Things seemed to be going well for Labaton Sucharow in November 2016. The New York-based law firm, a big name in investor class actions, was about to reap a $27 million fee for its work on behalf of State Street clients who negotiated a $300 million class settlement with the bank. A Boston judge applauded the firm for taking on a "novel, risky case" involving allegedly hidden bank fees.

A month after the deal was approved, however, The Boston Globe reported that Labaton and its co-counsel had double-counted some attorneys' time, inflating the value of their hours worked by about $4 million.

For three years, Labaton and others have fought over who should pay for that mistake, leading to the disclosure of thousands of pages of normally confidential material.

An analysis of the papers, combined with campaign finance records, reveals three waves of political contributions from Labaton attorneys to two politicians connected to the Arkansas Teacher Retirement System, its client in the State Street case, or George Hopkins, the state pension fund's former director, as the firm was cultivating the fund as a key client.

While law firms and their lawyers regularly donate to political campaigns, it is rare for a law firm's time records to be made public in the way that Labaton's have been, offering a detailed look at the context of its political contributions.

At three key points in 2007, 2009 and 2012—while Labaton was courting the Arkansas fund, while it was seeking to represent it in individual cases, and during a two-day mediation in the State Street case, where Hopkins was present—records show that its attorneys contributed to two Arkansas politicians: Martha Shoffner, the state treasurer who sat on the ATRS board, and David Kizzia, a state legislative candidate who has called Hopkins "my friend and my mentor."

• In the first two weeks of October 2007, Labaton lawyers Eric Belfi and Thomas Dubbs and a staffer at a plaintiffs' firm that worked closely with Labaton, Chargois & Herron, contributed $5,000 to Shoffner. Around the same time, Belfi was visiting several Southern states as part of a business development trip.
• On Nov. 11, 2009, Shoffner's campaign finance records show that she began receiving $4,500 in new contributions from Labaton lawyers. Belfi, whose firm had landed a state contract that enabled it to pitch lawsuits to ATRS a year before, contacted "potential clients" in the State Street case on Nov. 10, just one day before the money started rolling in.
• On Oct. 24, 2012, while Labaton lawyers were meeting with Hopkins in Boston as part of a mediation in the State Street case, a group of Labaton lawyers, including the group in Boston, began making campaign contributions to Kizzia, who was running for state representative in a district that included Hopkins' hometown of Malvern. Hopkins himself had given $100 to Kizzia's campaign 10 days before.

(Click the graphic to enlarge. Graphic by Roberto Jimenez)

Labaton has strenuously denied wrongdoing in court and in statements to Law.com, and at one point even sought the trial judge's removal for suggesting there was a quid pro quo. (That effort failed.) The firm denied that business development was in any way a motive for its contributions to politicians, and said its and other firms' political giving was unfairly scrutinized.

But given descriptions of the contributions in Arkansas, other securities lawyers, who didn't want to be quoted bad-mouthing a competitor, said they were skeptical of the intent behind them, as did four experts on legal ethics. Charles Silver, a professor at the University of Texas who studies civil procedure and class actions, said he believed the contributions were legal but were still "unseemly."

"It's called pay-to-play," he said. "It sort of very carefully skirts the line between legal conduct and bribery, and it's part of the way that our democracy works."

Tim Herron, a Texas attorney formerly at the Chargois & Herron firm who worked closely with Labaton to drum up business in several southern states, said in an interview that they made political contributions to that end, but said there was nothing illegal about it. Herron said he bundled contributions, including from Labaton attorneys, for several Arkansas politicians. He said it was obvious to all involved that the idea was to get a foot in the door with influential officials.

"These guys are not virgins. They knew what they were [doing]," Herron said of the Labaton lawyers. "I would call the people up in New York and said, 'If you need this business, you need to give money.' … There was no argument about it. They knew. They might not have been thrilled with it, but they knew."

Incentives to Give

The Private Securities Litigation Reform Act of 1995 was meant to crack down on meritless securities lawsuits and put sophisticated investors in control of such cases. The law instructed judges to prioritize institutional investors, such as pension systems and mutual funds, to be lead plaintiffs. 

The Arkansas Teacher Retirement System was a coveted client. Today, with $17.5 billion in assets and five plaintiffs law firms keeping an eye on its holdings for alleged fraud, ATRS has been a frequent lead plaintiff in securities class actions over the years. Four members of its 15-member board hold public office, and the rest are elected by plan participants.

In the State Street case, a special master appointed to examine the double-billing issue, retired federal judge Gerald Rosen, said the origin of Labaton's relationship with ATRS was "beyond the scope of [his] assignment." Still, Rosen voiced concern at what he uncovered.

One of his findings is that the plaintiffs firms in the case set aside $4 million from their combined $75 million fee to pay Damon Chargois, an ex-partner of Herron. Chargois did no work on the case but had an agreement with Labaton to take 20% of its fee in any case where ATRS was its lead plaintiff.

"Our deal with Labaton is straightforward," Chargois wrote in an email unearthed by the special master. "We got you ATRS as a client after considerable favors, political activity, money spent and time dedicated in Arkansas, and Labaton would use ATRS to seek lead counsel appointments in institutional investor fraud and misrepresentation cases."

Rosen initially termed the payment an unethical "finder's fee," saying Chargois had acted no differently than a nonattorney fixer. More recently, he reached an agreement with Labaton over the Chargois payments, which the firm described as a "bare referral." Labaton apologized for not disclosing the Chargois arrangement to the court, agreed to pay $4.8 million and make internal changes, but its settlement with the special master still hasn't been approved.

'Targets'

Labaton's relationship with Chargois goes back to the mid-2000s, and their joint pursuit of ATRS goes back to at least 2007, according to emails and other records unsealed as part of Rosen's probe. In January of that year, Labaton's Belfi emailed Chargois a list of "targets"—pension funds in Arkansas, Texas and Louisiana that would make strong potential lead plaintiffs.

Chargois began working his contacts—and in his own words, doing "political favors"—to help Labaton pitch its portfolio monitoring services to them, offering to watch out for price drops and other signs of fraud in exchange for the opportunity to propose filing lawsuits.

Steve Faris

Chargois and Herron put Belfi in touch with Steve Faris, an Arkansas state senator who employed Herron's uncle and who was an influential voice on state retirement policy. Faris had received at least $9,000 in campaign contributions from Herron, his firms, colleagues and family members over the years.

Bernstein Litowitz Berger & Grossman was the main firm that represented ATRS in securities litigation in those days, and as Herron recalled it, Labaton pitched itself as an alternative, in case conflicts arose. Emails indicate Faris met with Labaton lawyers in August 2007.

"There was no deal that the fix was in" for Labaton to replace Bernstein Litowitz' role, Herron said in a recent interview. 

But in a September 2007 email, Chargois told Labaton it would soon represent ATRS. "Please be discreet and act surprised when it happens," he wrote.

Belfi and his partner Dubbs gave $3,000 to Shoffner, the state treasurer and ATRS board member, in October 2007. Listed with their contributions in Shoffner's campaign finance records is a $2,000 contribution from Sandra Jorgensen, whom Herron said was a longtime staffer at his law firm.

Martha Shoffner/photo by AP

Shortly after Labaton contributed to Shoffner's reelection campaign, Paul Doane, who preceded Hopkins as the ATRS director, paid a visit to Labaton's office in New York, according to an email Doane sent memorializing the meeting. In the email, Doane regretfully told Belfi that the opportunity to bid on a request for proposals, or RFP, wouldn't arise until spring 2008.

But Herron spoke to Faris and told the Labaton lawyers not to worry, the emails show.

"[Doane] is going to be extremely careful in all public statements to avoid any difficulty," Herron told Belfi and Chargois. "Be patient. The senator is cautious and doesn[']t want any impropriety to [be] imputed and wants this thing to proceed below the radar. … I would not worry. I didn't [find Doane's email] the slightest bit discouraging. These are careful guys." 

By April 2008, however, Belfi was asking about the procurement process again. "We have been looking for the RFP and have not seen anything," he wrote Herron. Not to worry, Herron responded: "The senator called me last week. … It is a done deal he says."

Six months later, after an RFP, the board of the Arkansas Teacher Retirement System voted unanimously to add Labaton to its list of portfolio monitoring counsel.

In comments to Law.com, Labaton said there was nothing wrong with Faris acting as a back channel to state retirement officials, comparing it to a congressman recommending a student for West Point. Phone numbers listed for Faris were disconnected, and he couldn't be reached for comment.

The State Street case

When California's attorney general announced in October 2009 that he was suing State Street over the foreign exchange fees it had been charging California pension funds, Hopkins took interest. He said in public testimony that Labaton was the only firm on the ATRS securities counsel panel to show an interest in the case.