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US: Lobbyist's Firm Escapes Fallout From a Scandal

by By JONATHAN D. GLATER and ANNE E. KORNBLUTThe New York Times
January 8th, 2006

Greenberg Traurig was a politically well-connected law firm long before Jack Abramoff, the disgraced lobbyist who pleaded guilty last week to conspiracy, fraud and tax evasion, joined it about six years ago.

Lawyers for the firm represented George W. Bush in the weeks after the disputed 2000 election. Its partnership ranks include high-powered lawyers like John Scalia, the son of Justice Antonin Scalia.

The firm has weathered scandal in the past. In the 1990's, it raised money from a German executive for political candidates, violating a ban on soliciting foreigners. It later paid $77,000 to settle with the government.

But no crisis has been as potentially toxic as the one involving Mr. Abramoff, who pleaded guilty to defrauding clients of tens of millions of dollars and enticing government officials with bribes.

His actions have threatened the firm's very existence by leaving it vulnerable to malpractice claims, according to several outside lawyers who have followed the case.

Among some employees of Greenberg Traurig and others doing business with it, there have been suspicions that the firm was aware of Mr. Abramoff's wrongdoing, which it has repeatedly denied.

Greenberg Traurig rushed to distance itself from Mr. Abramoff, appease his clients and work closely with prosecutors. In the process it has earned praise for its cooperation from Senator John McCain, Republican of Arizona, kept alive the possibility of suing Mr. Abramoff for its losses and negotiated financial settlements with most of Mr. Abramoff's victims.

"They have taken the new approach that most corporations or institutions take in today's world, which is just completely cooperate with the investigation," said David Schertler, a former federal prosecutor who practices at Schertler & Onorato in Washington. "Once they find out about some wrongdoing, they completely distance themselves from the person that was doing it." He added that for Greenberg Traurig, "that does seem to have been pretty effective."

Top executives at the law firm are not talking about the strategy it has pursued to manage the crisis. The firm has only issued a brief statement, which read in part: "Almost two years ago, Jack Abramoff revealed to the firm conduct we found unacceptable. The firm demanded and obtained Mr. Abramoff's immediate resignation. This week's developments validate that action."

Greenberg Traurig was founded in 1967 in Miami. It has expanded rapidly over the past 10 years, growing to employ 1,500 lawyers in more than 25 offices, the largest now in New York, not Florida. Last year, according to American Lawyer magazine, the firm took in more than $700 million in revenue.

When top executives at the firm learned from a recruiter in 2000 that Mr. Abramoff might consider leaving the Washington office of Preston Gates & Ellis, another law firm, they jumped at the chance to woo a rainmaker. Mr. Abramoff and five colleagues made the move to the lobbying arm of Greenberg Traurig, where they proceeded to bring in millions of dollars in revenue for the firm.

There were some apparent oddities about Mr. Abramoff's business practices at the firm. For example, Michael Scanlon, who worked closely with Mr. Abramoff and pleaded guilty in November to conspiring to bribe a member of Congress, at times used an office at Greenberg Traurig, although he was never a firm employee.

Several participants in the criminal case have said that the firm, at a minimum, turned a blind eye to the work the pair did. A spokeswoman for the firm denied that accusation.

One of those participants in the case said that suspicious financial dealings ran rampant in Mr. Abramoff's corner of the firm, and that other employees of the firm knew it. "Expense reports were just completely fabricated," said the participant, speaking on the condition of anonymity because Justice Department officials have asked all participants not to comment on the case. Prosecutors have given no indication that they are investigating Greenberg Traurig, and the firm has been credited for cooperating with the investigation.

Greenberg Traurig lawyers moved swiftly to distance the firm from Mr. Abramoff once news of his work became public. (Partners at the firm have consistently said they learned of questionable activities by Mr. Abramoff from newspaper articles, in particular one in The Washington Post in early 2004.)

Mr. Abramoff was ordered out of his office in February 2004, and the firm hired a prominent criminal defense lawyer, Henry F. Schuelke III of Janis, Schuelke & Wechsler in Washington, to conduct an internal investigation into how Mr. Abramoff had operated. Sensing its own legal liability, the firm began contacting clients who had been misled.

The risks of client claims were substantial, said Brett G. Kappel, a partner in the Washington office of Vorys, Sater, Seymour & Pease who focuses on lobbying and legal ethics as well as campaign finance laws. "They would have had a contracts claim, a malpractice claim," Mr. Kappel said. "They would've had multiple claims."

Among the clients the firm approached was Tyco, which has since reached a settlement with Greenberg Traurig to be repaid $1.5 million of about $1.8 million it spent while working with Mr. Abramoff on a tax loophole issue in Congress.

As he was trying to get Tyco to hire him in May 2003, Mr. Abramoff suggested that the company hire GrassRoots Interactive to help. Ultimately, Tyco did - unaware, company officials said, that it was really paying Mr. Abramoff himself.

According to Mr. Abramoff's plea agreement, he "falsely advised" Tyco that GrassRoots Interactive "had no relationship with Abramoff's law and lobbying firm, even though G.R.I. was controlled by Abramoff."

George J. Terwilliger III, the lawyer representing Tyco, said Greenberg Traurig informed the company about the scam shortly after firing Mr. Abramoff. He also said the firm, "under very difficult circumstances, did the right thing, from making the disclosure to acknowledging its former partner had wronged one of its clients."

Greenberg Traurig also headed off potential claims by reaching financial settlements with clients including the Mississippi Choctaws, an Indian tribe that had hired the firm to lobby on its behalf. The tribe praised Greenberg Traurig's conduct on its Web site, saying the firm had "acted honorably."

The statement continued, "That settlement fully and fairly resolves all of the tribe's claims for recovery of funds arising from Mr. Abramoff's misconduct."

Mr. Abramoff took in about $1 million a year in compensation from Greenberg Traurig. But he supplemented his income, according to documents summarizing the charges to which he pleaded guilty, by many millions more. Mr. Abramoff persuaded clients to hire companies that he or Mr. Scanlon had established - in some cases without disclosing the personal connection - and those companies then charged the clients millions of dollars in fees.

Mr. Abramoff received as kickbacks about half of the profits from a company set up by Mr. Scanlon. For example, Mr. Abramoff received $6.4 million from one Indian tribe client from June 2001 to April 2004 and $11.5 million from another tribe from March 2001 to May 2003. The money was used "for their own personal benefit and not for the benefit of their clients," according to the criminal charges against Mr. Abramoff.

So far, one tribe, the Louisiana Coushattas, has filed a lawsuit against the law firm.

After its internal investigation, Greenberg Traurig quietly dismissed several people who had worked with Mr. Abramoff. And when the Senate Committee on Indian Affairs held a hearing on the widening scandal in November, Fred Baggett, a partner in the Tallahassee office of Greenberg Traurig, went.

"Based on Mr. Schuelke's investigation, the firm has made disclosures to clients affected by Mr. Abramoff's activities, worked out resolutions with a number of affected clients and hopes to work out resolutions with still other affected clients," Mr. Baggett's prepared statement reads.

The statement was clearly appreciated by Senator McCain, the committee chairman. "I know this chapter in the firm's history is embarrassing and painful in many ways," Mr. McCain said in his prepared remarks. "But I want the record to reflect that, consistent with their professional obligations, Greenberg Traurig and its counsel have always been responsive to the committee's requests, always made themselves available to answer questions, and have always conducted themselves with dignity and professionalism in these trying circumstances."

Prosecutors were also apparently satisfied with the cooperation they received. When the plea agreement between prosecutors and Mr. Abramoff was announced last week, it included references to Greenberg Traurig that cast the firm as an unknowing victim of fraud, not a participant. That will help the firm defend itself against any angry clients and also strengthen any claims it chooses to bring in the future, outside lawyers said.

According to the government, Mr. Abramoff made his own firm a victim when he wooed a wireless telephone company as a client in 2001 and persuaded it to pay $50,000 to a foundation he established instead of paying Greenberg Traurig. He never told the firm, which lobbied on behalf of the company without a retainer agreement, of the payments.

"In this case," said Mr. Schertler, the former federal prosecutor, "they were able to make the case that they did not facilitate the conduct and it was done unbeknownst to them."





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