Crash winners, the litigation world series, and Defense budget boondoggles
1. Crash Winners
Hereās a new entry for the lists of winners and losers that get published this time of year: The ten lawyers, bankers, consultants or accountants who reaped the most from the financial disaster of the last three years.
The poster-boy would likely be Irving Picard, a partner at the Cleveland-based international law firm of Baker & Hostetler. Picard is the court-appointed trustee responsible for recovering money for Bernie Madoffās victims. From the sketchy clips Iāve seen, it appears that Picard and his firm have alreadyĀ received more than $200 million in fees for their work from the court overseeing the cases.Ā Is that true?
Then there are the lawyers involved in bringing and defending all those multi-hundred million-dollar and billion-dollar claims against the banks that packaged and re-sold troubled mortgages and other securities. Or the accountants, lawyers and bankers sorting out the assets and liabilities in the wake of the Lehman Brothers bankruptcy and and other implosions.
A really good story would check property records and other sources to pinpoint changes in life style enjoyed by these winners. Did someone buy a fabulous New York co-op, or a house in the south of France? Or fund a new charter school? The point isnāt to villainize these masters of disaster; many people ā such as whoever invented Lipitor or other statins to help people avoid heart disease, or the trial lawyers responsible for winning recoveries for victims of corporate environmental pillage or other misconduct ā deserve what they get for hard, honest, effective work that stems from othersā misfortune. But at a time when income inequality is the topic of the day, the details here would make great reading and raise all the right questions.
2. The Litigatorsā World Series
Which reminds me: Every time I read Alison Frankelās fabulous āOn The Caseā Reuters blog about pending litigation, I wonder when someone is going to do the ultimate article about the ins and outs and the whoās who of the world series of litigation inaugurated last September with the filingĀ of a suit against 17 ā yes, 17 ā big banks and other financial institutions (such as GE Capital) by the Federal Housing Finance Agency.
The FHFA is the overseer of Fannie Mae and Freddie Mac, and itās suing all of these deep pockets over the toxic mortgage bonds they packaged and sold to Fannie and Freddie. The complaints are a tour de force tabulation of alleged fraud. One table purports to show the owner occupancy rates claimed for the properties included in the mortgages versus the actual owner occupancy rates; another names the executives who signed the various offerings and registration statements attesting that everything was exactly as promised.
The staggering tally of the claims combined with the defendantsā Grand Canyon-like pocketsĀ make this potentially the biggest-money litigation ever. For example, the bonds involved in the Bank of America claim alone total $6 billion. For Goldman SachsĀ itās $11 billion. (A sidebar should also tell us what the insurance landscape looks like for these claims.)
Also, any lawyer-oriented publication ought to do a story about how these defendants chose their outside lawyers. Many of them traditionally rely on the same white shoe firms, such as Sullivan & Cromwell, for these kinds of high-stakes cases. But with many of the defendants probably ready to claim that they relied on other defendants in making claims about these bonds, how did potential conflicts get sorted out?
3. $5.2 Million For What?
When it comes to the defense budget, $5.2 million isnāt even a rounding error. But I have a hobby of reading defense contractor press releases and this one from Raytheon caught my eye in mid-December: The company, which had more than $25 billion in sales last year, trumpeted an award of $5.2 million from the government under something called the āForesight and Understanding from Scientific Exposition (FUSE) program.ā Its purpose is to ādevelop automated methods to assist analysts and subject matter experts in recognizing emerging technologies in published scientific, technical, and patent literature.ā
The best I could tell reading further into the announcement was that this is intended to be a kind of Google-like spider that will go through scientific journals and patent filings in multiple languages and, as the announcement promises, āidentify those areas that are most likely to develop into major and wide-ranging technical solutions.ā
Is this contract the ingenuous intellectual vacuum cleaner and money-saver itās touted to be? Or is it a classic technology-in-search-of-a-problem, make-work project that will deploy Google-like algorithms āĀ why not just ask Google to do it? āĀ in a fruitless effort to shortcut having real scientists actually read through this stuff. (Besides, it seems to me that anyone filing a patent or publishing a great idea in a scientific journal that could be valuable to the Pentagon would make it his or her business to bring it to the attention of the worldās biggest buyer of high-technology products.)
Whether itās a great idea, a farce, or something in between, this could be a potentially fun, emblematic story about how these defense contracts get dreamed up and implemented.
With that in mind, with the Pentagon budget is destined to be a hot topic this winter, an energetic reporter would do well to hunt through press releases from Raytheon, Lockheed, Boeing, Northrop Grumman, Accenture, IBM and others from, say three years ago, and pick a few projects like this one and see how they ended up. Were they on time? On budget? Did the contractors have guaranteed profit margins even if costs ran over and the delivery date slipped? Did they produce what was promised? My anecdotal, back-of-the-envelope sense is that the typical defense contract comes in a year or more late at 50-200% of the cost announced in the first press release. Am I right? Profiles of contracts that went off the tracks, as well as those that worked exactly as promised, would help put Pentagon spending in perspective.