The increasing number of government investigations into subprime lending, and continued losses on these loans have prompted a substantial amount of litigation.
Taking notice of the growing need for representation within the sector is Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., which announced the formation of a subprime practice group last week.
The motivation behind the group's formation came from the "steady drum beat of press reports" coupled with getting calls from clients, said Richard Moche, manager of the firm's public finance section and co-chair of the subprime practice group. "There was an understanding that in a sense this could just be chapter one of a long novel and that the fall out from [subprime troubles] will continue to play out," he said. "We just put two plus two together and said: We have got the substantive expertise on this, we think this is the coming of a substantial wave and it is important for us, in order to serve our clientele, to gather the expertise in one place and be able to deliver it; we owe it to them.'"
The newly formed group, which comprises more than two dozen attorneys throughout various offices, will focus on areas including securities, bankruptcy and restructuring, structured finance, governmental investigations, insurance coverage, white-collar crime and real estate.
The announcement marks an interesting turn of events for law firms affected by the turmoil in the mortgage sector. Thacher Proffitt & Wood warned that it could lay off 24 associates in its real estate and structured finance areas in January (see article on next page). Clifford Chance dissolved a six-lawyer specialized structured finance group of associates last month and McKee Nelson reportedly gave similar buyout offers to some of its associates. Calls to McKee Nelson were not returned by press time.
Government Takes Legal Action
One of the areas that has seen the most legal activity within the subprime market recently has been governmental investigations, Moche said. In conjunction with the investigations, market participants will be called on to shed light on the market distress. "What we are going to see is people are going to be contacted, not necessarily as targets but as part of the information gathering. As we all know, responding to that kind of governmental investigation has to be handled and people need representation in that connection," Moche said.
Groups needing legal assistance within the subprime sector have been entities that are in the industry as businesses, such as servicers and originators. The legal problems involving these subprime-related companies are not any different from other firms in distress, Moche said. However, having that subprime focus gives Mintz Levin an edge by allowing the firm to combine both its legal and business knowledge of the sector. "Coming to the table with both the substantive legal expertise that is called upon to deal with a particular legal problem and an understanding of the business they were operating in and are operating in just allows you to serve more effectively," he said.
Other legal issues within the sector that warrant attention include insurers responding to claims against officers and directors under D&O policies, financial institutions defending claims asserting inadequate disclosures of the risks related to the offering of securities backed by subprime mortgages, and companies defending themselves against shareholder suits that allege inadequate disclosure of the exposure to subprime credit issues.
As Long As Needed
The new group has recently been holding weekly meetings to determine the various places where these kinds of representations are needed as well as to disseminate legal expertise. The lawyers within the group will also continue to represent clients outside their subprime coverage areas.
Whether or not the subprime practice group is a permanent fixture within the firm remains to be seen, but it will most certainly last as long as the market faces these troubles. "The skills that you accrete in this sector eventually end up becoming analogous in other places," Moche said. "It might transition into something else in the future but for right now this is very much about the present developments and the emerging ones, and we want to stay on top of that."
Business is off to a hopeful start. Moche added that Mintz Levin is currently in an outreach phase to find out which clients need to be aware of its subprime expertise, and then to do a bit of a proactive assessment. "We have been receiving calls so that is a good sign," he said.
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