Corporate Failures Lead to ‘Feeding Frenzy’ For Professionals
While investors and creditors, burned in some of history’s most dramatic corporate meltdowns, wait to hear if they will ever see a dime of the money they are owed, one thing is certain — many of the legal and accounting firms investigating what went wrong in the first place are profiting handsomely from the situation.
Enron, WorldCom, Tyco and Conseco all declared bankruptcy in the last two years, wiping out shareholders, employees and pensioners in the process. In the aftermath, scores of lawyers and accountants have been hired by the defunct companies — in some cases to clean up the mess and close down shop and in other cases to steer the organizations out of bankruptcy and back into solvency.
Investors are outraged by the excessive fees being paid to some professionals who charge anywhere between $400 and $700 per hour. Reports have also surfaced of CPA partners in the Conseco case charging over $900 per hour and the attorneys in excess of $1,100 per hour.
Particularly outrageous, some say, were the dueling reports issued last week looking into what went wrong at WorldCom. USA TODAY reported that employees wondered why it took a multi-million-dollar investigation to determine what they already knew — general counsel Michael Salisbury should be fired for failing to properly oversee $400 million in questionable loans to the company’s chief executive officer and founder Bernie Ebbers.
Bloomberg reported in April that in the case of Global Crossing — the seventh largest bankruptcy filing — lawyers had racked up $26 million in fees as of Jan. 31., and the case is not over yet.
"It’s a feeding frenzy," Todd Zywicki, a bankruptcy law professor at George Mason University in Virginia, told Bloomberg. "Every dollar spent on fees is coming out of the pockets of creditors."
However, some attorneys are working hard to ensure that investors do recoup some of their losses. John Butler Jr., partner and cohead of Skadden Arps’ bankruptcy and restructuring practice, billed $1.9 million in hours during 2001 and 2002, as of Jan. 31 filings, Bloomberg reported. However, he spent most of last year leading Xerox out of bankruptcy and returning to creditors upwards of 90 percent of the $4 billion in losses incurred when Comdisco (No. 14 on the list) declared bankruptcy.
"The turnaround of Xerox is one of the transactions I’m proudest of," Butler told Bloomberg. "I spent more time last year working on Xerox than anything else."