Will Wall Street Ever Learn E-Mails Are Forever?William D. Cohan
April 1 (Bloomberg) -- Wall Street professionals (and others) still don’t grasp that e-mails and text messages are no place for laying out schemes of wrongdoing, for sharing one’s doubts about the wisdom of selling a flawed product or for freaking out when a large bet on an obscure derivative goes awry.
Even though the U.S. public has had exactly zero satisfaction when it comes to holding Wall Street accountable for the financial crisis that started in 2007, some degree of solace can be found in the stream of embarrassing e-mails and documents that those with subpoena power have kindly made available to the rest of us in recent years.
Take, for example, Goldman Sachs Group Inc.’s efforts, beginning in December 2006, to short the mortgage market, even as it continued to sell mortgage-backed securities at par to investors. I, for one, couldn’t have written about those misdeeds without the 900 pages of internal Goldman documents that Senate Permanent Subcommittee on Investigations Chairman Carl Levin released in April 2010 as part of his probe into the bank’s conduct during the years leading to the financial crisis.
Put in chronological order and filleted of the jargon that pervades much Wall Street internal communications, the documents reveal an impressive and devastating portrait of how Goldman -- virtually alone among Wall Street banks -- spotted trouble in the mortgage market in 2006. This was in large part because Goldman Sachs copied the trades it was executing for John Paulson, the hedge-fund manager, making the bank about $4 billion in 2007 from its “big short,” as former Chief Financial Officer David Viniar described it in a July 2007 e-mail to Gary Cohn, Goldman’s president.
Although the bank still refuses to admit the extent of its bet -- preferring to call it a hedge -- the documents and e-mails tell the incredible story of how Goldman pulled off one of the greatest trades of all time.
Levin provided the same public service recently with his 300-page report (and the accompanying 600 pages of e-mails, memos and documents) on the “London Whale” trading disaster at JPMorgan Chase & Co. Levin will be sorely missed when he retires from the Senate in 2015.
Now, we have a new cache of e-mails, made public as part of a recent lawsuit (and countersuit) filed by Adam H. Victor, an energy entrepreneur, against a law firm, DLA Piper LLP. These documents reveal -- depending on your perspective -- that the firm’s lawyers were either routinely overcharging and padding bills unprofessionally, as Victor claims, or were merely joking about doing unethical things but didn’t actually do them (DLA Piper’s position).
Either way, the e-mails show yet again how easily professionals can be seduced into thinking that the company e-mail system is no more hazardous to one’s career than gossiping around the water cooler. You would think that lawyers at the world’s largest law firm would know better than to be so callous and supercilious in digital records that are preserved in perpetuity, can easily be searched and must be turned over as discovery to an opposing party in a lawsuit.
“While many disheartened and aggrieved clients, as well as a large portion of the general public, have long suspected that attorneys in general churn time, inflate bills, create unneeded work, or expend time performing useless tasks, that claim has always been difficult, if not impossible to prove,” according to an affidavit supporting Victor in the lawsuit, which was filed in New York State Supreme Court. “That is no longer the case!”
For instance, the e-mail traffic from May 20, 2010 -- about a month into the firm’s work on behalf of Victor -- shows what appears to be DLA Piper attorneys involved in his project discussing padding his bills. “I hear we are already 200k over our estimate -- that’s Team DLA Piper!” Erich Eisenegger wrote to his colleagues Christopher Thomson and Jeremy Johnson.
“What was our estimate?” Thomson replied later that night, adding that another attorney, Vincent Roldan, had been put on Victor’s case. “And now Vince has random people working full time on random research projects in standard ‘churn that bill, baby!’ mode. That bill shall know no limits.”
Eisenegger replied: “400K. We are at 600K.”
Thomson clarified that because of an unrelated $150,000 charge, Victor’s bill was really just $450,000. “That said,” he continued, “DLA seems to love to low ball the bills and with the number of bodies being thrown at this thing it’s going to stay stupidly high” because of the “absurd litigation” Victor had been involved in for years.
The e-mail trail continued into the evening, with Johnson writing his colleagues, “Didn’t you use 3 associates to prepare for a first day hearing where you filed 3 documents?”
Thomson responded: “And it took all of them 4 days to write those motions while I did cash collateral and talked to the client and learned the facts. Perhaps if we paid more money we’d have more skilled associates.”
After Peter Lattman, a New York Times reporter, broke the story of the lawsuit, DLA Piper sent around a memo calling the e-mails “inappropriate” and noting that three of the attorneys involved were no longer at the firm. It also said Victor wasn’t overbilled.
“These e-mails reflect an unfortunate attempt at humor by three former lawyers of the firm, but did not result in overbilling to the client,” the memo said. “It is unfortunate that the unprofessional behavior of these lawyers by writing those e-mails has distracted attention away from the fact that a client refused to pay his bills, and is now being exploited by a party in litigation for their own advantage.”
Time will tell whether Victor will end up having to pay the $675,000 in unpaid fees that DLA Piper claims it is owed. In the meantime, it is worth recalling the abbreviation that often appeared in the Goldman e-mails released by Levin: LDL. That was Goldman-speak for “Let’s Discuss Live” and not on e-mail.
The bank didn’t always follow its own advice -- thank the good Lord -- but it remains invaluable, unless, of course, you don’t mind reading your name and your stupid musings on the front page of the New York Times.
(William D. Cohan, the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. He was formerly an investment banker at Lazard Freres, Merrill Lynch and JPMorgan Chase. The opinions expressed are his own.)
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