Corporate Counsel - March 2010 (Sample Issue)

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Weil, Inc., the Newtown Square, Pennsylvania–based legal consulting firm.

“We haven’t seen anything like this
in the marketplace,” says
Orrick. “In the past, other
companies have entered into
nationwide agreements with a
single firm to handle a specific
type of matter, but nothing on
this scale. The Levi arrange-
ment is unprecedented in that
a single firm will handle matters that
span the globe.”
Levi Strauss’s in-house lawyers
started to reevaluate their use of outside
firms soon after Krane became general

Krane

counsel in 2006. She came from Price-
waterhouseCoopers LLP, where she
had been an assistant general counsel
since 1996. She says that while
Levi Strauss has its high-risk legal
problems, the bulk of its commer-
cial work is repetitive in nature
and doesn’t require “chasing the
world’s experts.”
According to Krane, the selection
of Orrick was driven by a review of
their “geographic and substantive
coverage,” as well as “an overall
sense of their commitment to mak-
ing this arrangement work.” Johnson-
McKewan says that while Orrick hadn’t
represented Levi Strauss recently, it had
worked for Krane’s previous employer.

“Hilary Krane had worked with my partner, Diana Weiss, when Hilary was at PricewaterhouseCoopers, and had a favorable view of our firm from that relationship,” Johnson-McKewan says.

Orrick receives an annual fee, paid in monthly installments, to handle recurring legal matters around the world. In countries where the firm doesn’t have an office, it enlists the help of local counsel, using the money that it’s already received from Levi Strauss. If something unanticipated arises—such as a major transaction—separate payment arrangements are made.

More than 100 Orrick lawyers in seven countries have done work for Levi Strauss, Johnson-McKewan says. In

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ANGST OVER AIG

The insurer’s bailout by the Federal Reserve has come under increasing scrutiny.

SECRET DETAILS ABOUT A DEAL involving the Federal Reserve Bank of New York and American International Group, Inc., aren’t secret anymore. Lawmakers are angry at how the New York Fed handled the transaction, but the officials who worked on it—including the bank’s general counsel— are defending their actions.

When the federal government rescued Wall Street a year and a half ago, AIG received more bailout funds than any other institution. The insurer then funneled billions of those dollars to banks that it owed. But unlike other companies that paid off debt during the financial crisis, AIG paid these banks nearly 100 cents on the dollar for their claims. The public didn’t know this at the time, though, because the New York Fed—which directed the bailout—tried to keep the details secret until 2018.

Under pressure from Congress, the Fed released the names of the banks and the amounts they received in March 2009. But the extent to which the Fed tried to keep the transaction secret has only begun to emerge in recent months.

In January the House Committee on Oversight and Government Reform, which has been investigating the use of bailout funds in general, held hearings on the AIG transaction. Committee members grilled Timothy Geithner, former president of the New York Fed, and Thomas Baxter, Jr., its general counsel, about their roles in the AIG deal.

Also in January, the General Accountability Office started a review of the transaction. And Neil Barofsky, the special inspector general at the U.S. Department of the Treasury who’s been looking into the bailouts, has opened a probe.

All of the investigations are looking at how the New York Fed routed $62 billion through AIG to 16 financial institutions in November 2008. The banks held credit default swap contracts with the insurer, but the value of the contracts was tanking, and AIG was incurring huge losses on them.

At the House hearing, some committee members accused the Fed of using AIG to slip a “backdoor bailout” to the banks. In his testimony, Geithner (who is now President Barack Obama’s Treasury secretary) rejected that allegation. He also argued that the Fed did not have the luxury of time.

“We could not risk a protracted negotiation,” Geithner said. “AIG’s financial position was deteriorating rapidly, and the prospect of a [credit rating] downgrade was imminent.” That could have meant bankruptcy for AIG and perhaps catastrophe for the U.S. economy, he maintained.