At least two of the legal firms currently advising the Treasury Department on the Troubled Asset Relief Program have offered their services to private clients interested in capitalizing on the bailout, raising questions about whether conflicts of interest may interfere in the unbiased distribution of taxpayer dollars.
The two firms, Cadwalader, Wickersham & Taft LLP, and Locke Lord Bissell & Liddell LLP have extensive experience in the buying and selling of distressed assets. The Treasury Department hired the two firms to work on the TARP program because its own employees lacked sufficient expertise.
Cadwalader signed a $417,000 contract with the Treasury in January to "provide legal expertise and guidance on highly complex bankruptcy issues in order to appropriately structure possible Treasury loans to or other investments in multiple large institution." Reports at the time indicated that the firm would be working on the potential restructuring of the auto industry.
Locke Lord signed its contract in February. The deal, worth as much as $2 million, calls for the firm to help draft securities purchase agreements for S corporations that qualify for TARP funding. Those types of corporations are typically owned by a small number of shareholders, who share in the income or losses of the business and pay taxes on the earnings through their individual returns.
Under the terms of their agreements, Cadwalder and Locke Lord promised not to engage in any activities that would conflict with their work for the Treasury. The firms also agreed to disclose any potential conflicts and the methods used to avoid them.
Nevertheless, at the same time the two firms were seeking government contracts, they were actively soliciting private clients to advise on bailout issues.
Locke Lord, for instance, created a special TARP Group of attorneys. The group's web page notes that the bailout "will create new opportunities and issues for a broad spectrum of commercial enterprises" and advertises that its lawyers have "numerous contacts in the legislative and executive branches of the Government."
At least 111 firm staffers, mainly attorneys, have been assigned to the group.
When Locke Lord announced the new group last October, it said it would advise banks on the fiduciary duties and legal consequences that come with participation in the TARP securities purchase program.
Cadwalader took out an advertorial in Private Equity Analyst magazine last fall, promising to introduce investor opportunities "across a variety of complex, difficult to value assets" covered by the TARP program.
At the time, Treasury intended to buy distressed assets from banks in order to shore up their balance sheets. After Cadwalader's initial advertorial, the terms of the banking bailout changed, with Treasury bolstering the industry by purchasing large blocks of shares. However, Treasury announced a new plan this week to use as much as $100 billion in TARP money to buy those distressed assets through public-private partnerships.
Cadwalader also signed on to sponsor a conference on TARP being held by the Securities Industry and Financial Markets Association, a trade group for servicers and investors of mortgage-backed securities. The accounting firm PriceWaterhouseCoopers, which received a $191,000 contract in October to set up accounting controls for the TARP program, also sponsored the event.
BailoutSleuth asked all 11 of the legal and accounting firms hired to advise Treasury on TARP to answer questions about conflicts of interest. We wanted to know if they had clients that were receiving TARP money, whether they had made any disclosures to Treasury about potential conflicts of interest, and how they were ensuring that these conflicts did not affect their work for the government.
"As with any client engagement, our work for the U.S. government prohibits us from representing adverse interests and we have complied with this requirement," said Cadwalader's Claudia M. Freeman. She did not respond to detailed questions about the firm's efforts to solicit private clients.
Locke Lord also did not respond to emailed questions about the company's conflicts policy.
Only one other firm did answer questions. Bank of New York Mellon, which has a contract with Treasury to serve as master custodian of TARP-related assets, has "a securities firewall policy" which walls off TARP employees from those who trade assets on behalf of the company or its clients, spokesman Kevin Heine said.
He would not say, however, if the firm has clients whose interests might conflict with the government's, nor would be discuss any disclosures made to Treasury about them.
The Treasury Department did not return telephone calls seeking comments on its conflict of interest policies.
But in testimony before the House of Representatives last week, Gene L. Dodaro, acting comptroller general of the Government Accountability Office, urged Treasury to "review and renegotiate existing conflict-of-interest mitigation plans," and continue to monitor contractors for problems.
As always, BailoutSleuth will continue to monitor this issue and report back to readers as events warrant.
The two firms, Cadwalader, Wickersham & Taft LLP, and Locke Lord Bissell & Liddell LLP have extensive experience in the buying and selling of distressed assets. The Treasury Department hired the two firms to work on the TARP program because its own employees lacked sufficient expertise.
Cadwalader signed a $417,000 contract with the Treasury in January to "provide legal expertise and guidance on highly complex bankruptcy issues in order to appropriately structure possible Treasury loans to or other investments in multiple large institution." Reports at the time indicated that the firm would be working on the potential restructuring of the auto industry.
Locke Lord signed its contract in February. The deal, worth as much as $2 million, calls for the firm to help draft securities purchase agreements for S corporations that qualify for TARP funding. Those types of corporations are typically owned by a small number of shareholders, who share in the income or losses of the business and pay taxes on the earnings through their individual returns.
Under the terms of their agreements, Cadwalder and Locke Lord promised not to engage in any activities that would conflict with their work for the Treasury. The firms also agreed to disclose any potential conflicts and the methods used to avoid them.
Nevertheless, at the same time the two firms were seeking government contracts, they were actively soliciting private clients to advise on bailout issues.
Locke Lord, for instance, created a special TARP Group of attorneys. The group's web page notes that the bailout "will create new opportunities and issues for a broad spectrum of commercial enterprises" and advertises that its lawyers have "numerous contacts in the legislative and executive branches of the Government."
At least 111 firm staffers, mainly attorneys, have been assigned to the group.
When Locke Lord announced the new group last October, it said it would advise banks on the fiduciary duties and legal consequences that come with participation in the TARP securities purchase program.
Cadwalader took out an advertorial in Private Equity Analyst magazine last fall, promising to introduce investor opportunities "across a variety of complex, difficult to value assets" covered by the TARP program.
At the time, Treasury intended to buy distressed assets from banks in order to shore up their balance sheets. After Cadwalader's initial advertorial, the terms of the banking bailout changed, with Treasury bolstering the industry by purchasing large blocks of shares. However, Treasury announced a new plan this week to use as much as $100 billion in TARP money to buy those distressed assets through public-private partnerships.
Cadwalader also signed on to sponsor a conference on TARP being held by the Securities Industry and Financial Markets Association, a trade group for servicers and investors of mortgage-backed securities. The accounting firm PriceWaterhouseCoopers, which received a $191,000 contract in October to set up accounting controls for the TARP program, also sponsored the event.
BailoutSleuth asked all 11 of the legal and accounting firms hired to advise Treasury on TARP to answer questions about conflicts of interest. We wanted to know if they had clients that were receiving TARP money, whether they had made any disclosures to Treasury about potential conflicts of interest, and how they were ensuring that these conflicts did not affect their work for the government.
"As with any client engagement, our work for the U.S. government prohibits us from representing adverse interests and we have complied with this requirement," said Cadwalader's Claudia M. Freeman. She did not respond to detailed questions about the firm's efforts to solicit private clients.
Locke Lord also did not respond to emailed questions about the company's conflicts policy.
Only one other firm did answer questions. Bank of New York Mellon, which has a contract with Treasury to serve as master custodian of TARP-related assets, has "a securities firewall policy" which walls off TARP employees from those who trade assets on behalf of the company or its clients, spokesman Kevin Heine said.
He would not say, however, if the firm has clients whose interests might conflict with the government's, nor would be discuss any disclosures made to Treasury about them.
The Treasury Department did not return telephone calls seeking comments on its conflict of interest policies.
But in testimony before the House of Representatives last week, Gene L. Dodaro, acting comptroller general of the Government Accountability Office, urged Treasury to "review and renegotiate existing conflict-of-interest mitigation plans," and continue to monitor contractors for problems.
As always, BailoutSleuth will continue to monitor this issue and report back to readers as events warrant.
published March 24, 2009, 0 Comments
Leave a comment