Katherine Forrest: Why isn't her net worth higher?

As I’ve previously mentioned, one of my favorite parts of the judicial nomination process is the attendant financial voyeurism. Judicial nominees are required to make detailed disclosures about their finances, allowing us to learn about their income and net worth. For example, thanks to her nomination to the Supreme Court last year, we got to learn about Elena Kagan’s net worth.

Last week, the Senate Judiciary Committee released financial disclosure reports for several of President Obama’s recent judicial nominees — including antitrust litigatrix Katherine B. Forrest. Forrest has been nominated to the mind-blowingly prestigious Southern District of New York, perhaps the nation’s finest federal trial court. As a highly regarded lawyer who has won numerous awards and accolades (listed in her SJC questionnaire), Forrest will fit right in if confirmed to the S.D.N.Y. — a superstar among superstars.

The fabulous Forrest currently serves as a deputy assistant attorney general in the Department of Justice’s antitrust division. She joined the DOJ last October — a commendable public-service commitment that required her to relinquish her partnership in one of America’s mightiest and most prestigious law firms, Cravath, Swaine & Moore. When she left to pursue government service, Forrest had been a Cravath partner for over 12 years (since 1998), and had been with the firm for about 20 years in all (since 1990).

At the time of her departure for the Justice Department, Katherine Forrest had been taking home hefty paychecks for decades. First she was an associate at Cravath, which pays its people quite well, in case you hadn’t heard. Then she was a partner at the firm (reportedly one of the most well-liked and most powerful younger partners) — from 1998 to 2010, a period in which average profits per partner at CSM routinely topped $2 million and occasionally exceeded $3 million. And remember that Cravath is a lockstep partnership with a reported 3:1 spread, meaning that the highest-paid partners make no more than three times as much as the lowest-paid partners. So it’s not possible that she was earning, say, $400,000, while other partners were earning millions (which can be the case at firms with higher spreads).

In light of the foregoing, what is Katherine Forrest’s net worth, according to her Senate Judiciary Committee financial disclosures? Not as much as you might expect….

My attention was drawn to this BLT post by a partner at a rival firm, who wrote me as follows:

Katherine Forrest was at Cravath for over 20 years. She earned $4.8 million in the past two years. But according to the SJC disclosure, she has a household net worth of only $4.3 million. How is that possible?

Good question. Let’s get more details, from The BLT:

Forrest reported $2.4 million in partnership income from Cravath in 2009. Last year, including income and a payout of her capital account, she also reported taking home $2.4 million. She disclosed a household net worth of $4.3 million, including zero debts and a $500,000 second home. She reported owning no securities, keeping all her savings in cash.

Oh my goodness. This is most distressing! Forrest’s 2010 income included a payout of her capital account at Cravath, and she still didn’t break $2.5 million? And her net worth is under $4.5 million? What gives?

Now, in fairness to Katherine Forrest, she’s relatively young by Biglaw partner standards — just 46 when she left the firm last fall. She hasn’t had a lifetime to build up a fortune, like Skadden name partner Joe Flom (who passed away at 87 with a nine-figure fortune).

But Cravath is one of the nation’s most elite and lucrative firms, routinely clocking in near the top of Am Law’s profit-per-partner (“PPP”) rankings. And lawyers at firms that are arguably below CSM on the law-firm totem pole, in terms of profit and/or prestige, seem to have done better financially than Katherine Forrest. Here are some examples (all law firm partners who have entered, or hope to enter, government service).

Take Eric Holder, now serving as U.S. attorney general. Holder earned $3.3 million in 2008, his last year as a partner in the D.C. office of Covington & Burling, and declared a net worth of $5.7 million when he was nominated as AG. These numbers blow Forrest’s away, even though Covington has significantly lower PPP than Cravath.

One might respond by noting that Holder, a former judge, was one of Covington’s most prominent partners, as well as a major rainmaker. But there are other examples of Biglaw partners turned government lawyers with better financials than Forrest.

Consider Jeh C. Johnson, general counsel to the Defense Department (and a really swell guy — I interviewed him once for a New York Observer piece). Johnson earned $2.6 million in his last year as a Paul Weiss partner, received severance of between $1 million and $5 million upon leaving Paul Weiss, and got back $200,000 from the firm’s capital account. Add it all up, and you’re looking at about $4 million — much more than the $2.4 million that Forrest received in her last year at Cravath (a sum that included payout of her capital account).

One could dismiss the example of Jeh Johnson, a former Paul Weiss partner, by pointing out that Paul Weiss and Cravath are basically peer firms in terms of profitability. So here’s a partner at a firm with average PPP below $1.5 million who is still worth more than Forrest: Paul Engelmayer, the partner-in-charge for WilmerHale’s New York office, and a fellow S.D.N.Y. nominee. He boasts a net worth of $18.1 million, more than four times that of Forrest.

Interestingly enough, however, Paul Engelmayer’s earned partner income — $1.1 million in 2010, and $1.6 million in 2009 — is significantly lower than Katherine Forrest’s. So what explains the disparity in net worth? One possibility is that perhaps Engelmayer inherited some family money. Another possibility is that he’s a better investor: he has $5.2 million in Berkshire Hathaway stock, which has done very well over the years.

And what about Katherine Forrest’s investments? Uh, what investments? According to The BLT, “she reported owning no securities, keeping all her savings in cash.”

Given her work at the DOJ’s antitrust division, this makes sense. If Forrest has no securities, she doesn’t have to worry about conflicts when reviewing proposed corporate mergers for antitrust issues.

But it it possible that she has been a non-investor for a longer period of time, even before she arrived at the DOJ? And could this explain why perhaps she doesn’t have a higher net worth? Investing can be dangerous — ask anyone who invested in tech stocks (myself included) in the late 1990s, or anyone who invested in real estate in the past few years. But if you stay on the sidelines entirely, you can lose out on a lot of appreciation.

Anyway, the somewhat anemic net worth of Katherine Forrest is an interesting puzzle. Is it due to a failure to make investments, or perhaps some bad investments from the past? Is she divorced, with an ex-husband who walked away with a sizable chunk of her net worth? Does she make huge gifts to charity? Or have an addiction to buying shoes over the internet? Inquiring minds want to know. If you have information, please feel free to email us.

But look, don’t get me wrong. There are bigger problems in our troubled world than a former Cravath partner with a sub-$5 million net worth. And $4.3 million is still plenty of money; with these savings, supplemented by the low-six-figure salary of a DOJ official and/or federal district judge (if she’s confirmed), Katherine Forrest will still be able to feed and clothe herself. You won’t see her lifting file boxes or working ecotourism in New Jersey to make ends meet, like some recent law graduates. She had the good sense to graduate from NYU Law School in 1990, before a long boom in the market for legal services.

Was Mr. Monopoly a Cravath partner?

If confirmed to the federal bench, Forrest will still be wealthier than many of her fellow judges. Maybe not as rich as Mary Lewis, a nominee to the District of South Carolina bench, who has a net worth of $9.3 million (thanks to her and her husband’s successful toxic-tort plaintiffs’ practice). But certainly richer than fellow S.D.N.Y. nominee Alison Nathan, the openly gay former SCOTUS clerk (OT 2001 / Stevens), who has a net worth of just $350,000 — and is still paying off student loans.

So things could be worse for Katherine Forrest. It’s just that — well, you know, Forrest was a Cravath partner.

CRAVATH. PARTNER. For many years. That ought to make her richer than Croesus, shouldn’t it?

Is it true what they say? That Cravath isn’t as bad-ass as it used to be?

CORRECTION (5/26/11): Katherine Forrest is actually better off than the $4.3 million net worth figure might suggest, due to significant deferred compensation that she has coming to her.

Judicial Nominees, Including Former Cravath Partner, Disclose Finances
[The BLT: The Blog of Legal Times]
New York Judicial Nominees Report Income [The BLT: The Blog of Legal Times]
DOJ Picks Up New Deputy Assistant Attorney General [Main Justice]
Cravath Partner to Join U.S. Justice Department [New York Law Journal]
The 10 Most Powerful Partners At Cravath [Business Insider / Law Review]

Earlier: Open Thread: What’s Your Net Worth? (And how does it compare to Elena Kagan’s?)
Earning $250,000 Does Not Make You Rich, Not in My Town
Non-Sequiturs: 02.25.11


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