If these allegations are true, and maybe they aren’t, this is simply the worst behavior in finance by a large firm I have ever seen. I taught securities law for six years. I wrote about financial fraud for Barron’s and the New York Times for many years.
I have never seen such a blatant disregard for ethics, and possibly the law, by a large Wall Street firm as is alleged in this case. I wrote about wrongdoing by Drexel Burnham Lambert Inc. in the 1980s and helped bring it to justice and then helped taxpayers recover money the firm had stolen. I never saw at Drexel the level of outright contempt for law that Goldman’s Fabrice Tourre and his colleagues showed in this case, if the facts are as alleged — and again, they may not be: allegations aren’t proof.
Now, the SEC has also sent a letter to 19 banks to further examine their use of Repo 105, an accounting trick that hid Lehman’s failures before its downfall.
So what does this mean for Biglaw and legal technology? Well, besides the fact that many of us will be very busy for years to come. I will explain some other possible ramifications and opportunities, after the jump.
Remember a small Texas energy company called Enron? You may recall a little over a decade ago that life didn’t end so well for Enron or its employees. Ironically, its collapse created a massive amount of litigation, which ended up becoming a windfall for many Biglaw firms. One law firm in particular, hired hundreds of attorneys to work on that one matter for several years in order to settle out.
As busy as Enron kept law firms at the turn of the century, try multiplying that by 100. Because that’s the amount of litigation that is on the horizon now that the big banks of the world are in the cross hairs of the United States government.
MSNBC financial news personality Dylan Rattigan agrees:
The charges will unleash a torrent of lawsuits, and likely signal that the government is prepared to file more lawsuits related to the overheated market that preceded the financial crisis, experts said.
“This is just the tip of the iceberg,” said James Hackney, a professor at Northeastern University School of Law. “There are a lot of folks out there in different deals who played similar roles, and once it starts building steam, plaintiffs’ lawyers will figure out this is where the money is and there should be a lot of action.”
And Biglaw will be there to happily defend against the multitude of lawsuits coming. Obviously, with this type of litigation comes a tsunami of discovery issues to handle.
When the Enron litigation was taking place, e-discovery was still very much in its infancy. Now, nearly ten years later, Biglaw has had the chance to digest an array of models in conducting an e-discovery review. This time around, Biglaw should focus heavily on project management and process efficiencies. As I have stated here before, clients are not going to tolerate paying $300-400 an hour for a lower level associate to click a mouse all day. The firms that can run their discovery operations smoothly and cheaply will be the ones gaining big-bank clients.
This also applies to legal technology vendors. The ensuing big-bank litigation could actually trigger a new era in legal technology. Technology vendors will have to find ways to improve their efficiencies in culling the monstrous amount of data they are going to encounter. The vendors that stay on top of the best technologies out there, along with utilizing the best people, will rise to the top.
As most of you know who read this blog, Biglaw has been taking a beating for the last couple of years. The good news now is that there should be plenty of work for lawyers in the near future and for years to come.
Gabe Acevedo is an attorney in Washington, D.C. and the owner of the e-discovery blog, GabesGuide.com. He also writes on legal technology and discovery issues for Above The Law. He can be reached at firstname.lastname@example.org