Given the size and geographic scope of the banks and professional firms involved in the federal government's $700 bailout plan, it is inevitable that some of them will have prior business relationships.
One of the reasons that we started BailoutSleuth was to monitor the process for conflicts of interest that could undermine the returns to taxpayers.
In choosing the New York law firm of Simpson Thacher & Bartlett LLP to advise it on the purchase of equity stakes in major banks, the Treasury Department picked a firm that has been busy on multiple fronts of the financial crisis.
A check by BailoutSleuth of recent deals shows that Simpson Thacher represented the bankrupt Lehman Brothers Holdings Inc. in the sale of its North American investment operations to Barclays Capital. It continues to represent Lehman in matters related to its bankruptcy, one of the biggest in
Simpson Thacher also represented a failed savings and loan, Washington Mutual Inc., in the sale of its assets to JPMorgan Chase & Co.
JPMorgan is one of the firm's longtime clients. Simpson Thacher advised that company in its 2004 acquisition of Bank One Corp. According to a summary on its web site, the firm still represents JPMorgan in numerous civil suits, including more than 20 securities cases stemming from the collapse of Enron Corp.
JPMorgan Chase is slated to get a $25 billion equity infusion under the government's plan to buy as much as $250 billion of preferred stock in
Those proposed investments were announced Tuesday.
Neel Kashkari, the Treasury Department official overseeing the government's broader bailout effort, said this week that Simpson Thacher was one of six law firms contacted about providing advice on the equity purchase program. He said Simpson Thacher was one of just two firms that submitted proposals.
We're not suggesting that there is any problem with Simpson Thacher's selection. But taxpayers might want to know more about the firm's past and present associations, as the details of the bailout program become clearer and as the dealmaking intensifies.
The Treasury Department developed an official conflict of interest policy in connection with the bailout program. It calls for contractors to disclose potential conflicts and offer possible solutions.
Simpson Thacher has represented many of the other companies whose names have figured prominently in the financial crisis. The firm was involved in the sale of Bear Stearns to JPMorgan, and in the pending sale of Wachovia Corp. to Wells Fargo & Co.
The Federal Reserve Bank of
Simpson Thacher also advised Wachovia in its proposed $12 billion sale to Wells Fargo & Co., and in its earlier deal with Citigroup Inc. Wells Fargo is supposed to get $25 billion in fresh equity under the government plan, as is Citigroup.
Simpson Thacher advised the board of directors of American International Group Inc. as that troubled insurance and investment company negotiated the exit of its then-chief executive, Martin J. Sullivan. He left the company in June, taking with him a $47 million severance package.
The government agreed in September to provide AIG with $85 billion in financing, in a deal that saved the company from bankruptcy and gave taxpayers what amounts to an 80 percent ownership stake. The total amount of credit available to AIG has since been increased by $37.8 million, bringing the total to more than $120 billion.
Simpson Thacher also represents two of the biggest private equity firms, Blackstone Group L.P. and Kohlberg Kravis Roberts & Co. The law firm advised Blackstone on its initial public offering, and is representing KKR as it prepares to a stock sale.
Both of those firms expressed interest in buying some of Lehman's assets, and could be potential buyers for some of the assets being sold by troubled banks participating in the bailout.
Blackstone's chief legal officer, Robert L. Friedman, is a former Simpson Thacher partner. So is KKR's general counsel, David J. Sorkin, who joined the buyout firm in 2007.
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