Bailout Watchdog Questions All $5.8 Million of Simpson Thacher's Legal Fees

By MICHAEL SMALLBERG

As a taxpayer, you have to love a watchdog report with a chapter heading that reads:

"SIGTARP Questioned All $5.8 Million of Simpson Thacher's Legal Fees Because Simpson Thacher Did Not Provide Any Description of Work Performed or Any Receipts for Expenses"

That's from a report issued yesterday by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).

At the request of Senator Tom Coburn (R-OK), the SIGTARP reviewed the Treasury Department’s oversight of five law firms that received more than $27 million to provide legal services for Treasury’s bailout programs. In April, the SIGTARP released an audit finding that Treasury’s inadequate oversight of one firm, Venable LLP, had created an “unacceptable risk” that taxpayers were being overcharged. Yesterday’s audit focused on Treasury’s oversight of its contracts with the other four firms: Simpson Thacher & Bartlett LLP, Cadwalader Wickersham & Taft LLP, Locke Lord Bissell & Liddell LLP, and Bingham McCutchen LLP.

Treasury’s Office of Financial Stability (OFS), which oversees the TARP, has paid these four firms more than $25.5 million in legal fees and expenses. The SIGTARP reviewed $9.1 million of these fee bills, and found that $8.1 million (89 percent) should be called into question because there was no way to determine the reasonableness of individual hourly charges and expenses.

The bills often contained:

• No descriptions of the work performed;
• Vague descriptions of the work performed;
• Descriptions of more than one task in the time entry (“block billing”);
• Expense charges without adequate support; and
• Administrative charges not allowed under the contract.

The “most striking example” came from bills submitted by Simpson Thacher:

Simpson Thacher billed OFS $5.8 million in fees and expenses with bills that provided no detail whatsoever as to the work performed. Further, Simpson Thacher did not provide any receipts, or adequate documentation, for its expenses as required in one of its contracts, and billed for expenses under another contract that did not allow expenses. SIGTARP questioned all $5.8 million in fees and expenses OFS paid to Simpson Thacher. Without knowing what specific work was included in the charges, OFS could not have determined whether the fees and expenses the firm was paid were properly allocable to the contract, allowable pursuant to financial regulations, and reasonable, which are the requirements of the Federal Acquisition Regulation (“FAR”).

The SIGTARP offered several recommendations for improving OFS’s contract oversight, and urged the Treasury contracting officer to seek recovery from Simpson Thacher for $91,482 in ineligible fees and expenses that were specifically prohibited under the OFS contract.

A Treasury spokesman stated that these firms’ services “were of high quality and critical to the successes of our programs,” and insisted that Treasury followed procedures to ensure that “taxpayers received good value.” Another bailout watchdog, the Congressional Oversight Panel, has previously stated that Treasury’s procedures for post-award contract management “follow well-established norms for monitoring contract performance.” In addition, the Government Accountability Office (GAO) has reported that OFS “put in place an appropriate infrastructure to manage and monitor its network of financial agents and contractors, as well as a system to oversee conflicts of interest that may arise with financial agents or contractors seeking or performing work under TARP.

Nonetheless, the SIGTARP found that OFS “could not have determined that amounts billed and paid were reasonable” because it “did not question these legal fee bills and request more detailed information.”

In addition to its work on Treasury’s bailout programs, Simpson Thacher also received a non-competitive $1.1 million contract from the Federal Reserve Bank of New York (FRBNY) to provide legal services related to the assistance that facilitated JPMorgan’s acquisition of Bear Stearns.You can also find the firm listed in our SEC Revolving Door Database.

Last year, POGO’s Scott Amey testified before the Congressional Oversight Panel concerning Treasury’s use of its emergency contracting authority, highlighting issues such as inadequate transparency, potential conflicts of interest, and risky contract vehicles. We hope that Treasury and other agencies will incorporate the lessons learned from the SIGTARP’s latest report in any future economic recovery programs that rely heavily on private contractors.

Michael Smallberg is a POGO Investigator

Comments

[littlebadwolf]

these fees and shenanigans by law firms are outrageous, but the government should bill every nickel to the banks which had to be
supervised because they were and are bad actors with tarp $$$$$$.
any needed forensic audit should also be billed to the banks who received
largess and spit in the faces of all americans.

[Niko Borosky]

I would head on down to the DC Bar Asson. For $25, you can file a complaint. Treasury could easily claim that failure to document activity and expenses is unprofessional, not to mention suspicious. The peers who would resolve the complaint would clearly force it to document expenses and fees. Those that could not stand the light of day could be easily disallowed. The contract does not matter. The complaint does. Case closed, eh?

[Marcelle Green]

Unfortunately, the Congressional Oversight's Panel's comment that Treasury's precedures “follow well-established norms for monitoring contract performance” is probably true: this IS the way the Treasury Department spends our money.

[Dr. Harry J. Maue]

There always seems to be a lot of press regarding legal fees and never forget expenses. Expenses have triggered more legal audits then legal fees. The reason is if you find questionable expenses there seems to be a direct correlation with unreasonable legal fees. The bottom line to all this is simply have all the fees and expenses audited by an experienced forensic legal auditing company. Then the matter can be put to rest and hopefully all parties can be satisfied with the audit findings. Legal auditing has been around for over 26 years and it still amazes me that it's these professional services are not utilized near enough. Every intitution involving either a operational or financial transaction is subject to some kind of oversight. The exception to that is when it comes to legal services it seems only the most well managed companies seem to get it and subject the law firms to some type of legal bill review. These reviews can be as simple as an electronic process which primarily just eliminates paper but does not produce any type of substantive results. They can give you various metrics and reports but really no potential savings. However savings should not be the primary motivation behind a legal audit. If a company wants to really do something about controlling legal fees and expenses there is only one way and that is by retaining the services of a professional legal auditing company. Respectfully submitted, Dr. Harry J. Maue

[Dr. Harry J. Maue]

In order to maintain objectivity it may behove the Inspector General to retain the services of an independent forensic legal auditing company. This would provide a third party independent objector report that could act to resolve any potential billing ill regularities that are non compliant will billing guidelines, ABA billing protocols and adjudicated cases. If there are billing violations uncovered and the matter cannot be settled then the audit findings can be arbitrated or litigated. But in any case an outside auditing company has to be retained so that independence can be maintained and finger pointing can possible be negated. The bottom line is that it' s just the right thing to do. Respectfully submitted, Dr. Harry J. Maue