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Plaintiffs’ Lawyers Give to Campaigns, Later Get Business. Discuss

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  • Plaintiffs’ Lawyers Give to Campaigns, Later Get Business. Discuss

    Here’s what happens: Plaintiffs’ law firms make donations to state and local political candidates. After they’re elected, those candidates tap those plaintiffs’ law firms to represent state and local pension funds in shareholder class-action lawsuits. After the cases settle (which they almost invariably do), the firms walk off a bit richer, the beneficiaries of profitable contingency-fee arrangements.

    It’s all legal. But to some it sure doesn’t smell too good. Some lawyers say widespread political giving by plaintiffs’ law firms, especially outside their home states and near the time when counsel are chosen, is evidence of a corrosive pay-to-play culture in the securities-litigation industry.

    “Plaintiffs’ lawyers donate because they think it buys them access to people who make decisions over how pension funds select counsel,” says Fred Isquith, a partner at Wolf Haldenstein Adler Freeman & Herz LLP, a plaintiffs’ firm in New York. Such giving “creates an appearance of complete impropriety,” he says, and “should be outlawed.”

    The issue is given a heavy-duty treatment in Wednesday’s WSJ, courtesy of writers Mark Maremont, Tom McGinty and Nathan Koppel. Click here for the story.

    The fact that this cycle goes on is indisputable. The WSJ found that 25 leading firms, their lawyers and family members contributed a total of more than $21 million in the past decade to state-level candidates and party funds, as well as to national-party groups that work to elect state officials. Less than 40% went to candidates within the law firms’ home states.

    Some see nothing with the practice, arguing that it’s perfectly legal, and makes good business sense. “We make sizable contributions to candidates we believe support investor causes,” said Stanley Bernstein, of the New York firm of Bernstein Liebhard LLP.

    Others who defend it include public officials who favor shareholder suits say these are a needed check on corporate misbehavior. They deny any pay-to-play dynamic, and say lawyers are chosen on merit.

    But others find the whole practice questionable, and potentially damaging to shareholders, who, when wronged, should get the best lawyers available, not just those who’ve paid the most money.

    “It shouldn’t be the case that plaintiffs’ lawyers should make contributions to public officials and turn around and get legal business from them,” said Robert Litan, a former Clinton administration Justice Department official now at the Brookings Institution.. “You want the best lawyer, not the one with the biggest campaign checkbook.”

    LBers, any thoughts?

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