A new audit report says that four major law firms failed to justify $8.1 million in legal fees that they charged the U.S. Treasury Department for work related to the financial crisis.
The report indicates that billing problems at law firms working for the Treasury Department have been more widespread than previously known. An earlier audit report in April spotlighted “vague and inadequate” fee bills submitted by a fifth law firm, Venable, but that report questioned a smaller amount, $677,000.
The latest report is especially critical of Simpson Thacher & Bartlett. Auditors looked at $5.8 million in fees that the firm received under three Treasury Department contracts, and they called into question all of it. The firm, the report says, “provided no detail of work performed in its fee bills, and did not provide receipts or proper documentation for expenses.”
On one day, the report says Simpson Thacher submitted two fee bills, one for $200,000 and another for $300,000, that “contained only the total dollar amount owed” with no detail of the work performed, the hours worked or labor rates. Later, the firm was able to provide the names of lawyers and their hours and rates but no detail of what work they did.
“No invoice contained enough information to justify [Treasury officials] paying Simpson Thacher,” the report says.
Asked for comment on the report, a Simpson Thacher spokeswoman e-mailed a statement saying the firm’s lawyers were “honored” to work with the Treasury “during an unprecedented and extremely challenging time.” The statement added that “our team of highly qualified lawyers worked closely with the Treasury staff on a daily basis to structure and implement [the Troubled Asset Relief Program] that played a key role in stabilizing the US financial system.”
Three other law firms come in for criticism: Cadwalader, Wickersham & Taft; Locke Lord Bissell & Liddell, now known as Locke Lord; and Bingham McCutchen along with Bingham predecessor firm McKee Nelson. Those firms’ fee bills were plagues by inadequate detail and block billing, the report said.
A spokesman for Cadwalader, which worked on Treasury's investment in General Motors Co. and the Chrysler Group, wrote in an e-mail that the firm does not comment on specific matters for clients “but we are very proud of the work we did in record time and under incredible pressure to restructure these two critical auto companies.”
The two other firms did not respond to requests for comment today.
The Treasury Department’s Office of Financial Stability received blame in the report, too. Auditors wrote that the office’s contracts with the law firms were inadequate because they had little direction for how detailed the firms’ fee bills should be, and the office had inadequate and inconsistent policies for reviewing legal fee bills once they came in.
In a written response to the audit, a Treasury official downplays its significance. Timothy Massad, the assistant secretary for financial stability, wrote that the contracts in question relate to the fallout from 2008 financial crisis, when government officials were desperate to save world markets. “Our entire economy was on the verge of a catastrophic collapse, markets had ceased to function, and almost every major financial institution was at risk of failure,” Massad wrote in a two-page letter attached to the audit report.
He also wrote that the law firms helped the government at discount rates, produced successful results and worked so closely with the Treasury Department that officials there could monitor the work adequately, even if there is little documentation now of what the lawyers did.
The 52-page audit report (PDF) is a product of the special inspector general for the Troubled Asset Relief Program. Nicknamed “Sigtarp,” it is headed on an acting basis by former Securities and Exchange Commission counsel Christy Romero.
Auditors recommended that the Treasury Department try to get back at least $91,482 from Simpson Thacher. The amount reflects what auditors called “questioned, ineligible fees and expenses” that the firm should not have been paid for, such as instances of billing above rates that were agreed upon in the firm’s contract.
Further, auditors recommended that Treasury “specifically determine the allowability” of the other $8 million in questioned legal fees: $5.8 million from Simpson Thacher, $2 million from Cadwalader, $146,867 from Locke Lord and $57,939 from Bingham.
Updated at 2:34 p.m.