  Instead, they hire these very same plaintiffs firms to “monitor” their portfolio for losses resulting from potential cases of securities fraud.  As it turns out, these law firms have monitoring agreements with many pension funds (see Judge Rakoff’s decision in the Merrill Lynch subprime case this May discussed on Law.com.

When they find a securities fraud case to pursue (which is generally just a matter of piggybacking on an SEC action), they rifle through the portfolios of the many funds they “monitor” to find the most attractive plaintiff or group of plaintiffs to bring to the court house.

Pay-to-Play
Everyone knows the plaintiffs firms are major fund raisers, bundlers and contributors to the campaigns of governors and senators.  Fewer people are aware of their substantial and unregulated contributions to organizations like the Democratic Attorney Generals Association (DAGA).  Because DAGA is a 527 PAC, contributions to these groups are uncapped and only get reported to IRS (and, conspicuously, not to the FEC or any other election oversight agency).  When DAGA holds an event, the big securities class action firms all attend and pay for this conference/soirée with very large checks.  I’m guessing the money is probably earmarked with the firm’s name on it to eventually trickle down to a particular attorney general’s reelection fund.

Partners at these law firms regularly attend such events, and also routinely hire former governors, retired pension fund officials, former comptrollers, ex-attorneys general, and others to schmooze with people they may know there on the firm’s behalf.  Other examples of State AG related political organizations that enjoy hosting such “conferences” are the National Association of Attorneys General (NAAG) and the Conference of Western Attorneys General.

And when all else fails, what do the law firms do when they want to be retained by a pension fund but don’t have anyone on the payroll with friends who have some influence over a state pension system?  They host their own gala, of course!

Law Firms’ “Investor Protection” Forums
The theme of the ball  is usually something generic like “protecting investors” and if you’re a government official why not stay at the Waldorf and eat caviar while listening to some big-name keynote speaker?  And since “investor protection” is in their job description, what’s so wrong about spending taxpayer money to schmooze with potential big campaign donors?  Junket… what junket?

So who does the firm invite to these events?  People they and their lobbyists met at other conferences for one.  High profile speakers will be there to lend the whole affair a whiff of credibility.  The guests of honor are obviously the state officials looking for campaign cash… Governors, Attorneys General, Comptrollers and others of this ilk.  Lest we forget, friendly investment managers will attend as well, and for a reasonable fee would be happy to manage a few billion of their pension fund’s dollars.  Like the law firm hosting the affair, these private fund managers would love to raise, donate and bundle cash for the campaigns of those who would entrust them with their pensioners’ cash.

So the plaintiffs’ lawyers are actually throwing parties which allow corruptible state officials to meet and socialize with corrupting money managers.  Plus they get to pitch their “investment monitoring” service as a way for these officials to fulfill their fiduciary obligations to protect the state’s money from corporate fraud.  And so generous are they that the lawyers will offer to access their pension funds’ investment portfolio whenever they want… pro bono!

Interested in attending one of these events yourself?  Then you better hurry up and get an invitation:  http://www.forumii.org/

Filed under: Law & Politics, Opinion, Bernstein, institutional investors, Milberg, pay-to-play, pension funds, PSLRA, securities