Madoff, Recession Drive Top U.K. Lawyer Fees as High as $1,440

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Madoff, Recession Drive Top U.K. Lawyer Fees as High as $1,440

By Caroline Binham

March 23 (Bloomberg) -- U.K. regulatory lawyers advising clients on the financial crisis and scandals like those involving Bernard Madoff bill as much as 1,000 pounds ($1,440) an hour -- 50 percent more than mergers-and-acquisition lawyers did during a takeover boom two years ago.

“It’s our time in the sun,” said Darren Fox, a regulatory lawyer who advises hedge funds at London-based Simmons & Simmons. “If you ask which departments are very busy and where clients’ worries are, it tends to be in the regulatory area.”

Both the U.K. Financial Services Authority and the Office of Fair Trading have promised to bring more criminal cases against senior executives, a way to achieve “credible deterrence.” The world’s lawmakers meanwhile will gather next month in London at the Group of 20 Nations’ summit to redesign regulation, which lawyers must make sense of for clients.

Financial regulatory advice can therefore be billed at a premium, even while law firms are suffering the consequences of the credit crisis. All four U.K. “magic-circle” firms have undertaken cost-cutting measures in the last month, with Allen & Overy LLP freezing its billing rate as part of a restructuring that will fire 450 staff and cost $63 million. Lawyers traditionally charge clients by the hour.

“Our general experience is the bigger the problem, the more willing people are to accept the fees,” said Michael O’Kane, a criminal and regulatory specialist at Peters & Peters whose clients include two former British Airways Plc executives charged by the OFT with operating a cartel.

Top Dollar

Seven regulatory attorneys, including two from magic-circle firms, said in interviews that their rates ranged from 550 pounds to 800 pounds. The top corporate lawyers at magic circle firms in London could command fees of 650 pounds an hour during the M&A boom in 2007, according to The Lawyer, a trade magazine.

Two lawyers at different firms, who asked not to be identified because they said rates were a private matter, said attorneys on the opposing side of regulatory cases they were involved in billed a rate of 1,000 pounds.

Paying top-dollar for experienced litigators at the prospect of jail “really is a crisis purchase,” said Mark Brandon, a London recruiter at First Counsel who finds partners for firms. “You need a good tactician and case manager.”

In a recession companies’ in-house lawyers will typically try to do work themselves rather than hire a law firm to do it for them, said Steven Francis, a former FSA enforcement official now a regulatory lawyer at London-based Reynolds Porter Chamberlain LLP.

‘Gone Mad’

“That isn’t true in my area,” Francis said. “They can’t trust their instincts in a world that appears to have gone mad.”

Having a skilled and experienced lawyer on regulatory cases also means that the business model for firm’s regulation teams differs from those that advise on takeovers or securitizations, whose work has trailed off in the last 18 months.

“Regulatory advice is partner-intensive,” said Fox at Simmons. “There isn’t that typical pyramid structure of one partner and then a team of associates, as there is in some of the more transactional teams. So in order to compete with those teams, regulatory lawyers are billed out at a higher rate.”

Partners are firms’ most senior lawyers. They traditionally share in the profits rather than take a salary, as more junior attorneys known as associates do.

Lawyers who work on regulatory cases that involve possible jail sentences command higher fees than those advising financial companies on compliance management, which includes data security through to how much capital banks should retain.

Magic Circle

While the scandals involving Bernard Madoff, who last week pleaded guilty to defrauding investors of as much as $65 billion, and R. Allen Stanford, who is accused by federal regulators of swindling $8 billion, have been beyond British shores, their repercussions have been felt in the U.K. British authorities have been spurred to investigate possible similar frauds, Francis said.

“There is undeniably now more assiduous focus on financial crime now than there has ever been,” he said.

The highest paid partners were billed out last year at 900 pounds an hour, with rates at magic-circle firms averaging 750 pounds, according to Legal Budgets’ Hourly Rates Survey 2008, published in October and compiled through questionnaires to Britain’s top 50 firms by revenue.

The magic circle is Britain’s top firms by revenue: Clifford Chance LLP, Linklaters LLP, Freshfields Bruckhaus Deringer and A&O. The top law firms around the world are suffering as the M&A boom and structured finance work that buoyed their record profits have trailed off.

Whether lawyers’ hourly rate is 1,000 pounds or 500 pounds is missing the point, said Jim Diamond, who compiles the annual Legal Budgets survey. He questioned the sustainability of the model of hourly rates, even those subject to supply and demand.

“In-house lawyers want discounts, and even on the discounted rates they want a discount,” said Diamond. “There is a massive reluctance on the part of top City law firms to do formal budget planning and that must stop.”

To contact the reporter on this story: Caroline Binham in London at cbinham@bloomberg.net