TALLAHASSEE — A veritable pot of gold — untold millions upon millions of dollars in legal fees — is up for grabs this week when the state decides which of 12 legal teams will represent Florida in securities lawsuits.
Will the State Board of Administration, overseen by trustees Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum, select the firms best able to look out for the interests of the pensions of teachers, police officers and public employees across the state? Or will politics skew the process?
The politicians say politics plays no role, it's all about looking out for Floridians.
But the law firms look for every edge. In the last 14 months, lawyers and others tied to 51 firms interested in representing the SBA have spent at least $850,000 on Florida politics.
"That's a helluva lot of money," SBA executive director Ash Williams said.
This month, a six-member SBA evaluation team narrowed the search from 31 to a "short list" of 12.
• Of the 12, one had what a federal judge called a "gross conflict of interest." Two hired lobbyists to influence the process. Three have been criticized for high legal fees at the expense of investors and consumers.
• Three of the 12 spent $265,000 on Florida political parties and lobbyists in the last 14 months.
• Two revealed relationships with politically influential Florida law firms that since October 2008 gave a combined $75,000 to the Republican and Democratic parties.
Five securities law firms have represented the SBA at least nine years each. They have generated at least $179 million in fees through $845 million in settlements. All five firms made the short list of 12.
This week the SBA is to make the final cut to five to eight firms to lodge possible lawsuits.
The Florida SBA manages the nation's fourth-largest pension fund, $112 billion, for 1 million current and future retirees, and $22 billion more, for hundreds of local governments and state agencies. Like most public funds, Florida lost billions in the financial meltdown and might try to recover some of the losses from banks, brokers and other deep-pocketed firms.
Williams, the SBA director appointed by the three trustees, called the agency's process of picking law firms "transparent … completely objective and merit-based."
"They're welcome to spend their money any way they want," he said, but "it's not going to influence our decision process."
Critics counter that Florida's short list mirrors the entrenched, pay-to-play culture nationwide between public pension funds and prominent class-action law firms.
"There are all kinds of marketing schemes going on that result in excessive fees and less for retirees who rely on the funds," said Edward Siedle, the president of Benchmark Financial Services, which helps pension funds investigate fraud and abuse.
Selecting attorneys — whom to hire, how much to pay, which cases to bring — is a "heavily politicized process," Siedle said, and "the politicization always diminishes investment returns."
'A gross conflict'
A former partner of one of the 12 firms, William Lerach, was sentenced to prison last year in a kickback scheme. The co-founder of Lerach Coughlin Stoia Geller Rudman & Robbins admitted that while working at another firm, he paid plaintiffs to get class-action business, and he admitted he made false statements to judges. He forfeited $7.75 million.
The San Diego-based firm gave $5,000 to the Florida Democratic Party in July 2006, and the renamed Coughlin Stoia Geller Rudman & Robbins gave $50,000 to the Florida GOP in November 2008.
Now the firm is No. 11 on the Florida SBA's short list.
On a scoring sheet, Jeanna Cullins, a member of the SBA evaluation team, noted without elaboration that Coughlin Stoia "didn't mention prior issues." The firm didn't return calls seeking comment.
In April, at a hearing in a union's class-action suit over mortgage-backed securities, U.S. District Judge Jed Rakoff had a question for the ironworkers union that brought the case: How did the ironworkers find out about the bad investments that led to the lawsuit? The answer: Their lawyers, Coughlin Stoia, offered a free portfolio monitoring service. The firm tracked their holdings and, when prices dropped, notified them of possible lawsuits.
Rakoff called it "about as obvious an instance of conflict of interest as I've ever encountered in my life," because the firm got paid only if it sued and recovered. It created a motive to sue, the judge said, and "if that isn't a gross conflict of interest in violation of the most elementary fiduciary duties, I don't see what is." When a Coughlin Stoia lawyer implied that many plaintiffs law firms do it, Rakoff said: "So you think this inherent conflict of interest exists throughout the U.S.?"
Coughlin Stoia filed an affidavit from a law professor who said there was no conflict of interest because lawyers have no incentive to pursue shaky cases and pension funds don't have to sue.
The lawyers win big
Regarding the No. 2 firm on the SBA's short list, San Francisco's Lieff Cabraser Heimann & Bernstein, Cullins wrote on her score sheet, without elaboration, "disciplinary actions."
In August, the Associated Press reported that Lieff Cabraser and other firms won big in a Ford rollover class-action suit, at the expense of most of the 1 million consumers they represented.
The case was not about deaths or injuries, but about resale values for Ford Explorer owners who hadn't been hurt. As part of the settlement, they could get a $500 coupon to help buy a new Ford. Consumers got coupons only, no cash. Of 1 million eligible, just 75 coupons were redeemed, the AP said. Cost to Ford for the coupons? $37,500. Attorneys' fees? A judge awarded them fees and expenses of $25 million.
Lieff Cabraser told the AP that with the bad economy and Ford's financial problems, consumers got a good deal. Besides the coupons, Ford agreed to needed reforms and donated $950,000 to auto-safety groups.
Pay to play?
Some current and former securities regulators say the combination of campaign contributions and big legal fees can lead to conflicts of interest and cozy relationships that translate into less for retirees.
At least eight of the firms on Florida's short list (or people connected to them) have contributed to state politics since 2000. Seven of the firms have come under scrutiny in eight other states for making campaign contributions while seeking to represent public pension funds. The states: New York, Rhode Island, Mississippi, Louisiana, Ohio, Pennsylvania, Illinois and Massachusetts.
Labaton Sucharow, No. 4 on Florida's short list, has been sued in what a former associate alleged was a pay-to-play case in New Mexico. Jon Adams claimed he was cheated of more than $10 million for his role landing New Mexico business for the New York firm.
Adams worked for the former New Mexico attorney general and says Labaton Sucharow hired him for his political connections. He said he was promised 10 percent of the business he generated, and he says he brought in $100 million in attorneys' fees for Labaton.
In a lawsuit Adams filed in New York state court, he said that rather than pay him the 10 percent, a partner in the firm said he brought in the business, through campaign contributions he collected from other partners for Gov. Bill Richardson.
The firm denied it and said in legal papers that Adams filed an almost identical lawsuit in federal court that was dismissed because he couldn't prove his case.
Siedle, a former attorney for the Securities and Exchange Commission, said national securities litigation firms commonly sign side deals with politically influential local lawyers. The locals can earn huge referral fees for helping line up pension legal work.
Barrack, Rodos & Bacine, a Philadelphia firm that has done SBA work for 11 years, ranked No. 7 on Florida's short list. Its founder, Leonard Barrack, was the Democratic National Committee's chief fundraiser in 1998. He and wife, Lynne, were overnight guests in the Clinton White House.
In March 2007, shortly after Sink was sworn in as chief financial officer, she had a meeting scheduled with Barrack and a partner, Regina Calcaterra, formerly a lawyer for New York City's retirement system. Joining them, according to Sink's calendar, was another Democratic powerhouse, Allan Katz, a lawyer in Tallahassee for the Florida firm of Akerman Senterfitt.
Sink said she doesn't recall the meeting.
She meets regularly with Katz and said he once mentioned "a relationship with a Philadelphia firm,'' but she wasn't sure if it was Barrack, Rodos & Bacine.
Barrack and Katz did not return messages seeking comment.
Calcaterra, a candidate for New York Senate and Democratic analyst on national TV programs, said in an e-mail that any meetings with the SBA related to ongoing legal matters.
In October 2008, a few days after Ash Williams arrived in Tallahassee as head of the SBA, he had a scheduled meeting with Calcaterra, Katz and Lynne Barrack, according to his calendar.
Williams, who also held the job of SBA director in the 1990s, said he's known Katz for a long time as a lobbyist, lawyer and Democratic Party activist.
Katz was a major fundraiser for President Barack Obama's Florida campaign, and last month the president nominated him to be ambassador to Portugal.
Katz didn't respond to questions about his firm's fees or role with Barrack, Rodos & Bacine. In the last 14 months, Katz's firm, Akerman Senterfitt, has given $35,000 to the Florida GOP and $15,000 to the state Democrats.
Barrack, Rodos & Bacine donated $20,000 to the state Democratic Party in 2006 and $5,000 to the Democrats in 2002.
Talent and clout
New York's Entwistle & Cappucci is No. 9 on Florida's short list, trying to keep its spot on the securities litigation team.
For years, the law firm has employed Paul Bradshaw, a lawyer, lobbyist and campaign consultant. His wife, Sally Bradshaw, was former campaign manager and chief of staff for ex-Gov. Jeb Bush, who once served as one of the three public officials with oversight of the SBA.
Andrew Entwistle said Bradshaw was hired because he's "a tremendously talented lawyer," not for political connections.
Entwistle said the firm has a "long-standing record of amazing success" for the SBA, which he says is why the state encouraged them to reapply.
The New York firm and its lawyers have given generously to GOP political causes in Florida.
They gave the Florida GOP $10,000 in 2000, $85,000 in 2002 and $30,000 in March. The firm donated to Crist campaigns in 2001, 2002, 2005 and 2006, and partner Robert Cappucci gave to Crist campaigns in 2002 and 2005. Andrew Entwistle donated $10,000 to the Florida GOP in 2002, $500 to Crist's campaign for governor in 2005 and $500 to McCollum's campaign for governor in June. Bradshaw gave $10,000 to the Florida GOP this year, $500 each to the campaigns of McCollum and Sink, and he and his wife donated $9,600 to Crist's campaign for U.S. Senate.
To pitch its case with the SBA, Entwistle & Cappucci paid the lobbying firm Southern Strategy between $90,000 and $120,000 the first nine months this year. Southern Strategy lobbyists include well-connected former state officials who have had several meetings and e-mail contacts with Williams, the head of the SBA.
Said Entwistle: "The notion (that the process) is a sham or politically driven is really, really ludicrous. ... It's the quality of the work that makes the difference."
Lobbyists for lawyers
Bernstein Litowitz Berger & Grossmann, based in New York, is ranked No. 8 on the short list.
Last year, Bernstein Litowitz hired a five-person lobbying team from Foley & Lardner, a law firm with deep roots in Tallahassee. Bernstein Litowitz pays them $5,000 a month, said Foley & Lardner spokesman Mike Harrell. Work can be as simple as making an introduction.
On March 5, Harrell helped arrange for Sink to meet G. Anthony Gelderman III, counsel to Bernstein Litowitz in New Orleans, where the firm is influential. Gelderman was general counsel to former Louisiana treasurer and current U.S. Sen. Mary Landrieu.
Gelderman's firm agreed to write a $25,000 check to the Florida Democratic Party.
In April, according to Sink's campaign aide Conchita Cruz, "a staffer followed up and was given the check and delivered it to the state party."
Two months later, Sink again met with Gelderman and Harrell, at Georgio's in Tallahassee. They went Dutch.
Sink recalled that Gelderman touted his firm's big cases and suggested that the pension fund could be missing out on opportunities to recover financial losses through investor lawsuits.
Gelderman declined to comment.
Despite the Sink connection, Harrell and members of Foley & Lardner have given mostly to Republicans.
Foley employees have contributed $12,100 to Crist's Senate campaign. The firm's political action committee gave $5,000 to the Florida GOP and $500 to Sink's campaign for governor.
Class-action lawyers usually work on contingency. They get nothing up front but can take home one-third of the settlement. In big cases, the percentage usually narrows to 10 percent to 15 percent.
The five firms that currently represent the state collected $167 million in legal fees for 10 class-action cases led by Florida between 1998 and 2004. The cases produced $777 million in settlement amounts for all plaintiffs, including Florida.
Four of the incumbent firms won $12 million in attorneys' fees in 12 cases where Florida opted out of class-action suits and filed individually. Those cases brought the state $68 million.
Berman DeValerio Pease Tabacco Burt & Pucillo, which has worked for the SBA since 1998, is No. 3 on Florida's short list of 12.
Last November, under the headline, "Nice work if you can get it," Forbes said that in a case against Xerox, Berman DeValerio and other firms hired temp attorneys at $35 or $40 an hour to review documents, then asked a federal judge in Hartford to approve fees of $500 an hour.
The firm gave $5,000 to Florida's Democratic Party in 2002 and $10,000 in 2006. Michael Pucillo, a partner in Palm Beach Gardens, gave $5,000 to Florida Democrats in 2006, and on May 12, 2009, Berman DeValerio lawyers gave Sink's campaign for governor a mini-bundle of $1,450.
"I make contributions to those I believe will be good public servants, and for no other reason," Pucillo said in an e-mail. "I have never seen a trustee get involved in the selection of counsel at the SBA. … I believe the process is, thankfully, not political."
Two members of the SBA's evaluation panel questioned the fees of another incumbent law firm, Grant & Eisenhofer, No. 12 on the list, and a top Democratic donor.
On her score sheet, Cullins wrote, firm "appears expensive." At Grant & Eisenhofer's interview with the SBA evaluation team last week, managing director Stuart Grant said he was concerned by the scoring.
"Your fee proposal was very, very high," Sink's representative on the evaluation panel, Dan Sumner, told him.
Grant said the firm had among the biggest settlements and lowest rate of dismissals. "There's such a push to reduce attorney's fees," he said. "This is not a commodities business."
"We asked for a fee history — you sort of punted on that," Cullins said. "If you're not responsive … you get rated a little lower."
During the interview, two Grant & Eisenhofer partners pointed out ethics issues with two of its competitors. One said he had left Bernstein & Liebhard, the firm ranked No. 1 on Florida's short list, after a top partner pleaded guilty last year to falsifying his income tax return. (Bernstein & Liebhard said it was a "personal problem" unconnected to the firm or its clients.)
Grant said his firm's ethics would never embarrass the SBA.
Nobody mentioned Rhode Island, where General Treasurer Frank T. Caprio recently returned $4,000 in campaign contributions to four Grant & Eisenhofer employees after an inquiry by the Providence Journal. The newspaper raised questions about Caprio's political fundraising and hiring decisions of law firms, including Grant & Eisenhofer. Grant told the Times that Caprio returned campaign contributions not just to Grant & Eisenhofer, but to multiple law firms.
"It wasn't in return for anything," Grant said. "I give to a lot of Democratic causes."
The trustees say?
Crist and McCollum would not be interviewed for this story.
Sink, who has prodded the SBA to pursue lawsuits to recover possible losses, said that she doesn't get involved in hiring decisions.
She said she is "really encouraged" the SBA has an "open, transparent competition" for law firms to go after companies that may have cost the taxpayers hundreds of millions of dollars.
Is there any link between the plaintiff firms seeking state business and political contributions or lobbying?
"Absolutely not," she said.
On Friday afternoon, after being questioned for weeks about the selection of securities lawyers, attorneys' fees and the role of politics in the process, the SBA issued a statement swearing to a philosophy of full disclosure and announcing how they're making hiring lawyers transparent.
Siedle said state and federal regulators haven't given enough scrutiny to relationships between law firms and public pension funds.
"These law firms are reaching into a pot of gold funded by the taxpayers," he said, "so we need to hold them to the highest standards."
Times researchers Carolyn Edds and Shirl Kennedy contributed to this report.