Marisa McQuilken examines the legal players involved in the high-stakes bid to rescue mortgage giants Freddie Mac and Fannie Mae

Lawyers at Freddie Mac and Fannie Mae got word of the plan on 11 July, a Friday, after they and company executives had spent a week watching their stocks tank. To restore public confidence in the mortgage giants, the US Treasury Department was stepping in with a sweeping plan that would allow them access to billions of dollars in public money.

In Washington DC, where Fannie Mae is based, and across the Potomac, at Freddie Mac's home base in McLean, in-house lawyers got to work. It was going to be a very long, sleep-deprived weekend. "We were basically there around the clock", and living on "stale sandwiches and bags of potato chips", says Robert Bostrom, Freddie Mac's general counsel.

Fannie and Freddie, the two largest Fortune 500 companies in the Washington metro area, have their choice of outside counsel. And over the course of the weekend, the in-house teams picked up the phone to pull in partners from Covington & Burling; Cadwalader Wickersham & Taft; Cahill Gordon & Reindel; and Cravath Swaine & Moore.

But the review of Treasury's plan, everyone involved agrees, was dominated by some of the high-profile in-house lawyers that Fannie and Freddie have recruited in recent years from big private practice firms. Bostrom, for instance, was hired from Winston & Strawn in 2006. He was previously managing partner of the firm's New York office and head of its financial institutions practice. Fannie Mae's general counsel, Beth Wilkinson, joined the company in 2006 from Latham & Watkins, where she co-chaired the DC office's white-collar group.

Bostrom and Wilkinson have lured other talent. Wilma Lewis, former Crowell & Moring litigation partner and US Attorney for the District of Columbia, started at Freddie Mac last November as managing associate general counsel of litigation. Wilkinson brought Curtis Lu on at Fannie Mae as her principal deputy general counsel shortly after she started there. He had been deputy general counsel at America Online and, until 2002, practised alongside Wilkinson as a partner at Latham.

All the high-profile lawyers in the two offices didn't change the fact that they faced crushing pressure the weekend of 11 July. Though they got word of the Treasury Department's intentions on Friday, the department was drafting details until late Sunday. That meant the lawyers spent much of their weekend creating and then evaluating hypothetical scenarios they believed could be part of the proposal. And at least at Freddie Mac, the in-house team was also responsible for briefing members of the company's board of directors.

It remains to be seen whether all the work was worth it. Congress has been lukewarm to the Treasury Department's proposal, which involves a commitment to extend an uncapped line of credit to the companies. Separately, the Federal Reserve said it would give Fannie and Freddie access to a temporary lending programme known as the discount window, if needed. Freddie and Fannie say the plan is meant to reassure the markets, and they don't expect to ever use either option. But if that changes, it would create a flood of legal work, likely forcing both companies to lean more heavily on outside firms than they did that weekend.

'Help restore confidence'

For now, the in-house lawyers are still processing the frantic weekend they spent on the sweeping rescue plan. The Treasury Department declined to make its counsel available for comment, but other lawyers involved say the department's proposal was non-negotiable, which meant the legal teams weren't debating provisions. But they still had more than enough work to fill the weekend.

Bostrom says about a dozen of his 90 in-house lawyers spent hours talking through possible regulatory
and governance issues, then explaining them to board members, who had to accept the plan. When they needed help, they called partners at Cahill, Cadwalader and Covington.

One partner at Cahill, Bart Friedman, has long been the outside counsel to Freddie Mac's board of independent directors. He wouldn't comment on the role he played over the weekend, or his firm's role in dealing with the Treasury proposal.

Covington's David Martin, co-head of the firm's corporate and securities practices, confirms that he, too, is advising Freddie, though he wouldn't name other colleagues working on the matter or specify the firm's exact role.

Still, it's not surprising that Martin was called in early. He led a legal team that helped Freddie deal with fallout from a 2004 accounting scandal. Freddie is also relying on Charles Bryan, head of Cadwalader's DC-based capital markets practice. Cadwalader has served as outside counsel to Freddie Mac since the 1970s, principally on the company's securities offerings.

Once the Bush administration went public with its proposal on Sunday night, Fannie Mae's lawyers began meeting in person with government officials from the Treasury Department and the Federal Reserve to get a grasp on what the final plan would look like. "We are working closely with our clients, Treasury, the Fed, and Congress to work on a solution that will enable the Government to do what it thinks appropriate and to help restore confidence in the market," says Wilkinson.

More to come

Like Freddie, Fannie considers its 130-lawyer in-house team the equivalent of a private law firm. That said, the company also has several outside firms that it relies on. For advice on the bailout, Fannie's independent board members are turning to lawyers at Cravath. Litigation partner Robert Joffe has been outside counsel to the board for years, and is taking the lead. Wilkinson won't say who else the legal department called over the weekend. But if she needs help going forward, there's a list of suspects the company has worked with before.

Wilkinson's alma mater is one: Latham began handling shareholder derivative suits and other matters after Wilkinson took over as general counsel. Latham also replaced Wilmer Cutler Pickering Hale and Dorr as lead -outside adviser on issues stemming from the company's 2004 accounting scandal after Wilmer was criticised for its -handling of the matter. Wilmer's DC office still has heavyweights with Fannie ties, including partner Jamie Gorelick, who was the company's vice chair until 2003, and partner Ann Kappler, Fannie Mae's general counsel before Wilkinson, but it is not clear how much work the firm is currently doing for Fannie Mae. Wilmer's co-managing partner, William Perlstein, did not respond to requests for comment about the firm's relationship with Fannie Mae.

Fannie Mae uses O'Melveny & Myers for litigation help, but that firm does not appear to be involved in the rescue plan so far, either.

Of course, the legal issues are still unspooling. One lawyer who has worked with Fannie Mae spoke on condition of anonymity, but says both companies are likely to have counsel examining what it would mean to tap the Federal Reserve discount window. Both Fannie Mae and Freddie Mac insist the option is only there to reassure the market, and the companies won't use it. Still, the lawyer close to Fannie Mae says counsel must determine whether the companies would be bound by restrictions on the money.

And then there's the threat of shareholder litigation. John Coffee, a securities law professor at Columbia Law School, says if they are sued by investors, Freddie Mac and Fannie Mae could possibly claim that they are the victims of larger economic forces. "Still, just as night follows day, such litigation will come in the wake of their sharply reduced stock prices," he says.

In other words, lawyers involved with the two mortgage behemoths could be working a lot more weekends.

A version of this article first appeared in Legal Times, Legal Week's US sister title.

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