Dec. 16 (Bloomberg) -- Louis J. Freeh, the former FBI director who took on two of 2011’s biggest scandals last month, joins the ranks of former high-ranking government officials trying to sell reputations for integrity following careers fraught with controversy.
Freeh, 61, signed court papers Nov. 22 to become a trustee overseeing the wind-down of MF Global Holdings Ltd., the day after he was hired by Pennsylvania State University to conduct a probe of a child-sex abuse scandal. Like former New York Mayor Rudolph Giuliani’s Giuliani Partners and former Secretary of State Henry Kissinger’s Kissinger Associates Inc., Freeh Group International Solutions LLC consults on issues of business, compliance, security and risk.
In taking on two of the year’s biggest scandals, Freeh is also selling himself as a leader in ethics: on its website, Freeh Group touts its work as bringing “an uncompromising commitment to integrity in every matter.”
At MF Global, Freeh, working at the behest of the company and its lenders including JPMorgan Chase & Co., could face challenges about how to balance their demands with those of customers missing some $1.2 billion from their segregated accounts. If customers don’t get repaid, trust in the public markets and the liquidity of commodity markets could be eroded, customers, regulators and members of the Senate have said.
Stop the Bleeding
“He’s going to have to stop the bleeding, untangle the mess,” said John P. Coffey, who appeared as an assistant U.S. Attorney before Freeh when Freeh served as a district court judge in New York. “He’s going to have to find out the scope of the problem and find out what legal claims there may be to bring. I think he’s an excellent choice.”
Personally, Freeh is more informal than might be expected from a former federal judge and FBI chief, said Margot Schonholtz, a partner at Willkie Farr & Gallagher who worked with Freeh when he was an examiner in the bankruptcy of SemCrude LP. Willkie Farr acts as outside counsel to Bloomberg LP, parent of Bloomberg News.
“He asks to be called Louis,” Schonholtz said. “When people call him ‘sir’ or ‘Judge Freeh,’ he corrects them.” She said he takes the subway rather than taxis, and gets answers because he’s easy to talk with. His first name is pronounced “Lou-ee.”
Still, Freeh’s past has been controversial. Director of the Federal Bureau of Investigation under President Bill Clinton and Attorney General Janet Reno from 1993 to June 2001, Freeh resigned amid criticism and some tension with the President.
Wen Ho Lee
One incident involved the Bureau’s handling of the 1999 arrest of Los Alamos National Laboratory Scientist Wen Ho Lee, who was held without trial for 278 days. A plea bargain was the only way to discover what Lee did with U.S. nuclear secrets, Freeh testified before the Senate Judiciary and Select Intelligence committees in 2000.
The FBI’s Carnivore e-mail monitoring system, implemented in 1997, which used software to search e-mail for specific words and data, was cited as one reason, along with the Wen Ho Lee case, for Freeh to resign in a 2000 Business Week opinion article. The article also criticized Freeh for a six-year cover-up over the 1993 FBI assault on the Branch Davidian compound near Waco, Texas, in which he was alleged to have misled government lawyers and a federal judge about whether federal agents used incendiary devices at Waco.
Reno didn’t return a call to her home number for comment on Freeh or his firm’s engagements.
In 2005, Clinton’s Chief of Staff John Podesta said that Freeh’s book, “My FBI,” was full of “half-truths and untruths.” According to a CBS “60 Minutes” report that aired Oct. 9, Clinton’s name for him was “F---ing Freeh.”
“No one else would defend his tenure at the FBI, so I guess he felt the need to do it himself,” Podesta said in an interview with Bloomberg News at the time.
Clinton’s 2004 autobiography also mentioned “a whole series of missteps” at the FBI under Freeh, and said that a retired FBI agent had warned him not to hire Freeh, calling him “too political and self-serving.”
Freeh refused several requests for an interview for this story, and is refusing to speak publicly about any of his engagements, according to spokesman Michael Millican.
“Judge Freeh is unavailable for interviews because he is fully engaged in client assignments and also is constrained from discussing them,” according to an e-mailed statement from Millican, who works at Robert Marston & Associates. Millican said Freeh doesn’t disclose where he lives, for security reasons.
MBNA Ethics Officer
After leaving the FBI, Freeh joined MBNA America Bank NA as vice chairman, general counsel and ethics officer in 2001. In 2005, he served as its principal lawyer as Bank of America Corp. acquired it.
His consulting firm, founded in 2007 after he left MBNA America, is led by executives who share a history with Freeh; five of six leaders of the firm listed on the company’s website worked either at the FBI, or at MBNA America. Several worked directly with Freeh in their past roles, including James Bucknam, a senior adviser to Freeh while Freeh was FBI director, and John D. Behnke, a special assistant at the FBI, who coordinated Freeh’s visits to field offices in foreign countries.
His law firm, Freeh Sporkin & Sullivan, also formed in 2007, is composed of former federal judges, has offices in Washington and New York and specializes in corporate governance, compliance, white-collar crime and securities matters, according to an official biography of Freeh.
High-ranking government figures who become consultants often attract controversy. When Giuliani was considering running for President, attention was paid to his consulting work for clients such as the government of Qatar and Citgo Petroleum Corp., the company controlled by Venezuelan President Hugo Chavez’s government. In 2007, Giuliani refused to release a list of his firm’s clients because of confidentiality agreements with the clients.
Kissinger resigned from the panel investigating the Sept. 11 terror attacks in 2002, citing potential conflicts with his consulting business. Kissinger’s foreign policy activity includes the secret expansion of the Vietnam War into Cambodia and the 1973 coup in Chile, the New York Times reported in 2002. The White House told the Senate Ethics Committee that Kissinger didn’t have to disclose his clients.
Millican declined to comment on what other work Freeh’s firm had done or how much his fees are.
So far, Freeh’s engagements haven’t attracted much criticism. His international engagements include 2011’s probe into bribery allegations at Zurich-based FIFA, soccer’s ruling body, and a 2010 assignment looking into accusations that two subsidiaries of Stuttgart-based Daimler AG paid bribes to Russian and Croatian government officials to secure car and truck sales.
Freeh’s ability to juggle the Penn State scandal and the MF Global bankruptcy, eighth-biggest in U.S. history, isn’t a concern, said James Bucknam, chief executive officer at Freeh’s risk management company who’s known him for 27 years.
“He’s up to leading both those efforts,” Bucknam said, describing Freeh as “an extremely tenacious investigator” whose most outstanding character trait is honor, as shown by his handling of the Khobar Towers terrorist attack.
“In June of ‘96 when he was FBI director there was a terrorist bombing in Saudi Arabia that killed numerous U.S. soldiers. He dove into it personally and assured the families of the victims that justice was done. Five years later, in his last week on the job, the indictment of the perpetrators was handed up by a grand jury,” Bucknam said.
Freeh believes he met Corzine when Corzine was a senator, during the last six months of Freeh’s tenure at the FBI, and has no conflicts of interest involving him, Bucknam said.
Since leaving MBNA, Freeh also served as an independent investigator in a 2008 investigation of energy-trading losses that led to the bankruptcy of SemGroup LP.
“It’s the first time I ever remember, that an examiner did an entire investigation within a specific time parameter and spent less than allocated. He’s very efficient,” said Schonholtz, who worked with Freeh as an attorney for SemGroup’s lenders.
Freeh was born in Jersey City, New Jersey, and received a J.D. from Rutgers School of Law in 1974, and an L.L.M. in criminal law from New York University School of law in 1984. He joined the FBI as a special agent in 1975 and later became a federal prosecutor and judge, appointed to the bench in 1991 by President George H. W. Bush. A board member of Bristol-Myers Squibb Co., Freeh also serves on the board of the U.S. Naval Academy Foundation. He and his wife Marilyn have six sons.
The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-02790, U.S. District Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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