Law Firms Could be Targets of RTC-Type Agency
Law firms could be targets under a government plan to acquire bad mortgage debt by creating an agency similar to the one that oversaw the liquidation of assets from 747 thrifts.
Some law firms that had advised troubled savings and loans were targeted by the agency created to deal with the thrift crisis, the Resolution Trust Corp., along with other regulators of savings and loans, the New York Law Journal reports. The largest settlement—$41 million—was paid by Kaye Scholer in a suit that claimed the law firm helped hide its client’s problematic accounting and business practices from regulators. Jones Day and Paul, Weiss, Rifkind, Wharton & Garrison also settled claims.
Philip Forlenza, a partner at Patterson, Belknap, Webb & Tyler, represented law firm Pitney Hardin in a government S&L suit—and won. He told the New York Law Journal he saw the potential for another round of suits. “If the history of the Resolution Trust Corp. and Office of Thrift Supervision is any guide, the government can be very aggressive in going after professionals,” he said.
In the thrift crisis, government regulators took over failed S&Ls and filed claims on their behalf that contended lawyers and other professionals cooperated in fraud. It’s unclear if the agency that would be created to deal with the current crisis would take over troubled institutions. If the new agency follows the same model, the government’s litigation stance would be similar to that of a bankruptcy trustee, Forlenza told the publication.
The Securities and Exchange Commission is another possible plaintiff in suits against law firms that advised lenders who pooled and securitized mortgages for sale to investors, the ABA Journal reports.
Reid Muoio, assistant director of the SEC’s division of enforcement, told lawyers at the ABA Annual Meeting that he isn’t foreclosing the possibility. “It can be expected that if we can identify problems, we will then ask, ‘Where were the lawyers?’ ” Muoio said in an interview, adding that he spoke for himself and not the SEC.
