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After staging its own version of the War of the Roses for nearly a decade, Morgan Stanley — and its legal department — is back under the rule of the House of Mack. In July the bank’s board welcomed former CEO John Mack from a four-year exile at Credit Suisse First Boston and restored him to the throne. Within three weeks of his return, Mack moved to revamp the legal department by hiring Gary Lynch as chief legal officer. Mack recruited Lynch from CSFB. The two worked together there from 2001 to 2004, while Mack was CEO. Lynch started at CSFB as global general counsel in October 2001, and a year later was named executive vice chairman and head of research and compliance. Before Mack hired him at CSFB, Lynch spent a dozen years as a partner at Davis Polk & Wardwell. He began his career in government, ultimately rising to director of the enforcement division at the Securities and Exchange Commission. Lynch, who is scheduled to start work on Oct. 18, declined requests for an interview. Lynch replaces Donald Kempf, who announced his retirement in June. Kempf nabbed the top law job in 1999, following a 34-year career at Kirkland & Ellis. His arrival came two years after the merger of investment bank Morgan Stanley Group Inc. and retail brokerage Dean Witter Discover & Co. During his tenure, Kempf remade the law department. In the aftermath of the merger, a deep cultural rift formed between the Morgan Stanley personnel, including Mack, and the Dean Witter veterans, including former Morgan Stanley CEO Philip J. Purcell. The clash played out in the legal department, with demotions and departures of senior Morgan Stanley hands. In recent months, Morgan Stanley had been in the news for its open internal warfare, as a group of eight former executives led a growing chorus calling for Purcell’s ouster. During that same time, Kempf’s legal department featured prominently in a suit brought by financier Ronald Perelman, who accused Morgan Stanley of defrauding him in a 1998 deal. Kempf fired Kirkland & Ellis, Morgan Stanley’s lead counsel, from the case in March after the judge reprimanded the bank for discovery abuses during the high-profile trial. In May the jury ordered Morgan Stanley to pay Perelman $1.45 billion. Morgan Stanley has said it plans to appeal the verdict. In May, looking to steady the ship, the Morgan Stanley board brought in David Heleniak as vice chairman and managing director. Heleniak was a longtime partner at Shearman & Sterling, an outside counsel to Morgan Stanley. With Lynch now aboard, Heleniak will remain at Morgan Stanley, but he will focus on strategic issues and the company’s investment banking business. The legal department will report to him until Lynch’s arrival. In July, Morgan Stanley brought in Davis Polk & Wardwell partner Jeffrey Small to serve as the bank’s interim counsel, presaging his firm’s possible return as Morgan Stanley’s lead outside counsel. Also in July, Morgan Stanley rehired Stuart Breslow, who had followed Mack to CSFB. He again became Morgan Stanley’s chief compliance officer, the same title he held at CSFB. Kempf had hired former Kirkland partner David Elston as managing director and head of global compliance. A Morgan Stanley spokesman confirms that Elston decided to leave the bank in early August. Under Kempf, Dean Witter lawyers came to rule the department, while Kirkland & Ellis supplanted Davis Polk as main outside counsel. The question now becomes how far the pendulum will swing in the other direction. Several current members of the department either did not return phone calls or declined to comment on the record. One former department member, who did not want to be identified, believes more top Dean Witter lawyers will be forced out, as will Kirkland. But he expresses general optimism, saying the department will become more of a meritocracy, where talent — not bloodlines — governs who stays and who goes.

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