By Frank J. Diekmann
Like lawyers themselves, there’s no shortage of lawyer jokes. But it’s hard to find the punchline in the more than $1 billion the NCUA has paid two law firms to represent it in its claims against Wall Street.
Yes, One. Billion. Dollars.
That number exceeds the asset size of 90% of credit unions.
To try to put that into perspective, think of it this way: $45,662.10 per hour.
To arrive at that number, I assumed these lawyers were laboring away like Amish farmers for 12 hours per day, seven days per week, 52 weeks per year for five years—that’s right, no holiday breaks for these billaholics. If the two law firms– Korein Tillery, which has offices in St. Louis and Chicago, and Kellogg, Huber, Hansen, Todd, Evans & Figel PLLC, which has offices in Washington–split this work evenly and somehow have been forced to scrape by with $500-million each, that comes to nearly twenty-three grand per hour ($22,831 to be exact). I now have a new appreciation for the word "grand."
Read that again: NCUA (and credit unions) were paying $45,662.10 PER HOUR for legal representation under this scenario?
We don’t have the details on how many years the two firms were toiling away, so let’s be generous—since that seems to be a theme here–and say it was 12-hour days, seven days per week over seven years, instead. That’s still $16,307.89 per hour to each firm!
Serving The Underserved (Attorneys)
And that doesn’t include the additional $8,094,003 the agency paid to help the firms cover their expenses—because as every credit union that’s pinching basis points knows what toner costs these days.
Credit unions are under scrutiny from examiners and regulators every day to show ROI on every line item, so it will be up to those same CUs and their trade associations to debate and discuss whether the legal fees are justified or (way?) too high. For that $1.003 billion in legal fees, credit unions have recovered $4.3 billion from Wall Street banks and brokerage firms (does it not seem like everyone except Joe Average Member and credit unions themselves either made or are making a fortune from the financial crisis?)
Now that the payments have been revealed, should either or both firms opt to attempt to justify the large CU asset-sized fees there will no doubt be some marble-smooth press release about the “risk” the firms took on by taking the cases on a contingency basis, while also pointing a silk-gloved finger at the $3-billion net that has flowed back to NCUA.
It will be made to sound as if taking 10% of this amount–$100 million–would have been somehow beneath them—but imagine for a moment that had been what these lawyers had billed—that would actually seem pretty astronomical. Which makes the astounding amount paid by credit unions and their members as inexplicable as much of what led to all those bogus mortgage-backed securities sales in the first place.
When it comes to the ROI in this litigation, NCUA said that what it has paid–23% of the value of those recoveries to the two law firms—is fair, and that often “such arrangements customarily range between a third of any recoveries to as much as a half.” You can read more about that here.
NCUA Chairman Rick Metsger also has shared additional perspective here.
On the other hand, another federal agency paid considerably less on lawyers and recovered more, which you can read about here. It should be noted that NCUA has stressed the other agency paid on an hourly basis, not a contingency basis, and that NCUA's leadership felt the former arrangement would have been too much of a burden on credit unions with no guarantee at all that any funds would ever be recovered.
I’d like to insert a clever lawyer joke in closing here, but I’m afraid there really isn’t one. Besides, I’m afraid of being on the receiving end of just one billable hour in this case.
And on to other news…
Let’s Go to Las Vegas (New Mexico)
Worst Bachelor Party Movie Ever: During NASCUS’ recent meeting in Chicago, one member of the House Financial Services Committee described the CFPB as “Bureaucracy Gone Wild.” I don’t think it’s available yet on Netflix, but you can find it on C-Span. Party on.
What! You Were Breached? How???
Spending a lot of money on to secure your credit union’s security front door? Great, but as one person recently made clear, it’s not much use if certain people keep unlocking the backdoor.
CUToday.info regularly publishes news of data breaches and hacks by cybercrooks. But as CUToday.info reported here, often the real threat comes from employees—employees who don’t seem to realize its 2016 when it comes to setting their passwords.
According to Splashdata, which sorted through a list of more than two-million leaked passwords in 2015, the top password was—and I’ll give you to three to guess—123456.
That was also the top password of previous years. The other top passwords of 2015 also do not require the NSA to break, including password, 12345678 (and a variety of other easy variations on numbers), qwerty, baseball, welcome, abc123, 111111, dragon, master, letmein, login, and starwars.
Who needs biometrics with these vault-like combinations?
Frank J. Diekmann is Cooperator-in-Chief at CUToday.info and can be reached at Frank@CUToday.info or @FrankCUToday.