Wall Street Scandals Fill Lawyers\' Pockets

AS Wall Street has faced a string of scandals, bank executives, investors and customers have suffered. But one group is thriving: lawyers.

Called upon to navigate crisis after crisis, the white-collar bar is having a banner year with cases like the collapse of the futures brokerage firm MF Global, a multibillion-dollar trading blunder at JPMorgan Chase and suspicions of money laundering at HSBC.

The global investigation into the manipulation of a crucial benchmark interest rate known as the London interbank offered rate has emerged as the most profitable for the legal profession.

While many of the recent scandals have been relatively isolated, the scope of the rate-rigging scandal has been vast, encompassing 16 banks. More than 10 government authorities around the world are looking into whether the banks conspired to fix crucial interest rates, potentially affecting trillions of dollars of financial products like mortgages and student loans.

The in vestigation is still in its early days, but experts say it is likely to drag on for years. Authorities could arrest traders this year, and more cases against big banks are expected. Earlier this year, Barclays agreed to pay $450 million to settle accusations that it had reported false rates.

Every major bank under investigation has hired a major law firm to represent it. An army of white-collar defense lawyers has been assembled to defend individuals. Plaintiffs' lawyers have filed more than a dozen lawsuits against the big banks, claiming damages on behalf of institutions, pensions and municipalities like the City of Baltimore.

“This is looking like a full employment act for the corporate bar,” said Samuel W. Buell, a professor at Duke Law School. “It's very hard to see how you draw a tight circle around this issue.”

Over the last few decades, white-collar law has transformed from a boutique business into a major focus for the biggest law firms. As firms expand globally and the federal government makes corporate prosecutions a higher priority, the practice has become a profit center.

Companies do not like to scrimp with civil and criminal cases. The stakes are too high.

In the last decade, a number of major cases have engulfed corporate America - and by extension, white-collar lawyers. The stock options backdating scandal, which emerged in 2006, swept up more than 100 companies and many executives. The cases provided much work for lawyers, including internal investigations at major companies and notable criminal defense efforts. A few years earlier, accounting scandals at companies like Enron and WorldCom generated similarly handsome legal fees.

Not all white-collar crackdowns are the same. Consider the federal government's insider-trading cases. The charges affect a handful of people and do not require the machinery of an entire legal institution. One former prosecutor in the Southern District of Ne w York who spoke on the condition of anonymity because the conversations had been private said that defense lawyers jokingly complained that the hedge funds and other traders affected by the investigation tended to be low-margin clients.

With the interest-rate-fixing case, law firms started seeing the dividends in 2008. When the investigation got under way, the Commodity Futures Trading Commission, the American regulator, asked a handful of major banks to conduct internal inquiries. The goal was to figure out the extent of potential manipulation, focusing on a crucial benchmark known as the London interbank offered rate, or Libor.

At the time, the banks hired outside counsel to review the e-mails and documents as well as to conduct interviews. Barclays, the hardest-hit institution to date, hired Sullivan & Cromwell, which is led by H. Rodgin Cohen. Paul, Weiss, Rifkind, Wharton & Garrison is leading the defense for Deutsche Bank.

The firms put dozens of top lawyers to work unearthing the worst of what had transpired, then gave their findings to regulators. Those reports form the backbone of the cases against the banks.

In the midst of the internal investigations, banks began identifying individuals who may have improperly tried to influence interest rates. Those employees are entitled to counsel, paid for by the banks. The bank's law firm will usually refer the individuals to other white-collar lawyers, since the interests of the banks and the employees may differ. Despite the effort to reduce conflicts, the referrals can be problematic because the banks are paying the bills.

“Sometimes you may be best served by going with a lawyer who has established relationships with the people who represent the company,” said Charles D. Weisselberg, a professor at the University of California, Berkeley School of Law and co-author of a recent study examining white-collar practices at major law firms. “Or sometimes you may want someone more independent of the company lawyers who may not be looking to them for a referral in the future.”

The referral system has been big business in the Libor case.

Dozens of individuals have hired lawyers, according to interviews with lawyers. Andrew J. Levander, the Dechert lawyer who represents former Gov. Jon S. Corzine of New Jersey in the MF Global matter, has been retained by Robert E. Diamond Jr., a former Barclays chief executive. Ira Lee Sorkin, who represented the Ponzi scheme mastermind Bernard L. Madoff, has been retained by a former trader at Barclays.

The most damaging aspects of the case could be traders' efforts to manipulate the index to squeeze more money from clients. After one exchange, a rate submitter at Barclays told a trader, “Always happy to help. Leave it with me, sir,” according to regulatory documents. Another responded, “Done … for you big boy.”

“The tenor of the exchanges reflects a relentless in difference to the rights and interests of their clients,” said Michael Hausfeld, a plaintiff's lawyer in the Libor case. He said it could take a long time to sift through the evidence. “There are a lot of nuances here that still have to be studied, but it's clear there was widespread disruption caused in the market.”