Law Firms - A Business Approach

Amy Kolz
Daily Business Review
March 8, 2007

In the course of a decade, Greenberg Traurig has had the kind of growth usually reserved for businesses that sell oil or iPods. Revenues are up by more than 880 percent from 1996, and in 2006 they topped the billion-dollar mark.

Profits per partner have soared from $480,000 to $1.2 million. The firm has opened 22 offices and added more than 1,400 attorneys. And it expects revenue to rise another 18–20 percent in 2007.

After years as a midmarket Florida player, Greenberg has amassed a national client list that includes Lowe’s, The Related Companies and Alcoa. Its real estate, entertainment and litigation practices are humming. And it has snagged roles in high-profile transactions, such as representing MetLife in its $5.4 billion sale of New York’s Stuyvesant Town and Peter Cooper Village, the biggest deal ever for a single piece of American property.

It’s the kind of performance that would make any firm tout its business model. And that’s certainly the case with Greenberg. The firm highlights its management structure: the fact that it is run like a closely held corporation, with a strong chief executive who possesses almost unlimited authority to make decisions. Partners disdain the bureaucracy that’s part of committee-driven firms. They are in business to make money. And in that regard, partners — actually shareholders, in Greenberg’s case — are held to high standards. At the beginning of the year, they set targets for annual earnings, and the firm’s management tracks their progress. Meet the targets, and there are no questions asked. Slip, and management is on the phone.

One word is used more than any other by Greenberg lawyers to describe their firm: “entrepreneurial.” Want to expand a practice area? Forget putting together a detailed business plan, just be sure that the idea makes money. “The Greenberg Traurig mantra is … get out of the way and let people grow their practice with our support,” says Michael Lehr, managing partner of the Philadelphia office. Or as a former longtime partner puts it: “At other firms you have lawyers who engage in business; at Greenberg you have a lot of businessmen who practice law.”

But Greenberg’s story is far more complicated than one of exuberant expansion. This is the firm that hired and nurtured Jack Abramoff, the Washington lobbyist who engineered a scheme to defraud Native American tribes out of millions and whose shady business deals have landed him in a Maryland federal prison. Abramoff’s isn’t the only recent imbroglio starring Greenberg lawyers. There’s the Philadelphia of counsel convicted in a City Hall corruption case; the just-departed Chicago partner bogged down in another federal corruption probe; the Miami corporate partner banned from working with federally insured banks for allegedly helping to cover up a client’s losses; the New York rainmaker who took kickbacks for steering clients to tax shelter operators; and the Philadelphia partner escorted from the office by federal marshals after being convicted of lying to conceal his theft of client funds in a real estate deal.

Though it won’t provide an exact accounting, Greenberg has paid millions — perhaps tens of millions — in fines and settlements to clean up the messes. But the firm says the scandals are isolated incidents perpetrated by a few bad apples in a barrel of 1,680 lawyers. “We’ve had a couple of bad ones, no question,” says Cesar Alvarez, the firm’s CEO. “But every single major [professional] firm has items that are embarrassing to them,” he says, pointing to the accounting firm scandals and the Enron-related issues at other law firms. Yet many former Greenberg lawyers say that the same qualities that yield great financial rewards — the emphasis on profit, the appetite for growth, the bureaucracy-free culture — have allowed rogue lawyers and lobbyists like Abramoff to join the firm and, until they’re caught, thrive.

The firm has launched an initiative to tighten scrutiny of lateral partners and is taking a closer look at risk management. But partners are adamant that they won’t do anything that will jeopardize the firm’s business-minded approach. “You have to pick your poison,” Lehr says. Firms that ask partners to get approval before spending $500 probably sacrifice growth and entrepreneurial behavior, he says: “At Greenberg, we do much better at growing our business, but my guess is that over time there might be two or three more problems than at those others firms.”

Alvarez, the firm’s 59-year-old leader, reminds Greenberg lawyers at every turn that “you begin to fail the minute you think you’re successful.” Such striving is nothing new for Alvarez. He emigrated from Cuba with his family when he was 13. By the time he was 26, he had earned an undergraduate degree in economics, an MBA and a law degree from the University of Florida. He originally planned to open a bilingual practice in Miami with his brother. But Mel Greenberg persuaded Alvarez that he could do better at a somewhat larger firm. Alvarez joined Greenberg Traurig in 1973 as the firm’s 13th lawyer.

Greenberg, Robert Traurig and Larry Hoffman had founded the firm only six years earlier. The trio wanted to bring sophisticated New York–style legal services to Miami-area businesses. They started with the founders’ specialties, tax, real estate and corporate work, and then added a litigation practice in 1974 when deterioration of the local real estate market created a demand for foreclosure services.

From the beginning, the firm was known for its work ethic and dogged pursuit of business. Greenberg, often referred to as the “Sultan of Sweat,” at one point instituted a Saturday workday. The ambitious young Alvarez ascended quickly, representing such local entrepreneurs as Miami-based Air Florida and Cosmo Communications Corp. in their initial public offerings.

Even in the early days, the firm had a single leader—Greenberg—and a closed compensation system. The structure allowed the firm to pay top dollar for high-profile lateral partners, such as former Florida governor Reubin Askew. The firm was also known for embracing social outsiders. The Jewish founders had faced discrimination and eagerly courted the Cuban exile community.

But Greenberg’s ambitions stopped in Florida. He worried that offices outside the state would be a cash drain or would abandon the firm if they proved successful. It wasn’t until Greenberg passed the reins to partner Larry Hoffman in 1991 that the firm began its geographic expansion. Hoffman concluded that the 125-person firm would eventually have to expand outside Florida or merge into a larger firm. Recognizing a “strong nexus” between New York and South Florida, Hoffman opened an office in New York that year. An office in Washington, D.C., followed. Hoffman set the stage, but Alvarez put the growth plan into overdrive when he took over as CEO in 1997. Within four years, the firm opened ten offices and head count more than doubled.

Not everyone was thrilled with the rapid expansion. Some partners disliked the cost of growth. Others worried about the impact on quality. Twenty-eight partners left the firm in 2001, representing approximately 8 percent of the partnership. But the majority of partners were happy with the moves. Profits were rising, and Alvarez had made a persuasive case for growth.

Besides, he calls the shots. Like his predecessors, Alvarez has almost unlimited authority over decisions, from partner compensation to firm expansion. Five years ago, Alvarez tweaked the firm’s governance to help him manage the firm’s astronomical growth. He appointed partners Richard Rosenbaum in New York and Matthew Gorson in Miami as national operating shareholders. Along with Hoffman, who is now executive committee chair, they help Alvarez hire, determine compensation, and plot business strategy. And a 14-person executive committee advises Alvarez and helps him take the pulse of the partnership. But power rests firmly in Alvarez’s office.

Alvarez professes to “know everything about the numbers” at Greenberg. Every morning at ten o’clock he receives a five-page report detailing the firm’s financials—hours, billings, cash collections, accounts receivables, and work in progress. He spends one day a month focusing on the financials of individual offices and practices. The reports show the performance for every timekeeper, with a year-over-year growth rate and red shading if the individual is behind the projected budget. Alvarez says he’s not trying to micromanage—he simply wants to help lawyers and their managers avoid surprises at the end of the fiscal year in December. Alvarez dispatches Larry Harris, an accountant who serves as chief revenue officer, to meet with underperforming lawyers and to help identify how they might boost billings and collections.

The corporate model is pounded into Greenberg lawyers from day one, and they are expected to think about the revenues, costs, and growth of their practices. Incoming lateral partners negotiate one-year compensation guarantees based on a specific range of expected revenue. If they don’t perform according to expectations, the guarantee is reduced. As part of an annual self-evaluation, partners complete a set of projections for the next year, detailing expected hours, collections, and potential nonbillable work such as pro bono. Annual reviews of partners are akin to business planning meetings, says former partner Robert King, who is now at Sonnenschein Nath & Rosenthal. Alvarez, Rosenbaum, Gorson, or Hoffman meet with each partner to dig beneath the numbers—to find which areas of an individual’s practice exceeded expectations, which fell short, and what they will achieve in the coming year.

The firm gives partners a strong incentive to remain focused. Bonuses, which are a big component of a partner’s compensation, are based chiefly upon business performance. The calculation is not entirely based on dollars—leadership and pro bono can have an impact. But as Alvarez puts it: “Everyone likes to argue about the intangible value that they contribute. But I say, ‘If you want to be rewarded for intangible value, then here’s a hug—that’s intangible.’ ” On average, bonuses account for half of a partner’s total compensation, says Alvarez. And the highest earners might see as much as 80 percent of their compensation in the form of a bonus. According to these figures, Greenberg’s 2006 $1.2 million profits-per-partner estimate could translate into bonuses in the $600,000–$1 million range. For the handful who might be making $3–4 million, bonuses may exceed $2 million.

Even after years of revenue and profit growth, the firm keeps a tight rein on expenses. New offices must be profitable on an accrual basis in the first year and profitable on a cash basis in the second. Alvarez abhors fancy food displays and ostentatious workplaces. He’s been known to rail against oversize offices, and he has a special disdain for circular staircases, an architectural feature he considers pretentious and wasteful of space. When New York corporate and securities chair Alan Annex discusses potential venues for a corporate retreat, he starts with an evaluation of flight and hotel costs for the various cities. “I think lawyers at other firms tend to be less focused on costs — many think, ‘I’ll just have that car wait for two hours,’ ” he says. “But most of our lawyers take the subway.”

The system seems to worK. The firm’s beginning-of-year projections for gross revenue have been within 1 percent of the actual total in both 2005 and 2006. And in exchange for such strict financial discipline, lawyers earn a significant amount of autonomy in their day-to-day practices. There are no marketing budgets, no requirements for committee approvals. Partners are held accountable if they spend money and have nothing to show for it at the end of the year, but when it comes to business decisions, Alvarez has been known to say, “It’s better to ask for forgiveness than permission.”

When employee benefits partner Jeffrey Mamorsky joined Greenberg in 2000, he wanted to establish a subpractice that would assist retirement plan sponsors in avoiding Internal Revenue Service and Employee Retirement Income Security Act liability. After 14 years at Curtis, Mallet-Prevost, Colt & Mosle, a New York–based firm with a more traditional partnership structure, his first step was to draw up a business plan for the effort. When he presented the plan to Alvarez and Rosenbaum, they said, “ ‘Why did you do a business plan? Just do it,’ ” Mamorsky remembers. Mamorsky, now the chairman of the global benefits and compensation group, has seen his practice grow 250 percent, to more than $5 million today, thanks in large part to his IRS/ERISA liability practice.

The autonomy extends beyond creating internal practice groups. Securities litigator Bradford Kaufman has been able to increase his practice tenfold, to $25 million, since joining Greenberg in 2000, in part because Greenberg allows him to discount his rates for cost-conscious financial institutions. Other firms would prohibit or strongly discourage such adjustments. “The firm has an adult attitude,” he says. There is no need to ask for permission from firm management. And thinking like a businessman, Kaufman maintains his practice’s profitability by running much of it out of lower-cost offices. Two-thirds of the lawyers in his practice group are in places like West Palm Beach, Florida; Denver; and Orlando, and he has struck a deal with lawyers in higher-cost locales to work at cheaper rates.

The emphasis on business results also encourages collaboration among lawyers and practice groups, say Greenberg partners. As entrepreneurs, lawyers say they recognize that their clients generate legal fees all over the country. They must involve colleagues in other offices and practice groups to both win and expand business with national clients. New York–based Robert Ivanhoe, Greenberg’s chair of real estate, has been working with private developer The Related Companies for about five years. But when Related’s president called him last fall about a potential deal to acquire Snowmass Mountain and Village near Aspen, Colorado, it was Greenberg’s Denver office and an L.A.–based partner specializing in condominiums that won the business. “If it was just me sitting here in New York, he might have asked, ‘How the hell are you going to do it?’ ” Ivanhoe says. Now two dozen Greenberg lawyers are working on the acquisition and financing for the $2–3 billion development.

The firm also takes a market-oriented approach with its recruiting. Though Greenberg’s partner head count has climbed by 440 percent since 1996, the firm has done so largely by cherry-picking individual lawyers on the basis of their books of business and their reputations. “There are a lot of things you can see by looking at the numbers,” Alvarez says. Lateral candidates with a $1 million book of business and a list of ten clients they have served for five years, for example, have passed what Alvarez calls a “market test.” This isn’t the only criteria for hiring, but it’s by far the most important, Alvarez says.

Promising candidates don’t need to pass a committee vote. They meet and earn the approval of one of the four firm leaders. Fans of the system argue that Greenberg can make decisions in hours, not weeks. Corporate partner Bruce March shook hands on a deal to bring over his five-partner group from Akerman Senterfitt in December 2004 within a half hour of meeting the Greenberg leaders. A former partner recalls that his “intake process” was a breakfast with Rosenbaum. Alvarez brags that the acquisition of the Phoenix office took less than two weeks in the summer of 1999. “We move quickly and opportunistically,” he says. “It’s our number one advantage.”

The number one disadvantage: the firm’s list of problem partners. They, too, have moved opportunistically — and it has cost the firm dearly. The problems have reached across practice areas and have included high-profile partners and clients.

Take the case of Jay Gordon, who joined the firm in 1996 and was the New York–based chair of Greenberg’s tax practice. Between 1999 and 2003, Gordon accepted $1.2 million in kickbacks related to tax shelters he recommended to five wealthy clients. Gordon steered clients such as Metropolitan Transportation Authority chairman Peter Kalikow and New York real estate developers Leonard and Matthew Adell to various tax shelter sponsors who in turn directly paid Gordon more than $675,000 in referral fees, according to documents from the New York bar’s disciplinary committee.

Gordon also used the fees to pad his billings at Greenberg — and pump up his bonuses. After steering one client to a tax shelter sponsored by Distressed Assets Corp., Gordon supervised a legal tax opinion in late 2002 for the shelter that generated $300,000 in legal fees for the firm. In January 2003 Gordon directed Distressed Assets to deposit his $600,000 referral fee into the Greenberg retainer account. Gordon then recorded 1,120 fictitious billable hours and created a series of client invoices. Gordon received a half-million-dollar fee collection credit that would count toward his bonus.

Greenberg learned of the scheme in 2004. The IRS had rejected one of Kalikow’s shelters, and he informed Gordon in June that he intended to recoup his tax losses from the shelter sponsors and Greenberg. Gordon informed the firm of Kalikow’s threat and of his fee arrangement with the shelter sponsors. The firm hired Michael Ross, a New York–based solo practitioner specializing in attorney ethics and discipline, to investigate and deliver a report on his findings. Greenberg disclosed and returned all referral fees to Gordon’s clients. Gordon left the partnership on November 3, 2004. The same day, he and Greenberg sent separate reports to the New York bar’s disciplinary committee. The committee filed charges seeking disbarment in October 2005. (The episode became public in November 2006 when Gordon resigned from the New York bar.) Greenberg emphasizes that it took action quickly and that it has “zero tolerance for this lawyer’s ethical lapse.” Alvarez says that he is “sickened” by Gordon’s behavior, but he argues that “the frauds are difficult to catch” in any organization.

Then there were the firm’s problems with Hamilton Bank, N.A. Greenberg and a Miami-based partner have paid more than $8.5 million in fines to federal regulators for allegedly helping to cover up financial misconduct at the now-defunct Miami bank. Hamilton had made a series of bad loans in Russia in the 1990s, and its audit committee hired Greenberg to report on whether the bank had misled external auditors. Greenberg issued a pair of reports in 2000 and 2001 clearing the bank’s officers of wrongdoing.

Federal regulators, however, saw the reports as a whitewash. They closed the bank in 2002, and the bank’s chairman and CEO, Eduardo Masferrer, was convicted on 16 counts of fraud in May 2006. In a notice of charges filed against former Greenberg partner Carlos Loumiet last November, the Office of the Comptroller of the Currency said that the Greenberg reports “protected the officers by making materially false and misleading assertions and by suppressing material evidence.” Last fall Greenberg paid $750,000 and partner Robert L. Grossman paid $175,000 in fines to the OCC. Loumiet has filed a motion to dismiss the charges against him, saying the allegations would be “slander” if made outside the protection of the legal process. Neither Grossman nor Greenberg admitted or denied wrongdoing, but the OCC prohibited Grossman from undertaking any regulatory responsibility for any bank insured by the Federal Deposit Insurance Corporation for five years. And Greenberg agreed to begin a training program for lawyers who represent banks and to retain documents relating to bank clients for at least five years. The firm’s attorneys are also prohibited from making any materially inaccurate factual statement to an FDIC–insured bank or federal banking agency.

That was a bargain compared to what the FDIC demanded. Greenberg, according to a January article in The Wall Street Journal, agreed to pay the FDIC $7.6 million as part of a June 2006 settlement over Hamilton Bank. Despite the hefty fees, Greenberg denies wrongdoing. The firm agreed to both settlements “to put the matter behind us without incurring future expense or distraction to our firm,” according to firm spokesperson Jill Perry.

Trouble also erupted in Philadelphia. In December 2005 Leonard Ross, an of counsel with close ties to Philadelphia city officials, was charged with fraud and corruption as part of a wide-ranging Federal Bureau of Investigation probe into the city government. Ross was a close friend and ex–law partner of Mayor John Street and had been brought aboard soon after Street’s 2000 election to boost the firm’s relationship with city hall. Ross’s offer letter stated that he would generate legal business for Greenberg in municipal finance and by representing clients wanting to do business with the city. For his efforts, he would receive $10,000 a month and an annual incentive payment based on the business he brought in. The agreement “would continue for so long as John Street is mayor of Philadelphia.”

The agreement worked out well for Greenberg. A former bank executive described Ross’s influence with city hall in a 2001 memo that was part of the court record in another corruption case: “The mayor made it very clear that Len and Greenberg will be first among equals.” In fact, the firm earned $690,000 in city-related legal fees, including work on ten bond deals over a four-year period. It was a significant share of city bond business for one firm, say public finance partners at two other Philadelphia firms.

Unfortunately for Greenberg, Ross would abuse his influence. In 2003 Mayor Street appointed Ross to chair a committee that would pick a developer for Penn’s Landing, a 13-acre historic site on the Delaware River. Ross used this position to extract more than $50,000 in political contributions from prospective developers for Street’s reelection. The lawyer also lined his own pockets. In August 2003 a state court judge threatened to hold Ross in contempt over his failure to disburse $125,000 from a two-year-old medical malpractice settlement he had won for a client. Ross was also facing potential action from the disciplinary board of the Supreme Court of Pennsylvania. Desperate for funds, he gave insider information about the Penn’s Landing selection process to Ronald White, a lobbyist representing a development bidder. White sat on the Pennsylvania board of Commerce Bancorp, Inc., and was able to help Ross obtain a $150,000 line of credit in September 2003.

Transcripts of FBI–wiretapped conversations between Ross and White emerged in early 2005. Amid rumors of his imminent indictment, Ross resigned from Greenberg in November 2005. Less than a month later, he pled guilty to fraud and conspiracy charges. He is currently serving a 30-month sentence in federal prison. Greenberg has minimized Ross’s association with the firm. Rosenbaum emphasizes that Ross was an of counsel who had “a relatively minor relationship with the firm” and maintained a separate law office from his space at Greenberg. “You can’t monitor what people are going to do in their private or civic lives,” says Lehr, who manages the Philadelphia office. “People who are going to commit crimes are going to commit crimes.”

But Ross’s contract specifically put pressure on him to use his city ties to drum up business. Prosecutors said that Ross’s employment at Greenberg Traurig was “entirely dependent on his relationship with Mayor Street” and “a motive for selling his office as a PLC [Penns Landing Corporation] board member.” Says Alvarez, “In retrospect, I wish it hadn’t been written that way.” But he also thinks the contract was “misinterpreted” by prosecutors and that there was “no evil intent in writing it.”

Ross wasn’t the only felon to emerge from Greenberg’s Philadelphia office in the fall of 2005. In November, U.S. marshals arrived at the office to escort partner Robert S. Grossman (no relation to Robert L. Grossman in Miami) to serve a four-month sentence in federal prison. The previous May, Grossman had pled guilty to federal charges that he lied in a 1996 bankruptcy proceeding to cover up his diversion of more than $100,000 to a personal account while he was working as a real estate developer in Virginia. He was sentenced in August to four months in prison, but the judge delayed his reporting date so that Grossman could close his practice. The visit from the marshals came as a surprise to Greenberg partners—they say they knew nothing of his conviction.

Alvarez says that Grossman didn’t disclose his legal problems when he joined the firm in 2002 and that the Virginia charges were unrelated to his practice at Greenberg. But Alvarez is quick to add that the firm now hires a private investigator to do background checks on all new employees, and Greenberg has “toughened” the questions it asks incoming lawyers about previous criminal convictions and charges.

Around the time Grossman was being carted away to jail, another Greenberg partner, Victor Reyes of Chicago, was facing trouble of his own. Like Ross in Philadelphia, Reyes had political juice. He was head of the Hispanic Democratic Organization in Chicago, and prior to joining the firm in 2001 he was Mayor Richard Daley’s head of the Office of Intergovernmental Affairs. Once at Greenberg, Reyes led the firm’s Chicago lobbying effort, giving the firm a newfound credibility in city government affairs, say local lobbyists. From 2001 until 2005, Greenberg earned $3.5 million in city-related legal fees, including payments for representing the city of Chicago in the bankruptcies of United Airlines, Inc., and RCN Cable TV of Chicago Inc.

Federal prosecutors now allege that Reyes’s office was central to an effort to funnel city jobs and promotions to pro-Daley campaign workers. Reyes resigned from Greenberg in August 2005. In September federal prosecutors indicted five city workers, including a former Reyes aide, in the patronage scheme. Reyes wasn’t charged, but prosecutors labeled him as a coschemer in the indictment. After leaving the firm, Reyes founded a lobbying shop with three others from Greenberg. Reyes, who has not been charged with a crime, and the firm maintain that the departure was voluntary. Reyes said in local news reports that conflicts of interest had prevented him from representing some clients at Greenberg. “We had a very positive experience with Victor,” says Keith Shapiro, the co–managing partner of the Chicago office. Shapiro says there were no quality issues with respect to Reyes and no issues from clients concerning his work. Alvarez concurs: “I don’t know about anything he did in the firm that was wrong. I can only know what I have seen, and I only know that he hasn’t been charged.”

The firm’s stance with the two Grossmans, Ross, and Reyes isn’t too far from the defense it has offered in the Jack Abramoff affair. The firm says that it had no idea about what Abramoff was up to with Indian gaming clients and that Abramoff hid his activities from the firm. When firm leaders learned what he was doing, they reacted quickly—apologizing and negotiating settlements with all but one of Abramoff’s Native American clients. (One tribe, the Louisiana Coushatta, is still seeking more than $30 million in damages from Greenberg, Abramoff, and Abramoff’s business partner Michael Scanlon.) Those familiar with the confidential settlements said that in many cases, Greenberg reimbursed tribes for a significant portion of the kickback fees that Abramoff and Scanlon took, as well as the fees paid directly to the law firm. Abramoff and Scanlon were said to have earned at least $66 million as part of their kickback scheme.

Abramoff, already a superstar in Republican circles, joined Greenberg from Preston Gates & Ellis in January 2001. The interview process wasn’t a grueling one for Abramoff. He spent a half hour with Alvarez, and talked with Fred Baggett, the Tallahassee-based head of the firm’s government affairs practice. “Jack was the golden boy,” Alvarez says. “Everyone wanted him at the time. I just wish we would have come in second. He’s as good a con man as I ever met.”

Clearly, Abramoff hid many of his activities. But it was not news to the firm that he had outside business arrangements. One former lobbyist in the D.C. office recalls how Abramoff told stories around the office about his involvement in SunCruz Casinos. Abramoff and another business partner, Adam Kidan, had purchased SunCruz, a Florida operator of gambling boats, for $147 million in September 2000. By July 2001, just seven months after Abramoff joined Greenberg, the Miami businessman who had sold Abramoff the gambling company had been murdered; SunCruz had filed for bankruptcy; a federal magistrate ruled that the $23 million down payment put up by Abramoff and his partners was never actually paid; and Kidan admitted to paying $30,000 to an individual once indicted with John Gotti’s brother. Abramoff disclosed these incidents to his colleagues in the D.C. office in a meeting that summer, according to the former colleague. “The most frightening story about Jack was a story he told himself,” he says. (Alvarez says he wasn’t aware of those stories.)

By the summer of 2003, SunCruz’s financial lenders had sued Abramoff and his partners, claiming they were defrauded of more than $60 million in loans. Greenberg stepped in to help. Two lawyers with close ties to Abramoff say that Greenberg pushed to represent him in the SunCruz matters, promising Abramoff that he would only have to pay associate fees. These lawyers also say that Greenberg offered to pay a portion of a potential settlement that was negotiated with the financial lenders during the fall of 2003. And they say that as a part of this negotiation, Greenberg partners who represented Abramoff, a group that included Hal Hirsch, Richard Edlin, and Rosenbaum, requested and obtained Abramoff personal tax returns for the years 2000–02. These returns, according to several who have seen them, showed that Abramoff had more than $10 million in income from companies owned by Scanlon.

Alvarez declined to provide details about SunCruz, citing attorney-client privilege. He defends the firm’s involvement, saying that at the time, he “had no reason to believe Jack was not a good human being.”

If the tax returns weren’t enough to tip off the firm that Abramoff was somehow collecting millions in outside income, his actions inside the firm also provided clues that something was amiss, say former Greenberg employees, partners, and lobbyists. Abramoff brought in more than $15 million from the Native Americans over the course of three years, with monthly rates that were significantly in excess of industry norms. Firm leaders say that these fees seemed to be justified by Abramoff’s reputation. “He was one of the most connected lobbyists in D.C.,” says Rosenbaum. “The fact that someone would pay Jack more than others because of his [perceived] unique abilities was not shocking. Very few firms would have had a problem with that.” However, several D.C. lobbyists interviewed for this article confirmed that the fees were much larger than normal and should have provoked questions. But Greenberg was seeing an explosive increase in its lobbying practice in Washington, with Abramoff’s hefty book of business propelling Washington lobbying revenue from $7 million in 2000 to almost $22 million in 2001 and a peak of $25 million in 2003, according to Legal Times, a sibling publication of The American Lawyer. The year Abramoff joined, the firm jumped from number 31 among Washington lobbying practices to number five.

Abramoff also shuffled money through the firm’s tightly controlled accounting system to Scanlon and Capital Athletic Foundation, a nonprofit he controlled. In November 2001 a $1 million check from the Coushatta tribe of Louisiana arrived at the firm. The previous month, Abramoff had the idea to increase the amount of lobbying revenue that Greenberg was publicly reporting to the Senate by running some of the money from his kickback scheme through the firm. Such a move would ensure that Greenberg’s ranking among lobbying firms wouldn’t slip, he said. To execute the idea, Scanlon created a phony Greenberg invoice for the Coushatta tribe, telling them that they should send $1 million of their fee directly to the firm instead of Scanlon’s company.

Baggett testified to the Senate Indian Affairs Committee that the firm “had no knowledge of [Scanlon’s phony] invoice being sent.” He even called attention to the fact that Scanlon had misspelled the firm name as “Greenburg” Traurig. Yet the firm also did not question that a million-dollar check, with the firm’s name misspelled, came in, unattached to an invoice. According to Baggett’s testimony, the check was immediately deposited into the firm’s trust account.

The money didn’t stay at the firm for long. On November 5 Abramoff sent an e-mail to Baggett entitled “Coushatta million-dollar check.” He wrote: “It is burning a hole in my pocket,” and requested a meeting that day to “get it worked out.” According to Baggett’s testimony, Abramoff told him in a subsequent phone call that the Coushatta tribe had intended to make a contribution to Capital Athletic Foundation. Within four days, Greenberg wired the tribe’s million dollars to the foundation. A few months later, Abramoff reminded his associates in an e-mail to include the “extra $1 million in expenses” for the Coushatta tribe when filling out lobbying disclosure forms, according to documents released by the Senate.

It took a troubling interview with The Washington Post and a client dismissal to prompt an internal investigation of Abramoff. A Post reporter interviewed Abramoff and others at the firm on February 3, 2004, and Alvarez soon learned from his general counsel that the Saginaw Chippewa tribe in Michigan had fired the firm. Abramoff “had always told us that clients were perfectly happy; then to find out — without him telling me — that they fired us, that was such an important point,” Alvarez says. At a face-to-face meeting with Alvarez in late February, Abramoff disclosed that he had received money from Scanlon in connection with the Indian tribe work. Three days later, Abramoff resigned from the firm.

“There weren’t lots of signals that made you question this guy,” says Rosenbaum. “He was an Orthodox Jew beloved by the powers that be in D.C.” Those who might question whether Greenberg knew something of Abramoff’s activities also should look to the judgments of the Senate Indian Affairs Committee and the U.S. Department of Justice, say Alvarez and others. The Justice Department portrays Greenberg as a victim in several of the paragraphs in Abramoff’s plea agreement. However, lobbyists and an official close to the Senate investigation caution against drawing too many conclusions from the Justice Department’s wording in a plea agreement and comments by the committee. The Justice Department continues to investigate the lobbying scandal. And the Senate Indian Affairs Committee only oversees matters relating to the tribes; a law firm–centric inquiry would be outside the scope of its investigation.

Greenberg leaders, and Alvarez in particular, say the firm’s business model makes it no more vulnerable to problem partners than other firms. Treating lawyers like adults but holding them accountable is a legitimate way to manage risk. “I’ve heard these comments for the past 10 years,” says Alvarez. “We were not invited to the party [of] the top ten firms in the country. Others see us moving up, and they question everything we do.”

They may be the only ones. Former partners say that asking questions at Greenberg can be dangerous for your career. Because management holds so much power over compensation, hiring, and firing, partners are reluctant to speak honestly about problems. There’s also a perception, the former partners say, that top managers don’t want to hear about issues unless they hurt the bottom line. Alvarez occasionally jokes about the silence during the question-and-answer period of his bimonthly conference call with partners, quipping that the conference operator should do her best to manage the rush of calls. Alvarez says that he receives plenty of questions in private. He has regular conversations with practice group leaders and managing partners, and he regularly invites other partners to call or send him an e-mail if there is a problem, idea, or question to discuss. Partners can also submit suggestions or criticisms during their annual review.

To Alvarez, the firm’s growth is proof of its quality. Greenberg would not be able to attract and retain lawyers if there were issues with quality control. “Every [lateral] lawyer does his or her due diligence on us,” he says. And Greenberg has been a leader on the lateral market, luring candidates from powerhouse firms such as as DLA Piper and Kirkland & Ellis. Between October 2005 and September 2006, Greenberg brought aboard 63 lateral partners (more than any other Am Law 200 firm), and lost only 23 [The Lateral Report, February]. The year before, the firm hired 87 partners and lost 21.

But hiring based on books of business doesn’t necessarily ensure that lawyers and lobbyists will do quality work. Just ask the tribes bilked by Abramoff. “The assumption is that you have a book of business, therefore you must be good,” says Mary Pivec, a former partner who speaks highly of Alvarez’s leadership and business judgment. “Sometimes that’s correct, but sometimes it’s not.”

Greenberg hasn’t completely rejected the need for adjustments to quality control. Since 2004, Rosenbaum has led a firmwide quality initiative that encompasses a range of programs, from formalizing training across locations to appointing risk managers in each practice area. These senior lawyers evaluate risks in each area and serve as an “800 number” for lawyers to report wrongdoing, says Alvarez. A senior practice group member in another office now vets each lateral partner candidate, in addition to a national operating shareholder and the firm’s private investigator. And all current lawyers sign a document attesting to their compliance with firm and employment policies each year.

Rosenbaum and Alvarez deny that Abramoff or any of the other incidents were catalysts for such efforts, though the Abramoff experience reinforced the importance of such an initiative. Nonetheless, the firm is now more alert to the risks of the government affairs practice. Despite the institutional bias against committees, an eight-person group has been named to oversee lobbying group standards and sign off on hiring.

Greenberg isn’t putting the brakes on its growth in head count. The firm is eyeing new locations in the South and the West, areas of the country with double-digit growth forecasts. Seattle and additional offices in Texas are possibilities, says Alvarez. Greenberg will also make international additions. But Alvarez emphasizes that the firm will remain focused on the U.S. market, which represents 60 percent of the global market for legal services.

For Greenberg, then, the plan is more of the same. More growth. More revenue. More opportunistic hires. But, they hope, no more partners led away in handcuffs.

Amy Kolz reports for The American Lawyer, an ALM Media affiliate of the Daily Business Review.

 

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