Sunday, October 13, 2013
The calls started flooding into JPMorgan Chase last month.
As settlement talks with the federal government over the bank's mortgage business heated up, lawyers began aggressively seeking a lucrative piece of work. The lawyers wanted the plum assignment of serving as monitor for JPMorgan's mortgage operations -- a corporate baby-sitting role that is typically part of a settlement.
JPMorgan's announcement on Friday that it had set aside $9.2 billion to cover its mounting legal expenses -- leading it to report its first quarterly loss under Jamie Dimon -- underscored how the numerous regulatory woes at the nation's largest bank are proving to be a boon for the country's most sophisticated law firms.
Mr. Dimon, JPMorgan's chief executive, described the legal expenses on Friday as "painful." But that pain is profit for the bank's outside law firms, which include some of the cream of the Wall Street bar: Sullivan & Cromwell; Paul, Weiss, Rifkind, Wharton & Garrison; and WilmerHale.
Even as defense lawyers publicly complain that government regulators are being too aggressive, they privately celebrate the windfall. Law firms in New York and Washington are collectively earning many hundreds of millions of dollars representing JPMorgan in cases ranging from weak controls against money laundering to commodities trading, according to interviews with senior partners at several of top firms.
Mr. Dimon warned investors that even with a huge legal bill for the most recent quarter, the costs could "continue to be volatile over the next several quarters."
Bracing for additional legal costs, JPMorgan has set aside a $23 billion cushion for litigation reserves, a figure that the bank disclosed for the first time on Friday. A large portion of that will most likely go toward penalties levied by the government, as well as to pay advisers like accounting and consulting firms.
Other big banks have been plagued by huge legal bills in recent years. Since the financial crisis, Bank of America has doled out more than $20 billion in legal costs, according to government filings.
All the legal work resulting from government scrutiny of big banks has propped up earnings at the country's top-tier law firms, which have struggled with soft performance since the financial crisis. Traditional profit centers like mergers and acquisitions and bankruptcy have been especially uneven.
"Overall demand for legal services has been essentially flat for the last three and a half years leading to meager revenue growth," said Dan DiPietro, chairman of the law firm group at Citi Private Bank. "This has been one of the few bright spots in an otherwise tepid environment."
The litigation boom is being driven, in part, by a stepped-up effort from government authorities to increase the oversight of Wall Street after they were criticized for not doing enough in the years before the financial crisis.
In a speech earlier this month, Andrew J. Ceresney, the new co-head of enforcement at the Securities and Exchange Commission, trumpeted what he saw as his agency's more combative approach. "When I first started, I had said that one of my goals was to help bring the swagger back to the enforcement division," he said. "And I feel like we have succeeded in doing that."
Adding to the headaches for banks -- and the opportunities for lawyers -- are the swelling number of regulatory agencies. The newly minted Consumer Financial Protection Bureau, for example, has taken aim at banks' credit card practices. In New York, the state's banking authority, the Department of Financial Services, has gone after banks for funneling billions of dollars on behalf of nations like Iran.
Corporate law firms have long positioned their practices to capitalize on the business trends of the day, from the boom in bankruptcies in the wake of Enron and WorldCom to the leveraged buyout mania of the last decade. The recent insider trading investigations have generated hours upon hours of billable work. But for the most part, those cases are not especially lucrative as they are leanly staffed with only a small team of lawyers.
Cases involving money laundering or mortgage-backed securities, however, require large teams of lawyers to review millions of pages of documents and to interview armies of bank executives. These sprawling investigations have forced Wall Street banks to divert billions of dollars in profit from shareholders into the coffers of corporate law firms.
Other big banks have come under fire. In a civil case, federal prosecutors in Manhattan accused Bank of America last October of carrying out a scheme through its Countrywide Financial unit that supposedly defrauded government-backed mortgage agencies by churning out loans without adequate controls.
But JPMorgan alone has become a full-employment act for corporate lawyers as the bank, once a favorite in Washington, faces scrutiny from at least seven federal agencies, several state regulators and two foreign countries. On Friday, Marianne Lake, JPMorgan's chief financial officer, cautioned that legal expenses exceeded what "we could have anticipated even a short while ago."
The last time JPMorgan reported a loss for the quarter was also a result of legal expenses -- in 2004, when settlements related to their business dealings with Enron and WorldCom weighed on the bank's results.
This time around, the bank has retained several powerhouse firms to represent it. Lawyers from Sullivan & Cromwell, for example, have snagged coveted work advising JPMorgan on an investigation by the Commodity Futures Trading Commission, which is pushing the bank to admit wrongdoing connected to its trading loss in London, according to people briefed on the matter.
Wachtell, Lipton, Rosen & Katz is helping JPMorgan navigate an investigation by prosecutors and the F.B.I. in Manhattan into whether the bank failed to alert authorities to suspicions about Bernard L. Madoff's Ponzi scheme.
The bank tapped Paul, Weiss, Rifkind, Wharton & Garrison to handle scrutiny from the S.E.C. and the Justice Department into the bank's decision to hire the children of well-connected Chinese officials -- an issue at the center of a wide-ranging bribery investigation. And WilmerHale was hired related to a federal inquiry of the bank's energy trading business.
Beyond the government investigations, lawyers are benefiting from a desire within JPMorgan to bolster its internal controls. To do that, the bank has gone on a hiring spree, scooping up some experts in money laundering from the Manhattan district attorney's office, for example, as the bank increases its staff handling legal and regulatory issues.
Outside lawyers are jockeying for work related to an anticipated settlement between the bank and government authorities over its sale mortgage securities.
During those negotiations, JPMorgan has offered to pay a fine of roughly $7 billion and provide $4 billion in relief for struggling homeowners, people briefed on the matter said.
The settlement, which is still in flux, could result in the assignment of a monitor to oversee JPMorgan's mortgage business. The Justice Department often installs monitors inside companies as part of their settlements.
Most recently, as part of its guilty plea last December, BP agreed to pay $4.5 billion in criminal fines and penalties, and said it would retain a risk management monitor and an ethics monitor.
Dennis Kelleher, the head of Better Markets, an advocacy group focused on financial industry reform, was a partner earlier in his career at the large law firm Skadden, Arps, Slate, Meagher & Flom. He blames the bank for its prodigious legal bills.
"This massive morass that JPMorgan and Jamie Dimon find themselves in is of their making," Mr. Kelleher said. "Improve your behavior and you won't need to hire so many lawyers."
By Jessica Silver-Greenberg and Peter Lattman
Source: The New York Times
Southeast Colorado farmer Ryan Loflin tried an illegal crop this year. He didn't hide it from neighbors, and he never feared law enforcement would come asking about it.
Loflin is among about two dozen Colorado farmers who raised industrial hemp, marijuana's non-intoxicating cousin that can't be grown under federal drug law, and bringing in the nation's first acknowledged crop in more than five decades.
"Phone's been ringing off the hook," said Loflin, who plans to press the seeds into oil and sell the fibrous remainder to buyers who'll use it in building materials, fabric and rope. "People want to buy more than I can grow."
But hemp's economic prospects are far from certain. Finished hemp is legal in the U.S., but growing it remains off-limits under federal law. The Congressional Research Service recently noted wildly differing projections about hemp's economic potential.
However, America is one of hemp's fastest-growing markets, with imports largely coming from China and Canada. In 2011, the U.S. imported $11.5 million worth of hemp products, up from $1.4 million in 2000. Most of that is hemp seed and hemp oil, which finds its way into granola bars, soaps, lotions and even cooking oil. Whole Foods Market now sells hemp milk, hemp tortilla chips and hemp seeds coated in dark chocolate.
Colorado won't start granting hemp-cultivation licenses until 2014, but Loflin didn't wait.
His confidence got a boost in August when the U.S. Department of Justice said the federal government would generally defer to state marijuana laws as long as states keep marijuana away from children and drug cartels. The memo didn't even mention hemp as an enforcement priority for the Drug Enforcement Administration.
"I figured they have more important things to worry about than, you know, rope," a smiling Loflin said as he hand-harvested 4-foot-tall plants on his Baca County land.
Colorado's hemp experiment may not be unique for long. Ten states now have industrial hemp laws that conflict with federal drug policy, including one signed by California Gov. Jerry Brown last month. And it's not just the typical marijuana-friendly suspects: Kentucky, North Dakota and West Virginia have industrial hemp laws on the books.
Hemp production was never banned outright, but it dropped to zero in the late 1950s because of competition from synthetic fibers and increasing anti-drug sentiment.
Hemp and marijuana are the same species, Cannabis sativa, just cultivated differently to enhance or reduce marijuana's psychoactive chemical, THC. The 1970 Controlled Substances Act required hemp growers to get a permit from the DEA, the last of which was issued in 1999 for a quarter-acre experimental plot in Hawaii. That permit expired in 2003.
The U.S. Department of Agriculture last recorded an industrial hemp crop in the late 1950s, down from a 1943 peak of more than 150 million pounds on 146,200 harvested acres.
But Loflin and other legalization advocates say hemp is back in style and that federal obstacles need to go.
Loflin didn't even have to hire help to bring in his crop, instead posting on Facebook that he needed volunteer harvesters. More than two dozen people showed up -- from as far as Texas and Idaho.
Volunteers pulled the plants up from the root and piled them whole on two flatbed trucks. The mood was celebratory, people whooping at the sight of it and joking they thought they'd never see the day.
But there are reasons to doubt hemp's viability. Even if law enforcement doesn't interfere, the market might.
"It is not possible," Congressional Research Service researchers wrote in a July report, "to predict the potential market and employment effects of relaxing current restrictions on U.S. hemp production."
The most recent federal study came 13 years ago, when the USDA concluded the nation's hemp markets "are, and will likely remain, small" and "thin." And a 2004 study by the University of Wisconsin warned hemp "is not likely to generate sizeable profits" and highlighted "uncertainty about long-run demand for hemp products."
Still, there are seeds of hope. Global hemp production has increased from 250 million pounds in 1999 to more than 380 million pounds in 2011, according to United Nations agricultural surveys, which attributed the boost to increased demand for hemp seeds and hemp oil.
Congress is paying attention to the country's increasing acceptance of hemp. The House version of the stalled farm bill includes an amendment, sponsored by lawmakers in Colorado, Oregon and Kentucky, allowing industrial hemp cultivation nationwide. The amendment's prospects, like the farm bill's timely passage, are far from certain.
Ron Carleton, a Colorado deputy agricultural commissioner who is heading up the state's looming hemp licensure, said he has no idea what hemp's commercial potential is. He's not even sure how many farmers will sign up for Colorado's licensure program next year, though he's fielded a "fair number of inquiries."
"What's going to happen, we'll just have to see," Carleton said.
By Associated Press
Source: The Fox News
Sunday, October 6, 2013
Illegal immigrants can be licensed to practice law in California under one of eight bills expanding immigrant rights that were signed by Governor Jerry Brown on Saturday.
The California Supreme Court, which finalizes requests of applicants to be licensed as a lawyer in California, is now authorized to approve qualified applicants regardless of their immigration status.
Other new laws prohibit law enforcement officials from detaining immigrants based on federal government instructions except in cases of serious crimes or convictions, and make it illegal for employers to retaliate against workers on the basis of their citizenship.
"While Washington waffles on immigration, California's forging ahead," Brown said in a statement. "I'm not waiting."
The new laws, including the one letting undocumented immigrants become lawyers, could set a precedent for the nation. They are part of a push to increase immigrant rights in the strongly Democratic state. About 38 percent of California's population of 38 million is of Hispanic descent.
On Thursday, Brown signed a law making undocumented immigrants eligible to apply for drivers licenses. California, which will join at least nine other states when the law takes effect in 2015, expects 1.4 million people to apply for licenses over three years.
A study by the University of Southern California has found that more than 2.6 million people, most of them Latinos, lack legal status in the state.
Assemblyman Luis Alejo, a Democrat from Watsonville, said the new laws illustrate the change in California over the last 20 years.
California is doing what it can at the state level in the absence of immigration reform by the U.S. Congress, he said.
Earlier this year, the Democratic-led U.S. Senate approved a path to citizenship for millions of immigrants living in the United States illegally, but the Republican-controlled House of Representatives is unlikely to follow suit.
The California law that allows illegal immigrants to practice law grew out of a case of an undocumented Mexican immigrant, Sergio Garcia, who was brought to the United States as a baby and later graduated from a California law school. He has received the support of the State Bar of California and the state attorney general.
Critics of Garcia's bid to gain admission to the California bar included the U.S. Justice Department, which opposed it in a brief filed with the state's Supreme Court last year.
While Garcia may now be admitted to the California bar, two other Mexican immigrants -- one in New York and another in Florida -- are pursuing similar cases.
By Noreen O'Donnell
Source: The Reuters
Strong consumer interest heartens backers of Obama's healthcare law, but persistent glitches could spell trouble.
Kentucky health officials thought they might get a handful of serious shoppers when they flipped the switch Tuesday on Kynect, the new online insurance marketplace the state created under President Obama's healthcare law.
"We weren't even hopeful that a couple hundred people would apply," said Carrie Banahan, Kynect's executive director.
|Backers of President Obama's healthcare law are heartened by strong consumer interest, but problems accessing the new online insurance exchanges have been a major headache|
It has been a similar story across the country. Since the new marketplaces opened Tuesday, millions of Americans have flooded websites, call centers and insurance offices seeking information about health coverage offered through the Affordable Care Act, also known as Obamacare.
More than 8.5 million people visited the federal http://www.healthcare.gov site last week, according to officials at the Department of Health and Human Services.
California's marketplace, Covered California, had 514,000 unique visitors to its website the first day of enrollment.
Blue Shield of California said its consumer call volume more than doubled last week with hundreds of people asking about their options under the healthcare law and whether they qualified for federal subsidies.
For residents of 36 states that are not running their own online markets, the federal website is the main portal to get health coverage provided by the new law next year. Additionally, the federal call center received 406,000 calls.
Very few of those potential customers have been able to complete the process of applying for coverage. Legions have been thwarted by technical problems that repeatedly shut down many of the online marketplaces, including the federal site. And although officials probably have several weeks to fix the glitches -- particularly with public attention focused on the federal government shutdown -- lingering problems still threaten to make the debut a disaster.
But if the enrollment process smooths out, the unexpected initial surge of consumers may end up being the most important story to emerge from the first days of Obamacare's signature new markets.
"Clearly there is a lot of interest in getting health insurance out there," said Joel Ario, a former state insurance commissioner and Obama administration official who, like many, was surprised by the outpouring.
Before enrollment began last week, public opinion polls consistently showed that Americans remained deeply skeptical of the 2010 law and unfamiliar with many of its core provisions.
Fewer than 4 in 10 adults in a recent nationwide Gallup survey said they were familiar with the new marketplaces. Lack of knowledge was even more pronounced among the uninsured, with three-quarters saying they were unfamiliar with the marketplaces.
Obama administration officials and many state leaders have worried they would be unable to get enough consumers, threatening the viability of the markets, which depend on strong enrollment by young, healthy customers. Officials hope to enroll 7 million people next year.
The online marketplaces, one for each state, are designed to allow Americans who don't get coverage through employers to shop for health plans. Insurers selling on the markets must for the first time meet new basic standards and are prohibited from turning away consumers with preexisting medical conditions.
Millions of low- and moderate-income Americans who make less than four times the federal poverty level -- or about $46,000 for individuals and up to about $94,000 for a family of four -- will qualify for government subsidies to help with their premiums.
The open enrollment period lasts until March 31, though consumers who want coverage to start Jan. 1 will have to select health plans by Dec. 15. Many experts believe the real crush of consumers will come ahead of the December deadline.
In coming weeks, the marketplaces will face several critical tests.
One will be whether potential customers continue to visit them once the initial surge of interest wanes.
Another will be whether the administration can fix the numerous technical glitches that have frustrated consumers. The problems with the healthcare.gov site were so severe last week that in many states, only a small fraction of consumers appear to have been able to successfully apply for health coverage. Obama administration officials have declined to say how many people have enrolled so far.
In Louisiana, which has more than 900,000 uninsured residents, just seven people had applied for a plan from Blue Cross Blue Shield of Louisiana through the first two days of the federal marketplace.
Kentucky, which minimized disruptions on its website by using a simpler design than the one on the federal site, enrolled 4,739 individuals and families by Friday.
Obama administration officials said they were taking additional steps to expand online capacity and planned to take the site down for maintenance over the weekend during off-peak hours. "We expect that Monday … there will be significant improvements in the online consumer experience," the Health and Human Services Department said in a statement Friday.
Several information technology experts predicted there would be even more technical problems as online systems confront premium payments, changes in eligibility and other complex tasks.
"Is this just the tip of the iceberg?" asked Harold Tuck, former chief information officer for San Diego County. "There ought to have been better beta testing of the systems, and these errors wouldn't have come up."
Bill Curtis, chief scientific officer at CAST, a New York-based firm that analyzes information technology systems, said the heavy traffic probably explained many of the problems. "When you have this kind of volume, it exposes all kinds of weaknesses," he said.
Nevada's marketplace, Nevada Health Link, had 60,000 unique visitors on its first day, spokesman C.J. Bawden said.
Many visitors may be curiosity seekers, an analysis advanced by critics of the law suggested.
"I think if you subtract out members of Congress and their staff and reporters who called in those first 48 hours, the numbers will be considerably lower," Rep. Michael C. Burgess (R-Texas) told CNN last week.
But insurers such as Blue Cross Blue Shield of Kansas City have also reported significant increases in direct customer inquiries.
And the spokesman for Blue Cross Blue Shield of Louisiana, John Maginnis, said the insurer's 80-member enrollment task force has been "overwhelmed" by consumer interest.
In Kentucky, marketplace officials were equally pleased that small businesses were seeking coverage in unexpected numbers.
Banahan said the state had hoped to get about 10 businesses enrolled on Kentucky's small-business market by Christmas. By the end of last week, 178 had already started applications.
"There is just a lot of pent-up demand," Banahan said.
Source: The Los Angeles Times