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It wasn’t so long ago that most firms wrinkled their noses at the thought of taking equity in clients. Think of the ethical issues! The conflicts of interest! What a difference a bull market can make. After hearing about some of the stunning returns reaped by Silicon Valley firms, a lot of lawyers are rethinking their principles. Even if they aren’t motivated by dreams of sudden wealth, they’ve come to believe they need to play the equity game to grab emerging-company work. As part of this year’s Am Law 200 reporting, an e-mail survey was sent to firms, asking them to answer a few basic questions about their client investment policies. The results don’t tell us what’s happening at all 200 firms, but they do show the number of firms — at a minimum — where attitudes have changed. Of the 36 firms that responded, only three said they don’t take equity in clients and weren’t considering it. Of the rest, 27 said they take equity, and six said they were actively considering it. “We’ve come to the view that it’s the wave of the future,” says Steven Davis, cochairman of New York’s LeBoeuf, Lamb, Greene & MacRae, which is finishing an investment policy and has set up a screening committee. Davis says his firm doesn’t expect to make lots of money (at least at first), but sees these investments as a way to signal its willingness to do business with young companies. At New York’s Brown & Wood, managing partner Thomas Smith says the firm is “cautiously sorting through opportunities,” and has taken stock in a handful of clients and set up voluntary investment partnerships for partners. Other Am Law 200 firms that say they take equity include Chicago’s Altheimer & Gray; Pittsburgh’s Reed Smith Shaw & McClay; New York’s Proskauer Rose; and Philadelphia’s Morgan, Lewis & Bockius. Among the firms that are considering it are New York’s Cleary, Gottlieb, Steen & Hamilton; New York’s Milbank, Tweed, Hadley & McCloy; Washington, D.C.’s Arnold & Porter; and Houston’s Bracewell & Patterson. Policies vary. Boston’s Hale and Dorr, for instance, will purchase equity only when there is a third-party transaction, such as a financing round in which other investors are buying at the same price. Valley firms, in contrast, often buy “founder’s stock,” which is priced before outside investors come in. Not all the firms that have struck bonanzas on stock investments are based in Silicon Valley. For instance, Los Angeles’s Irell & Manella saw some great payoffs in 1999. According to co-managing partner Kenneth Heitz, the firm’s investment gains last year exceeded its income from fees, which averaged $620,000. The firm did particularly well in Broadcom Corporation’s initial public offering. According to securities filings, Irell bought 225,000 shares in 1997 at $4.67 per share, for a purchase price of roughly $1 million. Since the company went public, the stock has split twice and hit a high of $253. On June 6 it was trading at $156; at that price, the firm’s investment would be worth $93.6 million, assuming no partners sold their shares. Related Chart: The Am Law 100 Am Law 100 Index

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