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The Lateral Hire That Led to $300 Million in Fees, and Counting

Bruce Carton | November 30, 2012

On Thursday, December 11, 2008, Bernard Madoff was arrested for the historic Ponzi scheme that stunned the financial world. On Monday, December 15, 2008, U.S. District Judge Louis L. Stanton appointed Irving H. Picard as trustee responsible for the liquidation of Bernard L. Madoff Investment Securities LLC. Although Picard was at the time a partner in the Gibbons law firm, a mid-size firm based out of New Jersey, he selected the law firm Baker Hostetler to serve as his counsel in the matter.

Just one week later, on Monday, December 22, 2008, Baker Hostetler announced that Picard -- perhaps realizing he was going to need a bigger boat to handle the Madoff matter -- had left Gibbons to join Baker Hostetler as a partner in its New York City office. According to the American Lawyer, Picard selected Baker Hostetler in large part because of his friendship with David Sheehan, a former Gibbons partner who had "serendipitously" joined Baker Hostetler as a lateral hire just a few months earlier.

Four years later, Baker Hostetler surely must look back on its hiring of Picard as perhaps the most astute move the firm has ever made. The Wall Street Journal reported yesterday that as of September 30, 2012, Baker Hostetler has been paid more than $300 million for its work on the Madoff matter. This does not include the firm's most recent request for $61.7 million in fees to cover 179,055 hours of work the firm performed between Feb. 1 and June 30, 2012. 

The fees paid to the trustee come from the Securities Investor Protection Corp., and Baker Hostetler is doing the work subject to a 10% "public interest" discount on its rates.  The WSJ reports that including the over $300 million paid to Baker Hostetler, SIPC has paid out $637.46 million to cover administrative costs for the Madoff liquidation as of Sept. 30, 2012.