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As barometers of the legal business, recent events at two firms offer unmistakable readings. On Jan. 30, San Francisco-based Brobeck, Phleger & Harrison voted to dissolve, its ranks of dot-com clients decimated, its costly offices half-empty, its balance sheet weighed down with debt. Two weeks later, on Valentine’s Day, Wilmer, Cutler & Pickering signed off on a lease for new headquarters in downtown Washington. The quintessential D.C. law firm — best-known for its regulatory practices — committed to a sprawling complex of offices in four buildings on Northwest Pennsylvania Avenue. It’s reported to be the largest corporate lease in the District, capable of housing more than double the number of D.C. lawyers now working at the firm. The collapse of Brobeck’s New Economy souffl� is an outsize symbol for an obvious fact: Corporate deal work remains very hard to come by. And forget about emerging companies. These days, the only IPOs making the news are the ones plaintiffs lawyer Melvyn Weiss claims were flipped, laddered, and otherwise manipulated during the last economic boom. But Wilmer Cutler’s bullish investment in 524,000 square feet of office space, with an option on 120,000 more, reflects a bright spot in the legal market. Indeed, for several firms in the nation’s capital — and in government centers abroad — the legal business is thriving. These firms include homegrown leaders such as Wilmer Cutler and Covington & Burling, as well as New York-based Skadden, Arps, Slate, Meagher & Flom; Cleary, Gottlieb, Steen & Hamilton and Los Angeles-based Latham & Watkins. Each has nurtured practices devoted to guiding corporate clients through the regulatory thicket. And between the Treasury Department’s crackdown on international banking and investment in the wake of Sept. 11, and the wave of new rules and investigations initiated by the Securities and Exchange Commission, that thicket has become more tangled and treacherous than at any time in the recent past. “We’re in a period of unprecedented corporate regulatory activity,” says David Becker, a securities partner at Cleary Gottlieb’s 80-lawyer D.C. office. “These practices are probably more active than they’ve been in 20 years.” The level of activity is probably most visible at the SEC. The spate of corporate failures has prompted what current and former SEC officials describe as frenzy of investigations and enforcement proceedings. At the same time, the commission has also pounded out a host of new rules under the Sarbanes-Oxley Act of 2002. The combination, observes Latham’s D.C. managing partner Eric Bernthal, amounts to a “sea change in the culture of corporate regulation.” For securities lawyers and litigators throughout the city, that has meant a tsunami of legal work as they counsel queasy clients on strategies for compliance with the new rules, tackle internal investigations for companies that have unearthed problems, and, in many cases now underway, struggle to fend off civil and criminal charges. Wilmer Cutler and Skadden Arps provide vivid illustrations. Wilmer billed over $3 million last year for its three-month investigation of the events that lead up to the Enron Corp.’s bankruptcy. And the firm’s phalanx of securities lawyers, including former SEC enforcement chief William McLucas, remain enmeshed in matters at WorldCom Inc. and a host of other companies. At Skadden Arps, D.C. litigators and lobbyists, led by partner Robert Bennett, have logged thousands of hours representing Enron in a welter of government investigations and congressional hearings. D.C. securities partner Colleen Mahoney, another former SEC official, has advised the Xerox Corp., among several others, in its travails at the agency. Other regulation-driven practices are thriving as well. At Latham & Watkins, D.C. managing partner Bernthal notes that his energy partners are busy advising clients in handling the fallout from the “disruptions in the energy markets” in California and other western states. Some of Latham’s energy clients face litigation or investigation by the Federal Energy Regulatory Commission. Skadden’s energy practice — one of the biggest in the firm’s D.C. office — is similarly busy, as is the firm’s communications group, which is lead by D.C. partner John Quale. Among other matters on his plate, Quale and his 11-lawyer team represent News Corp.’s Fox Television Network in the battle over broadcast deregulation. For the District’s indigenous regulatory powerhouses, such as Wilmer Cutler and Covington & Burling, the spike in activity is a welcome affirmation of a longtime strategy. “We think that what distinguishes us, and what we have to sell, is a deep appreciation of what it is regulators care about,” says Wilmer Cutler Chairman William Perlstein. “And we’re finding that in the current environment, that skill set is more valuable than it has been in a long time.” For many firms based outside D.C., such as Skadden Arps, the emphasis on building competitive regulation-driven practices is more recent. And right now, it’s paying off. After the recession in the early 1990s dried up much of the lucrative capital markets work in New York, Skadden Arp’s Quale relates, “the firm’s strategy was, first and fundamentally, to diversify.” The firm moved very deliberately into litigation and regulatory work, and built what is now a 245-lawyer D.C. office, Quale notes, “because between deals, this work keeps us busy.” “The firms that have sustained deep practices in these regulatory disciplines are doing very well,” Latham’s Bernthal says. “I don’t see that abating soon.” Still, SEC investigations and FERC proceedings don’t generate premium billing arrangements. And among the firms now gloating over their frantic regulatory lawyers and sleepless litigators, the vision of a super-profitable capital markets practice still beckons. Wilmer Cutler’s Perlstein says he’s hoping that by playing to its strengths, and serving up the best regulatory counsel clients can buy, Wilmer may also win more deal work from them down the line. At Latham, Bernthal makes it clear that premium corporate deals are the prize. “We’ve slowly but very clearly been building a capital markets practice around the world,” he says. “We’ve got great people all over the globe in that practice. Right now, it’s an anemic practice, but that will change.” Cleary Gottlieb’s New York-based managing partner, Peter Karasz, echoes the point. He estimates revenue from his firm’s regulatory practices, including its SEC practice, have “more than tripled” over a three-year period. “Right now we are emphasizing our activity in those practices,” Karasz says. “And I assume [these corporate regulatory issues] will be important for years to come. But, as soon as we decide whether or not to go to war, I think the deals will be back.”

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