When a former top aide to Mayor Richard Daley quit last summer amid a federal probe into city hiring practices, he quickly landed consulting work at one of the nation’s top securities-fraud law firms.
Records and interviews now reveal the New York firm’s partners had been wooing John Doerrer for years, even as he helped them get city pension business worth more than $5 million.
Doerrer, 50, the former head of the city’s beleaguered Office of Intergovernmental Affairs, said his City Hall connections played no role in the law firm winning business.
“The bottom line is, I’ve done nothing wrong,” Doerrer said. “I never asked anyone to hire anyone. I never exerted any influence. I made introductions, and that’s all I did.”
The city’s revolving-door ethics law prohibiting employees from working for city contractors for one year after they resign doesn’t apply, Doerrer said, because his city role had nothing to do with pension funds.
But the law firm’s foray into City Hall circles–including free entertainment for pension fund officials on trips to New York–raises the broader question of whether political connections matter as much as a national reputation.
Doerrer said he introduced the partners of Bernstein Litowitz Berger & Grossmann to city and pension officials in 2000 and 2001 as the firm tried to land pension business. He acknowledged he was talking with the firm about a job at the time.
In the years since, Bernstein Litowitz–a securities litigation law firm nationally known for successfully suing corporate chieftains who defraud their stockholders–has collected $5.5 million in fees representing the city’s pension funds in class-action lawsuits.
“He made introductions, kind of an old boys’, friends’ network I guess,” said G. Anthony Gelderman, a Bernstein partner who described himself as Doerrer’s friend. “But I honestly don’t believe we were accorded any special treatment or super-duper help from John.”
City pension fund officials–many of whom were wined, dined and treated to Broadway shows by the firm–said Doerrer’s relationship with the firm had nothing to do with their choice. And they defend the Rainbow Room dinners and entertainment they accepted at a firm-sponsored seminar in New York.
Still, pay-to-play allegations have dogged securities-fraud class-action cases for nearly a decade, ever since federal reforms changed the way attorneys are chosen in those cases.
Before the 1995 reform bill, the first lawyers to sue typically collected most of the fees. Now, the firm that brings the largest investor to the case–such as pension funds–stands to earn the fees.
As a result, law firms began courting pension administrators around the country, donating to politicians’ campaigns and signing up local law firms with political influence.
After Doerrer’s introductions in Chicago, Bernstein Litowitz managed to shoulder aside another politically connected law firm that had a virtual lock on the city’s pension business.
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Free tickets to `Lion King’
Records show that as Bernstein Litowitz was pursuing business at the city’s five biggest pension funds, the firm treated 17 pension officials and in some cases their spouses to cocktails and dinner parties. Many also got free tickets to “The Lion King” on Broadway in 2001.
By that time, the firm was already representing two of the city pensions in a class-action case against DaimlerChrysler.
When the case settled in 2004, the firm billed for 3,063 hours of work and collected $5.5 million in fees.
Bernstein Litowitz’s top partners earned nearly $3,000 per hour, while the settlement they helped negotiate for retired city workers recovered just $175,000 of the $6 million they lost.
That amounts to less than three pennies on the dollar.
City pension administrators and the firm’s partners say the attorneys’ fees that Bernstein earned were normal, and the recoveries for city pensioners were fair. They also bristle at any suggestion that Doerrer’s new job as the firm’s Midwest representative came in return for his help.
Doerrer resigned in July after two of his underlings at IGA were indicted on charges they rigged city hiring tests to favor political allies. He was not accused of any wrongdoing.
“I’ve worked hard my entire career to avoid even any appearance of impropriety,” Doerrer said.
He said he twice sought oral opinions from the city’s ethics board because of his relationship to Bernstein Litowitz.
“They said that since I had no contract authority over the pension funds, that I was doing nothing wrong,” Doerrer said.
Opinions issued by the ethics board are confidential, and officials there declined to comment.
He said the law firm had been trying to hire him since 1999.
“I kept telling them no,” Doerrer said. “So when I left the city, it was a good fit. I’ve known them for years, so I called them up.”
Gelderman said he was introduced to Doerrer by former city lobbyist Sean L. Heffernan, a longtime Gelderman family friend who worked with Doerrer at IGA.
“We were able to separate ourselves from our competitors based on our record,” Gelderman said. “I’m very comfortable with how this was developed.”
In early 2000, according to city records and interviews, Gelderman and another partner began flying to Chicago to make the firm’s pitch to the city pension funds.
At that time, the pension funds were represented by Barrack Rodos & Bacine, a Philadelphia firm whose managing partner is a top Democratic fundraiser and former finance chief of the Democratic National Committee. The firm contributed $10,000 to Daley’s re-election campaign in 1999.
Daley’s chief lobbyist
As head of IGA, Doerrer was a trusted Daley lieutenant and his chief lobbyist. His office promoted the mayor’s political agenda with aldermen, city unions and state politicians.
Pension officials said Doerrer never pressured them to hire Bernstein Litowitz.
“As I remember it, Doerrer simply made the introductions–I don’t remember whether he came to a meeting or if it was a phone call,” said John Gallagher, executive director of the Policemen’s Annuity and Benefit Fund. “I can tell you that Bernstein didn’t make a cold call.”
By the end of 2001, Bernstein Litowitz had joined Barrack Rodos in monitoring nearly $20 billion in investments in city pension funds for Chicago’s teachers, police officers, municipal employees and laborers.
Gelderman and Doerrer both acknowledged there were several discussions about a job for Doerrer in 2000.
“He was talking about leaving the city then, and I remember telling him he should consider coming to work for us. It didn’t happen,” Gelderman said. “Frankly, I think it was because he loves the mayor.”
Doerrer said that around that time, Daley offered to make him director of IGA–a promotion that began in December 2000. “So I never left, and I had no intention of ever leaving,” he said.
When Doerrer did leave the city in July, he was making $135,500 a year.
In October, Doerrer attended Bernstein Litowitz’s annual Institutional Investors Forum in New York. At the events, firm partners and guest speakers educate clients on securities litigation trends before adjourning to cocktails, dinner and Broadway shows.
The list of past attendees includes executive directors from city pension funds, several pension trustees and two former city comptrollers. City Treasurer Judith Rice, an ex-officio member on the boards of several city pension funds–has attended twice, according to pension board records. She did not return telephone calls for comment.
While records show the funds paid for plane tickets and hotel rooms, Bernstein Litowitz picked up the entertainment tab. Under the city ethics ordinance–which doesn’t apply to the city pension funds–such expenses for “educational missions” are exempt from a city gifts ban. The expenses likewise don’t conflict with pension board rules.
Under normal circumstances, Barrack Rodos and Bernstein Litowitz are cutthroat competitors. But in 2001, when a corporate merger at Chrysler caused the pension funds for police officers and municipal employees to lose a combined $6 million on their investment, the funds asked the firms to work together.
After the two firms helped negotiate a settlement, they shared nearly $15 million in attorneys’ fees awarded by the judge. That amounts to an average of about $1,635 per hour for the 9,117 hours put in on the case by 49 various partners, associates and paralegals, records show.
Such huge attorneys’ fees are typical in class-action cases, where the law firms agree to accept a percentage of the recovery in exchange for assuming all the risk and expenses if they lose in court.
“When we win, the rewards are great, that’s true,” Gelderman said. “But these are expensive cases to litigate and the risk is ours.”
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1995 law changed rules of the game
In a fierce competition to sign up public pension funds as clients in lucrative class-action cases, many of the country’s top securities-fraud law firms have spent big money over the last decade wooing state and local officials.
They’ve contributed to campaigns, wined and dined pension officials and forged partnerships with politically influential local law firms.
Such practices, which have led to widespread allegations of political favoritism, sprang up after federal legislation in 1995 that changed the way law firms are chosen in class-action stock-fraud cases involving companies such as Enron.
Before, the first law firm to file a case typically got to litigate it–and collect the bulk of the attorneys’ fees.
But under the new law, called the Private Securities Litigation Reform Act of 1995, the largest victims of corporate fraud–institutional investors such as pension funds–were handed the power to choose which law firms lead the cases.
Almost immediately, the top securities law firms in the nation were no longer racing to the courthouses to file their lawsuits against corporate shenanigans.
Instead, they were scampering to sign up pension funds as clients.
Federal authorities are investigating some law firms and their clients over allegations that kickbacks and political payoffs were offered in exchange for business.
As is typical in most class-action lawsuits–where attorneys are paid a percentage of whatever is recovered–the victims of the stock fraud get only pennies on the dollar, while lawyers collect huge amounts in fees, sometimes exceeding $3,000 an hour.
— David Kidwell
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– You can find more information about the legal fees mentioned in this story online at chicagotribune.com