First came the $211 billion in write-downs of subprime debt, now comes the legal bonanza. In the past four months, nearly 20 law firms have set up subprime practices comprising more than 500 attorneys, many of them in New York. Not since the savings and loan crisis two decades ago have so many law firms moved so fast to create a whole new discipline.
“It's a sea change,“ says Marvin Pickholz, the partner in charge of Duane Morris' month-old, 15-lawyer subprime practice group. “These problems are going to expand to such a dimension that it will consume vast amounts of lawyers' time.“
Among the first was powerhouse Greenberg Traurig, which has 1,750 lawyers. It began building what is now a 48-member group in August. Mintz Levin Cohn Ferris Glovsky and Popeo launched its 25-lawyer practice in December; Pepper Hamilton followed in February with its 70-member credit crisis response team. Many other firms, including Bryan Cave, are mulling plans for their own subprime groups.
At Bingham McCutchen, 65 partners make up a subprime practice that didn't exist two months ago. Such top firms often bill in the range of $600 to $800 an hour. Amy Kyle says she is already drawing additional lawyers from the 1,000-attorney firm and is open to hiring more legal talent.
“We'd be opportunistic,“ Ms. Kyle says.
At this point, firms seem to be running ahead of actual demand.
“A client told me that he got seven cold-calls last week from law firms offering their services in this area,“ says John Grossbart, partner at Sonnenschein Nath & Rosenthal and co-head of its 40-lawyer credit markets and subprime lending task force.
So far, much of the work has involved the investment houses that packaged and sold subprime debt. Law firms are being hired to sue or defend such companies as Citigroup, J.P. Morgan Chase, Merrill Lynch and Bear Stearns. The work will by necessity be spread to many firms, as the lawyers who advised banks in the creation of these instruments will face conflicts of interest and most likely be barred from participating.
Mr. Grossbart reports a rise in fraud actions as insurers and other institutional investors absorb huge losses from holdings in supposedly top-rated subprime debt. One of his clients, an insurance company, has been the target of six subprime-related lawsuits in as many months. “Frankly, that's a lot,“ Mr. Grossbart says.
A growing number of investigations launched by federal, state and local authorities have generated further demand. In recent weeks, the U.S. Attorney for the Southern District of New York has launched criminal probes of Bear Stearns and UBS; the Securities and Exchange Commission has begun formal inquiries into Merrill Lynch, UBS, Morgan Stanley and others; and the New York attorney general has subpoenaed Bear Stearns, Deutsche Bank, Morgan Stanley, Lehman Brothers and Merrill Lynch.
