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FREDDIE MAC REPORT OUTLINES ROLE OF IN-HOUSE COUNSEL A portrait of an uninquisitive and sometimes uninformed legal department emerges in a report issued July 23 on the accounting methods used by mortgage backer Freddie Mac to distort its earnings since 2000. The 107-page report, commissioned by Freddie Mac directors and written by Baker Botts corporate and securities partner James Doty, says Freddie’s in-house lawyers were “briefed at length” on transactions known as linked swaps, which effectively transferred operating earnings of about $420 million from 2001 to later years. But a source familiar with the report says the company’s legal department “clearly did not get fully informed legal advice” from outside counsel on the legitimacy of the transactions. “You have a legal department that is not often engaged and not heavily engaged,” says the source. Freddie Mac Vice President and Deputy General Counsel Steve Dinces concluded that the transactions would be permissible, provided they satisfied a “legitimate business or risk management effect,” the report says. The company, which lowered earnings to meet Wall Street forecasts, says it will have to increase its earnings since 2000 by $1.5 billion to $4.5 billion because of accounting errors. The Securities and Exchange Commission is investigating the government-sponsored mortgage financier, and the Justice Department is conducting a criminal investigation related to Freddie Mac’s accounting. The source familiar with the report says regulators may raise questions about the role of Freddie Mac’s counsel in disclosing the transactions to the public and the company’s board. “Lawyers cannot be in the position of having to second-guess the accounting, but are in the position to ask the right questions about whether the transaction is true to the disclosure policy,” the source says. Whether Freddie Mac’s in-house lawyers failed to fulfill their duties is still ambiguous, says one white collar defense lawyer. “If the normal process within the company is such that the transactions at issue are relevant to and part of the lawyer’s role in the disclosure process, then there may be questions that would be fair to ask,” he says. “Whether there was such a process within Freddie Mac and what role, if any, the lawyers had, is something that seems unclear.” Freddie Mac officials said that they would not comment on the report. Neither Dinces nor Maud Mater, Freddie’s executive vice president and general counsel, returned phone calls. — Lily Henning MANATT MOVES Los Angeles-based Manatt, Phelps & Phillips is shedding its Washington telecommunications and international trade practices as part of a restructuring effort. “What we sometimes did in the past was adopt practices that were not critically related to core strategies,” says firmwide managing partner Paul Irving. “We’ve been trying to focus like a laser beam on things that we can do extraordinarily well.” The departure of the two groups — totaling about 15 lawyers — will leave the firm’s D.C. office with about 30 attorneys. The restructuring also includes related support staff cuts, according to Irving, who would not disclose the number of layoffs. Telecommunications group head Robert Rini says his five-member group is deciding between establishing a boutique or joining another large firm. “We’re basically trying to figure out what’s right for us,” says Rini, who merged his own firm, Rini, Coran & Lancellotta, with Manatt a year and a half ago. Irving says Manatt’s D.C. office will focus on core practices, including health care, financial services, and real estate. — Lily Henning BOBBLE-HEAD BID The long-awaited bobble-head dolls of Chief Justice William Rehnquist have arrived. Developed as whimsical — and free — thank-you gifts to longtime subscribers of the irreverent law review Green Bag, the dolls took several months to be produced in China and shipped. Now they are ubiquitous in Washington, and one already is up for auction on eBay. At press time, 14 bidders had run the price up to $255. Turns out that Montgomery Kosma, an editor of the law review and an associate at the D.C. office of Jones Day, put one of his dolls up for sale on the Web site. “It’s sort of like an IPO,” Kosma says. “They’ve never been sold, so there’s no price for them. We wanted to see what people would pay.” The online auction ends July 30. — Tony Mauro ACCOSTED BY SENATE R. Alexander Acosta, the Bush administration’s pick to head the Justice Department’s Civil Rights Division, faced tough questioning July 23 at his confirmation hearing before the Senate Judiciary Committee. Indeed, in an attempt to satisfy both sides of the aisle, the 34-year-old Acosta nearly backed himself into a corner on the touchy subject of judicial activism. The issue came up when ranking Democratic Sen. Patrick Leahy of Vermont quoted a 1997 statement made by Acosta positing that it would have been better for modern women’s rights to have been gained through the legislative process and not through judicial decisions. In response to Leahy’s questioning, Acosta attempted to stake out a more moderate position. “In the ideal, the democratic process brings about reform,” he said. “That doesn’t mean that when the democratic process does not respond that judges do not have an obligation to respond to fill the gap.” The answer evidently startled Sen. Jeff Sessions (R-Ala.), who later asked Acosta to repeat it. Acosta clarified that judges should act only “pursuant to the Constitution and pursuant to the laws to ensure that injustice is not done.” A mollified Sessions responded, “I think that’s a better answer.” Acosta, who held the No. 2 post in the Civil Rights Division from January 2001 until December 2002, currently serves as a member of the National Labor Relations Board. He is expected to be confirmed by the Senate. — Vanessa Blum WHERE ARTER THOU? Lawyers from the D.C. office of Arter & Hadden are finding new homes in Washington and beyond in the wake of the Cleveland-based firm’s recent dissolution. Theodore Ramirez and Mark Velasco joined the D.C health care group at Venable as partner and of counsel, respectively. Jonathan Stern, a partner specializing in aviation insurance litigation and product liability, headed to the seven-lawyer D.C. outpost of Schnader, Harrison, Segal & Lewis. Litigation partner Richard Dean opted to pull up stakes in the capital and headed to Cleveland to join Tucker, Ellis & West, a new firm founded by a group of former Arter partners. Michael Goodstein, an insurance litigator and the former D.C. managing partner for Arter, went to Columbus’ Bailey Cavalieri, another Arter spinoff. Arter, which expanded nationally in the 1990s and had 14 D.C. lawyers when it dissolved, closed its doors July 15 after struggling with excess overhead and shrinking lawyer ranks. — L.H. TALKS COOL OFF Cooley Godward and Orrick, Herrington & Sutcliffe have abandoned merger talks, according to sources close to both firms. A source familiar with Cooley Godward’s end of the negotiations says, “We have ended discussions mutually and amicably.” The firms had been talking since the beginning of the year, but neither firm put the deal to a partnership vote. Both Cooley and Orrick have been searching for merger partners, and the breakup of their talks means both firms will likely be out trolling for new prospects. Cooley Godward chairman Stephen Neal said in March that the firm was looking to combine with a firm that has a big New York office, strong litigation and corporate practices, healthy finances, and a European office or an interest in developing one. Orrick chairman Ralph Baxter Jr. hasn’t made such a public pronouncement about his firm’s merger hopes, but Orrick has been considering whether to acquire the Menlo Park, Calif.-based corporate boutique Venture Law Group. Orrick and VLG have had a client-sharing agreement since 1999. The status of those discussions is unclear. — Renee Deger, The Recorder DEFENSIVE STAND News that a federal judge had dismissed terrorism charges against Lynne Stewart, the lawyer who defended convicted terrorist mastermind Sheik Omar Abdel Rahman, came as a relief to the criminal defense bar last week. But concerns persist over the three remaining charges against Stewart, which carry a maximum 15-year sentence. Stewart was indicted in April 2002 for allegedly passing messages from Rahman, who is blind and behind bars in Rochester, Minn., to his followers in the Islamic Group, a terrorist organization. Judge John Koeltl of the Southern District of New York ruled July 22 that the government’s use of a 1996 anti-terrorism statute against Stewart was unconstitutionally vague. The remaining charges stem from Stewart’s alleged violation of special administrative measures that restrict Rahman’s communications from prison. “She is still under indictment. She can still be disbarred. She can still go to jail for basically being a vigorous advocate,” says Lawrence Goldman, president of the National Association of Criminal Defense Lawyers. New York defense lawyer Joshua Dratel, the author of an NACDL amicus brief in support of Stewart, calls the charges “insupportable.” — V.B. EARNINGS GENERALLY GOOD The general counsel of four D.C.-area corporations are among the nation’s highest-paid legal officers, according to Corporate Counsel magazine’s 2003 compensation survey. The top-paid local GC, Joseph Ryan of Bethesda-based hotelier Marriott International, made $914,166 in salary and bonuses in 2002. Ryan climbed from No. 87 to No. 56 in the rankings after a hefty bonus increase. His 2001 cash compensation was $633,884. Marianne Keler, general counsel of the student loan company SLM Corp. (Sallie Mae), made $850,000 in salary and bonuses in 2002, but dropped 11 spots in the rankings to No. 63. The other locals were survey newcomers. Leonard Kennedy of Reston-based Nextel Communications ranked No. 75 with $794,545 in cash compensation in 2002. William Luraschi of the Arlington-based energy company AES Corp. earned $707,767 and ranked No. 93. The magazine, a Legal Times affiliate, compiled the rankings based on Securities and Exchange Commission filings by Fortune 500 companies. The survey was limited to corporations where the general counsel is one of the five highest-paid executives. — Marie Beaudette

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