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BOSTON � Midsize law firm Goulston & Storrs’ lack of ties to major investment bank Merrill Lynch & Co. Inc. helped it score an early win in the law firm race for subprime mortgage work. The Springfield Finance Control Board, a five-member board of executives and public officials created to help Springfield, Mass., resolve a fiscal crisis, hired the Boston firm for advice about a legal dispute with Merrill concerning a $13.9 million investment. The investment’s value dropped by about 90% last year as the subprime mortgage crisis flared and the control board contended that Massachusetts cities and towns weren’t legally allowed to own the collateralized debt obligations (CDOs) in dispute. CDOs are portfolios of assets such as credit card debt, student loans and mortgages, sometimes including subprime mortgages. Goulston brokered the high-profile Jan. 31 agreement after about two months of work for Springfield’s control board. Merrill also footed the bill for more than $150,000 in legal fees, said Goulston litigator Richard J. Rosensweig, who led the Goulston team on the Springfield matter. But the plum assignment didn’t come from Goulston’s connections to the western Massachusetts city. The 195-lawyer Goulston is known primarily for its representation of commercial real estate developers in Boston. A railroad connection The firm’s prior tenuous connection with Springfield stemmed chiefly from public law and policy attorney James Aloisi Jr.’s work for state agencies involved in redeveloping the city’s historic Union Station railroad site. In fact, Springfield control board Chairman Chris Gabrieli, a venture capitalist, said he first called “a senior partner at a major law firm in Boston” when he learned of the investment problem in early December. The law firm declined the work because its other work for Merrill created conflicts. The lawyer also told Gabrieli that other large Boston firms with securities practices were likely to have conflicts and recommended Goulston “as a firm with strong litigation and strong municipal finance” practices, Gabrieli said. “Having people knowledgeable about securities law and litigation and who understood public law and the delicacies of public entities [was critical] in a situation like this,” Gabrieli said. “There were a lot of different ingredients that we needed to make this stew work really well.” The Springfield work is a prime example of the niche midsize firms can fill, Rosensweig said. “We have other opportunities that national firms don’t have, this I think is one,” Rosensweig said. The firm also gets work from Chicago and California firms, for example, that are reluctant to refer Boston litigation to big Boston firms now competing with them in their home markets, he said. “We’ve really been able to reap the fruits of the nationalization of Boston law firms by getting referrals from other markets where these firms are competing head to head,” Rosensweig said. Patterson Belknap Webb & Tyler, a New York firm of about 200 lawyers, announced a subprime mortgage practice team in July, but the firm first landed related work about seven years ago thanks to other firms’ conflicts, said team co-chairman Phil Forlenza. At the time, Patterson represented several companies that insure mortgage-based securities and municipal bonds in an “industrywide dispute” over default terms with purchasers of the securities, such as banks, financial institutions and brokers, Forlenza said. “Most of the business we now have [in this area], the clients came to us initially through conflicts,” Forlenza said. Just like SOX Jim Jones, a Washington-based consultant with Hildebrandt International, likened the situation to the early days of implementing the Sarbanes-Oxley Act of 2002, a sweeping corporate governance law. Independent committees of public company boards often sought law firms to represent them that were not the company’s outside counsel, Jones said. “There were firms that capitalized on that nicely at that time; this could well be another example of that,” Jones said. Jones said the subprime crises may offer “opportunities for midsized firms to move in” because larger firms are more likely to represent financial institutions, banks and investment banks.

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