Madoff Case Promises Fees for Law Firms Facing Worst Year in Decade

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Madoff Case Promises Fees for Firms Facing Worst Year in Decade


By Lindsay Fortado

Jan. 14 (Bloomberg) -- The week after Bernard Madoff was charged with running a $50 billion Ponzi scheme, Proskauer Rose, a New York firm of 750 lawyers, offered a telephone briefing on the scandal for its wealthy clients. With only a day’s notice, 1,300 Madoff investors dialed in.

“This is a financial 9/11 for our clients,” said Proskauer litigation partner Gregg Mashberg, one of the lawyers on the call. “People are dying for information.”

The half-hour call on Dec. 17 received the largest response the firm has ever seen on such short notice for client seminars, said Jay Waxenberg, who chairs the New York firm’s personal- planning department. The firm is advising dozens of clients in the U.S., Europe, South America and Asia potentially affected by the collapse of Bernard L. Madoff Investment Securities LLC.

The case is providing business for New York law firms during a year that lawyers say may be the slowest in decades. Besides Proskauer, firms benefiting from the Madoff scandal include Sullivan & Cromwell; Simpson, Thacher & Bartlett; Shearman & Sterling; and Schulte, Roth & Zabel.

All declined to discuss the amount of Madoff-generated fees.

Two of the highest-profile assignments went to Ira Sorkin of Dickstein Shapiro, who represents Madoff in his federal criminal case, and Irving Picard, a Baker Hostetler partner hired to track down and distribute assets of Madoff’s firm to victims for the Securities Investor Protection Corp.

Paul, Weiss, Rifkind, Wharton & Garrison represents Madoff’s sons Mark and Andrew, who haven’t been charged with a crime.

Federal Prosecutors

Bernard Madoff, 70, was charged Dec. 11 by prosecutors with one count of securities fraud for allegedly running a massive Ponzi scheme. Free on $10 million bail and under house arrest, he faces as much as 20 years in prison and a $5 million fine if convicted. Madoff hasn’t formally responded to the charges.

Simpson Thacher, whose clients include Lehman Brothers Holdings Inc., Blackstone Group LP and KKR & Co. LP, is advising Walter Noel’sFairfield Greenwich Group, the hedge-fund firm that had $7.5 billion invested with Madoff.

Simpson partner Mark Cunha is advising on at least three suits against the fund over claims it failed to protect investor assets, Fairfield Greenwich spokesman Thomas Mulligan said.

David Boies’s firm, which also represents Maurice “Hank” Greenberg, the former chief executive officer of American International Group Inc. in unrelated litigation, sued Fairfield on Jan. 12 on behalf of investors who claim the hedge fund failed to protect their assets.

Boies, chairman of New York-based law firm Boies Schiller & Flexner, argued before the U.S. Supreme Court for presidential candidate Al Gore in the 2000 election re-count.

50 Clients

Boies Schiller is advising “upwards of 50” clients regarding Madoff fraud, partner Stuart Singer said. The firm plans to file more class actions, or group lawsuits against feeder funds that invested with the money manager. Its fees are contingent on its winning, he said.

“This represents a significant commitment by our firm” Singer said. “At least half a dozen” lawyers are working on the matter.

Mulligan declined to comment on the case.

Money manager J. Ezra Merkin and his funds Ascot Partners LP and Gabriel Capital Corp. were sued over $2 billion lost in investments with Madoff. Merkin hired Andrew Levander, a partner at Dechert in Philadelphia. Levander has represented John Thain, president of global banking and securities at Bank of America Corp., and Michael Rigas, the former Adelphia Communications Corp. operations chief. Merkin has denied any wrongdoing.

Ezra Merkin

New York University sued Merkin last month over $24 million it said it lost. NYU also sued Ariel Fund Ltd., whose assets are managed by Gabriel Capital and Merkin. Schulte Roth, known for representing hedge funds, is advising Ariel.

Another New York-based school, Yeshiva University, said it hired Sullivan & Cromwell after losing $14.5 million, mostly through investments with Merkin and Ascot. Carl Shapiro, a 95- year old philanthropist who said he lost $545 million to Madoff, hired Steven Molo, a partner at Shearman & Sterling.

Proskauer, which has formed a Madoff task force, has about 20 lawyers at the firm working full-time on issues related to the alleged fraud, advising on tax, insurance, bankruptcy, litigation and trusts-and-estates issues. The Dec. 17 conference call displayed the depth of concern among the firm’s customers.

“Our clients were in a panic,” said Waxenberg. “There was a lot of hand-holding, because people were in shock.”

Proskauer’s clients include Columbia University, Madison Square Garden LP, the New York Metropolitan Transportation Authority, the Museum of Modern Art, the New York Public Library, and Radio City Music Hall, according to the firm’s Web site. Waxenberg declined to say which clients lost money because of Madoff.

‘Biggest Concern’

“The biggest concern is whether they’re going to get any of their money back,” Waxenberg said. “We have clients who have lost substantial sums of money but certainly still have money to live on. On the other end of the spectrum, there are some clients who had their entire investments with Madoff.”

It’s too early to tell how much money clients may get back, he said.

“The dust really needs to settle,” Waxenberg said.

Milberg and Susman Godfrey, two litigation firms, also have Madoff-related business.

Milberg and Seeger Weiss expect to represent more than 100 clients between them who have lost money through direct investments with Madoff or by investing through feeder funds, Milberg partner Brad Friedman said.

“We’ve seen perhaps a majority of” clients who’ve lost their entire life savings, Friedman said.

Milberg Suits

Milberg, primarily a class-action securities-law firm, is considering seeking emergency relief from the SIPC for clients who’ve lost everything in the Madoff implosion.

The SIPC, a creation of Congress to assist investors in collapsed brokerages, can pay as much as $500,000 per person. Milberg is “cooperating with the bankruptcy trustee with chasing assets in the estate,” Friedman said, referring to Picard.

The firm plans to file individual suits rather than class- action suits against “feeder funds” that put their clients’ money into Madoff’s hands, Friedman said, declining to name clients.

For those who invested directly with Madoff, the most-likely source of recovery is through SIPC claims and the liquidation bankruptcy proceedings in U.S. Bankruptcy Court in New York, Friedman said.

To contact the reporter on this story: Lindsay Fortado in New York at lfortado@bloomberg.net.

Last Updated: January 14, 2009 00:01 EST