Legal Fees for S&L; Bailout Hit $251.5 Million in 1991

NEW YORK —  The savings and loan bailout agency paid $251.5 million last year to nearly 2,000 private law firms as part of the government’s effort to clean up the thrift crisis.

The New York law firm Cravath, Swaine & Moore received the most from the Resolution Trust Corp.-$12.12 million in fees and expenses.

The firm has represented the RTC in lawsuits against Michael Milken and other former employees of the Drexel Burnham Lambert Inc. investment firm.

The lawsuits, settled Monday, had alleged that Milken supported a vast trading empire in risky high-yield junk bonds by trading the securities through the thrifts.

The RTC and the Federal Deposit Insurance Corp. agreed to accept $500 million from Milken and about 40 others to settle two federal lawsuits.

Members of Congress and watchdog groups have criticized the RTC for paying what they consider too much to outside law firms, escalating the cost of the savings and loan bailout.

“The concern (is) they are contracting out the service,” said Rep. Bruce Vento (D-Minn.), who chaired a committee that oversaw the RTC. “They’re trying to hire credibility.”

The FDIC’s contract with Cravath, for example, provides a minimum of $300 in hourly compensation to two senior partners and up to $600 hourly if they recover more than $200 million for taxpayers. In the Milken deal, Cravath could earn an estimated $40 million.

The RTC paid more than $1 million to 49 private law firms for legal work last year, according to Thrift Liquidation Alert, a New Jersey newsletter that follows the agency.

“You look at the fees, and flip side is you look at the money that’s recovered,” RTC spokeswoman Felisa Neuringer said.

The RTC has more than 80 lawsuits pending against former thrift directors, lawyers, accountants and others, spokesman Stephen J. Katsanos said. The bailout agency had recovered $110 million in trials and settlements by the end of February, he said.

Neuringer said the RTC last year received $109.1 million in cash from completed settlements of professional liability lawsuits.

That’s after spending $62 million in fees and expenses to lawyers and investigators both inside and outside the agency, she said. Outside law firms received $30 million of that money.

Neuringer said the agency is required by Congress to use outside law firms. She said the RTC has 670 attorneys but about 100,000 legal matters pending nationwide.