Legal Business

Comment: Hired guns and troubleshooting – privilege confusion in UBS rape probe another jolt for City law

Comment: Hired guns and troubleshooting – privilege confusion in UBS rape probe another jolt for City law

Legal hacks frequently stand accused of making sensationalist statements once the dust has settled when it comes to lawyer conduct in emotive matters, especially where the Solicitors Regulation Authority (SRA) is involved. In our defence, we largely base initial treatment of these cases on the views of numerous market contacts at the time.

The overturning of findings against former Freshfields Bruckhaus Deringer partner Ryan Beckwith last year springs to mind. Early sentiment was of general horror about unhealthy drinking cultures and abuse of power. Later many City partners reviewed their opinion to align with the High Court’s assertion that ‘popular outcry is not proof that a particular set of events gives rise to any matter falling within a regulator’s remit’ – the age-old dismissal of the case that ‘this sort of thing happens all the time’.

With this in mind, recent disclosures from an employment tribunal regarding a high-profile ‘independent inquiry’ by Freshfields employment partner Caroline Stroud into how UBS handled an alleged rape, reported in the FT, must therefore be treated with restraint.

The findings of the 2019 employment tribunal handed down by Judge Harjit Grewal assert that the report prepared by Freshfields was not covered by legal advice privilege, as UBS claimed. The publication of the ruling was prompted by a letter from the alleged victim (referred to as Ms A as she has life-long anonymity) to the judge, dated 1 April 2021.

The letter urges the judge to publish the order made in November 2019 ‘because it is firmly in the public interest’ to do so: ‘If made public, the order will create legal precedent and raise important points of law regarding legal advice privilege, its waiver, and independent investigations,’ Ms A wrote. ‘It would better place claimants, and the wider industry, to understand what these investigations are often about, whilst demonstrating the tactics used by employers when conducting them.’ She also raised concerns around corporations enlisting ‘hired guns’ to sort out their PR headaches.

In the ruling, the judge said UBS could not rely on legal privilege because employment partner Stroud had been hired to conduct an independent inquiry into how the bank’s HR team had responded, rather than acting in the capacity of legal adviser to the bank.

Stroud was drafted in by UBS in 2018 to review the way the bank dealt with allegations that Ms A, a former employee of the bank, had been raped by a colleague. While the 2019 employment claim – filed by Ms A against UBS for failing to protect her – was later settled confidentially, the new disclosures nevertheless beg some serious questions over what constitutes a bona fide independent investigation.

The crux is the apparent lack of accord between the parties on Stroud’s role.

The SRA is continuing to review complaints that Stroud did not make her role in acting for UBS clear to the alleged victim. Ms A claimed that she co-operated with the Freshfields investigation after being assured by senior UBS figures that Stroud had not been hired to give the bank legal advice.

Freshfields has declined to comment as it was not party to the tribunal. Stroud will be retiring from the partnership after 20 years at the firm – a move that is unrelated to the SRA investigation.

Controversially, Ms A was only handed a summary of the findings from the investigation that exonerated UBS – not the full report – on the grounds that the document was covered by lawyer-client privilege. According to the ruling, the judge found that ‘fairness would demand that . . . [UBS] did not cherry pick [what] it shared’, and that it had told Ms A that Stroud was not acting as a lawyer, but merely giving advice and suggestions about how the bank handled the claim. As such, the report was not deemed to be protected by privilege.

Judge Grewal said evidence from the bank’s managing director for group investigations, Neil Young, in which he said the bank had hired Stroud to give the bank legal advice, was ‘very difficult, if not impossible’, to reconcile with evidence regarding what other UBS employees had told Ms A. According to covert recordings of senior executives, which were cited in the decision, the then head of investment banking Andrea Orcel told Ms A that he did not originally know that Stroud worked at Freshfields. He said he had hired Stroud because she was someone who ‘understood this kind of situation’, the regulations, and banks; someone ‘thoughtful, experienced, and … had a good reputation for doing what’s right’.

Siobhan McDonagh, the bank’s head of HR in the UK, told Ms A that Stroud was acting ‘in a very different capacity, doing a very different role’ from her legal advisory role.  Conversely, Young said it had always been clear that Freshfields was being hired as outside legal counsel and the report would not be shared with Ms A.

Perhaps even more contentious is Stroud’s contesting Ms A’s account, arguing that Ms A had taken quotes out of context which were capable of being misinterpreted. Stroud explained that she had said of her team that ‘we’re not their lawyers’ because they were ‘newly appointed lawyers from Freshfields and not UBS’ normal advisors’.

Suzanne McKie QC, managing partner and founder of Farore Law, acted for Ms A in the employment tribunal and says firms have to be more rigorous. ‘There are too many Magic Circle firms conducting so-called independent investigations that are not truly independent. How truly independent are they from the person paying the money and do they have previous relationships with the bank or organisation requesting the report to be done? They need to think about that. I won’t be the first to argue it’s not covered by legal privilege and succeed in doing so.

‘Every lawyer doing this sort of exercise needs to ask themselves, what is my role in this? Am I going to shift somewhere during the course of this into providing legal advice? Is my client then going to say – “we’d better cover this with privilege” or this is covered as privilege?

‘As a lawyer it’s vital that you work out what your role is, you make it quite clear to the bank or the company that you will not be providing legal advice, that you’re not acting as legal adviser and this report will not be privileged. Only then can it be truly independent.’

And, at the risk of provoking the ‘#notallawyers’ retort, this should not be that difficult, given the general fastidiousness associated with the profession – with or without watchdog intervention.

nathalie.tidman@legalease.co.uk

Legal Business

Freshfields looks to bring involvement in German cum-ex tax scandal to an end with €10m payment

Freshfields looks to bring involvement in German cum-ex tax scandal to an end with €10m payment

Freshfields Bruckhaus Deringer has sought to draw a line under an uncomfortable chapter for the firm with a €10m payment to German authorities in connection with the cum-ex tax controversy.

The matter centres on what had been cited as the biggest tax fraud in Germany’s history, underpinning the resignation and subsequent jailing in 2019 of Freshfields’ global head of tax, Frankfurt-based Ulf Johannemann. He faces charges of fraud in connection with his advice to the defunct German arm of Maple Bank over the legality of a scheme to reclaim more than €380m in tax that was never paid.

Cum-ex transactions allegedly used a loophole in German law to allow investors to claim back dividend tax that was never paid. The practice is claimed to have started in the early 2000s and carried on for several years, costing European taxpayers up to €55bn, according to European Parliament estimates. Legal advisers are accused of having played a central role in exploiting the loophole.

In a statement released on Friday (29 January), a spokesperson for Freshfields said: ‘The Frankfurt General Public Prosecutor’s Office (PPO) will no longer pursue the inclusion of law firm Freshfields Bruckhaus Deringer as a concerned party in the proceedings in connection with share transactions carried out by Maple Bank around the dividend record date.

‘The PPO has closed the Administrative Offences Act (OWiG, Ordnungswidrigkeitengesetz) proceedings against the firm. The firm has made a voluntary payment in the amount of €10m to the German fiscal authorities.

‘This is the result of a constructive dialogue with the PPO in coordination with the court and does not involve an admission of guilt and/or liability. It is a further step forward for the firm as it looks to address these legacy matters reaching back to more than a decade ago and to focus on its future development.’

At the end of August 2019, Freshfields agreed to pay a settlement of €50m after being sued by the liquidator of Maple Bank for €95m. The firm said in a statement at the time that it was ‘convinced that our advice always complied with applicable law’.

For Freshfields it will be a relief to have closure on this saga after an awkward couple of years that has inevitably taken its toll on the firm’s reputation in Germany, one of its key markets and its largest single practice outside the UK.

The scrutiny prompted the firm last May to establish an ethics committee governing its German business.

nathalie.tidman@legalease.co.uk 

Legal Business

Der Freshfields-Skandal

Der Freshfields-Skandal

It’s 9 September in the German parliament. Stefan Liebich of the democratic socialist party, Die Linke, stands up to quiz finance minister Olaf Scholz, a member of the Social Democrat Party. His question: ‘Have there been any thoughts on your part whether firms like Freshfields or others should be excluded from receiving future instructions?’

Scholz responds: ‘In relation to the law firm you mentioned… I cannot imagine that new assignments will be placed there’.

Legal Business

Falling angels: Freshfields faces cum-ex repercussions

Falling angels: Freshfields faces cum-ex repercussions

It has been a difficult year for Freshfields. In PR terms it has been an annus horribilis, and the enormity of the challenge faced by the firm’s first female senior partner, Georgia Dawson, cannot be understated.

Seemingly unable to move on from damaging #MeToo allegations; suggestions of an inappropriate drinking culture; an incomplete UK move to Bishopsgate; and a succession of high-profile departures culminating in Skadden’s poaching of Bruce Embley on the eve of Dawson’s appointment; all have contributed to keeping Freshfields in the press for the wrong reasons.

Legal Business

Glass ceiling finally shattered for Magic Circle as Freshfields elects female senior partner

Glass ceiling finally shattered for Magic Circle as Freshfields elects female senior partner

While the upper echelon of City law has seen senior female leaders before in Penelope Warne at CMS, Sonya Leydecker at Herbert Smith and Lovells’ Lesley McDonagh before them, Freshfields Bruckhaus Deringer has beaten Allen & Overy, Clifford Chance and Linklaters to the punch by electing the first-ever woman to a top leadership role in the Magic Circle. The firm today (24 September) announced it has elected Asia disputes head Georgia Dawson as its new senior partner. 

And as has long been rumouredthe new senior partner will head up a reconfigured leadership team, including the hotly-tipped Alan Mason and Rick van Aerssen, as well as Rafique Bachour. 

Dawson will take over from Edward Braham, who has in recent months been credited for throwing his weight behind the firm’s crucial US strategy, while the rest of the leadership team will be in lieu of the managing partner role currently held by Stephan Eilers. The new leadership will take the helm in January 2021. 

This will be a welcome, progressive move as Freshfields becomes the first of its direct peers to elect a female senior partner, especially in light of the firm’s recent struggles with unedifying #MeToo publicity. 

Bachour was not a name bandied about as a favourite in the early stages of the firm’s election process, but the rationale of having a Brussels-based antitrust partner in a leadership role in the current climate is plain to see. 

Meanwhile Mason has long been touted as a front-runner with appeal to various constituencies and, given he is spending around 50% of his time in the US, is a credible choice given Freshfields lofty American investments and ambitions.  

Van Aerssen, the Frankfurt-based M&A lawyer who is currently head of global transactions until Julian Pritchard takes over in November for four years, is an influential continental partner who enjoys a strong profile in London and is noted for his work supporting the expansion of Freshfields’ US practice. 

The main surprise in the election outcome was no mention of Helmut Bergmann, the Berlin-based managing partner of continental Europe that was so frequently cited in the months leading up to the election as a future progressive leader. 

Braham described the leadership team as ‘highly regarded’ and ‘dynamic.’ 

Dawson commented: ‘With this team we have broad experience and a diversity of perspectives, and a shared purpose and vision for Freshfields. We intend to preserve the very best of our culture, marketleading practices and standards of client service, while leading the firm into the next chapter of its long history. 

I would also like to take this opportunity to thank Edward and Stephan for their commitment to the firm over many years and particularly during their term of leadership. Their investment in strengthening and deepening our global platform has led to expansion into new markets such as Silicon Valley, creating an exciting foundation for future growth.’ 

Nathalie.tidman@legalease.co.uk 

For more on Freshfields at a leadership crossroads, see: ‘The devil you know – the two visions for Freshfields’ (£)

 

Legal Business

Freshfields tax drama back in spotlight as Germany’s finance minister throws future mandates into doubt

Freshfields tax drama back in spotlight as Germany’s finance minister throws future mandates into doubt

Freshfields Bruckhaus Deringer has been dragged into the spotlight yet again for its role in the cum-ex tax scandal, with Germany’s finance minister suggesting that the firm should no longer be handed government contracts for its involvement.

Finance minister Olaf Scholz of the Social Democrat Party made the remark on Wednesday (9 September) at the German Bundestag during questioning around what has widely been dubbed the biggest tax fraud in the country’s history.

The minister was quizzed by Stefan Liebich of the leftist Democrat Socialist Party as to whether firms like Freshfields implicated in the scandal should be excluded from future government contracts.

Scholz replied (in translation): ‘Of course, we have to draw conclusions for what we do when we work with companies. In relation to the law firm you mentioned, I said for myself: “I cannot imagine that new assignments will be placed there.”’

This is the latest twist in the long-running cum-ex scandal in which the City giant has been accused of having a pivotal role. It centres on transactions that took advantage of a loophole in German law that allowed investors to claim back dividend tax that was never paid. The practice is claimed to have started in the early 2000s and carried on for several years, costing European taxpayers up to €55bn, according to European Parliament estimates.

In late November 2019, it emerged that Freshfields’ global head of tax, Frankfurt-based Ulf Johannemann, had resigned from the firm. A few days later, he was jailed as a flight risk. Released in December on a €4m bail, he is facing charges of fraud in connection with his advice to the defunct German arm of Maple Bank over the legality of a scheme to reclaim more than €380m in tax that was never paid.

This latest development will be an unwelcome one for Freshfields as it looks to mitigate the damage to the firm’s reputation. Freshfields declined to comment.

However, the cum-ex matter goes far beyond Freshfields’ involvement and is doubtless a political hot potato as Germany braces for its federal election next year.

Moreover, Scholz himself has been accused of intervening in a probe on Warburg Bank in his former role of mayor of Hamburg amid allegations that the tax authorities dropped a substantial claim surrounding the banks involvement in cum-ex transactions.

The minister denies intervening in investigations against the bank and its former boss, Christian Olearius, in relation to serious tax evasion.

For more on Freshfields’ involvement in the cum-ex saga, read Legal Business’ analysis of earlier this year.

nathalie.tidman@legalease.co.uk

Legal Business

Beckwith appeal date set as ex-Freshfields partner challenges liability and costs in #MeToo case

Beckwith appeal date set as ex-Freshfields partner challenges liability and costs in #MeToo case

An appeal by former Freshfields Bruckhaus Deringer partner Ryan Beckwith against the Solicitors Disciplinary Tribunal’s (SDT) decision in his misconduct case is set to be heard in October.

Beckwith filed the High Court appeal against the SDT’s decision on liability and the costs award in February, with the hearing now listed for Wednesday 21 October. 

The appeal follows last October’s high-profile judgment that Beckwith knew or ought to have known that the junior member of staff he engaged in sexual activity with was intoxicated and her judgement impaired and that he knew or ought to have known that his conduct was inappropriate.

Beckwith’s appeal comes after the Solicitors Regulation Authority (SRA), which brought the case to the SDT for prosecution in June 2018, in February said it would not be appealing the sanctions handed down of a £35,000 fine and an order to pay legal costs of £200,000.

Beckwith’s challenge is specifically in relation to the SDT’s decision on liability and the costs awards and does not relate to the fine itself, it is understood.

Also in February, the SDT released its written judgment explaining that the controversial decision to fine instead of ban Beckwith was because his misconduct was ‘a lapse in his judgement’ and ‘unlikely to be repeated’.

In the judgment, the SDT said: ‘There had been no clients involved and there was no suggestion that the work of the respondent was anything other than highly competent. Nor did it consider that the respondent posed a future risk to the reputation of the profession.’

The sanctions were made in light of the tribunal’s decision that ‘this was a one-off incident where there was no suggestion that he [Beckwith] had coerced or manipulated Person A [the junior lawyer]. It was not the applicant’s case that the respondent had deliberately plied Person A with drink with a view to getting her into such an intoxicated state that she would then engage in sexual activity.’

‘Nor was it the case that he had used his position of seniority and authority to engineer the sexual encounter,’ the decision added.

The tribunal found that, although Beckwith had ‘engaged in inappropriate conduct in circumstances where his judgement had been affected by the amount of alcohol he had consumed,’ it did not find that the circumstances of the case were such that a restriction order was necessary in order to protect the public.

Beckwith is being represented by criminal defence partner Nick Brett of Brett Wilson, who has instructed Alisdair Williamson QC of Three Raymond Buildings.

nathalie.tidman@legalease.co.uk

Legal Business

Freshfields refutes partner misconduct in handling alleged rape case as SRA confirms probe 

Freshfields refutes partner misconduct in handling alleged rape case as SRA confirms probe 

Just when Freshfields Bruckhaus Deringer probably thought its #MeToo woes were behind it, a fresh spotlight has been shone on a prominent partner over allegations of misconduct in handling an alleged rape case involving UBS and a Solicitors Regulation Authority (SRA) investigation underway.

The matter came to light on Thursday (13 August) when the The Financial Times reported that influential Freshfields employment partner Caroline Stroud was being investigated by the watchdog for her conduct in dealing with a review of the investment bank’s handling of a rape allegation. 

In a statement, Freshfields said only: ‘We refute the allegations’, made against Stroud after she was drafted in by UBS to review the way in which the bank investigated a complaint of an alleged rape victim against a colleague.

Nevertheless, the SRA has seen fit to launch a probe into the allegations, but would not be drawn on the timeframe. A spokesperson for the SRA said: ‘We are investigating before deciding on any next steps. Our work on this matter continues, but we cannot discuss any details about our work while it is ongoing.’

The regulator is reportedly reviewing complaints that Stroud did not make her role in acting for UBS clear to the alleged victim, referred to as ‘Ms A’, something that the firm and Stroud are said to deny.

This will be another unedifying disclosure after restructuring partner Ryan Beckwith was last October fined by the Solicitors Disciplinary Tribunal (SDT) following a referral from the SRA over inappropriate sexual conduct with a junior lawyer.

The saga prompted the firm to usher in reforms to its handling of such behaviour, including financial penalties, at the end of last year.

There is little doubt that the regulator has, having long been accused for years of enjoying too much of a cosy relationship with City firms, taken an increasingly hard line both on lawyers committing misconduct or attempting to cover it up. However, it took the worldwide #MeToo movement that started in autumn 2017 and triggered a wave of uncomfortable allegations, to galvanise the regulator into action.

As incidents of workplace misconduct must inevitably have all but disappeared with the majority of lawyers and clients still working from home amid the Covid-19 pandemic, this latest episode is a sharp reminder that there are several other ways to be implicated in such controversy. It also begs the question – how many other disclosures relating to historic events have yet to be brought to light?

nathalie.tidman@legalease.co.uk 

Legal Business

Freshfields emerges from year of challenges and investment with 3% revenue increase and flat profit

Freshfields emerges from year of challenges and investment with 3% revenue increase and flat profit

After what has been an eventful year notwithstanding the havoc wrought by the coronavirus crisis, Freshfields Bruckhaus Deringer has closed out the Magic Circle reporting season by announcing a 3% revenue increase to £1.52bn and flat net profit at £685m.

Profit per equity partner (PEP) stood at £1.82m, slightly down on last year’s £1.839m.

While not as pacey as last year’s performance, when turnover grew £70m to £1.472bn on the previous year’s £1.403bn and net profit edged up 1% to £688m from £683m in 2017/18, the more muted results nevertheless come on the back of a level of investment in the US business unparalleled among the firm’s peer group.

Last October, Freshfields took a surprisingly adventurous tack with the hire of a four-partner M&A team in Wall Street, led by prominent M&A veteran Ethan Klingsberg (pictured), from Cleary Gottlieb Steen & Hamilton.

The move was a substantial shot in the arm for Freshfields’ heady stateside ambitions. Then, early this month the firm announced it had recruited five senior lawyers from major US firms to launch a practice in Silicon Valley under the leadership of Davis Polk & Wardwell securities partner Sarah Solum.

Freshfields’ financials on Wednesday (22 July) follow hot on the heels of Clifford Chance (CC)’s the previous day, with robust growth in the face of the most challenging trading environment since the banking crisis. The City leader said revenues for the 2019/20 period were up 6% to £1.803bn, while profit per equity partner increased 5% to £1.69m. Partnership profit for the year totalled £666m, an annual increase of 5%.

The performance also slightly outpaced the 4% growth at Allen & Overy, and compares favourably with Linklaters, which last week confirmed that its revenue for 2019/20 was up 0.7% to £1.64bn.

Freshfields pointed to a particularly strong year for its antitrust, litigation, arbitration and investigations teams, which it said had achieved ‘record revenues’, thanks in part to defending Volkswagen in civil, regulatory and criminal claims brought globally in response to the emissions case.

Other highlight matters for the year saw Freshfields act on Aon’s merger with Willis Towers Watson, the London Stock Exchange Group’s acquisition of Refinitiv and Paypal’s participation in a fundraising by GoPay.

Financial sponsor-led standouts drove double-digit growth and included advising on the Cinven, KKR and Providence consortium’s takeover of MásMóvil Ibercom.

The technology sector has also fuelled business, with Freshfields advising Google on its $4.5bn investment in Reliance Jio and Hewlett Packard Enterprise on its acquisition of Silver Peak. A significant investment in the firm’s own technology was also cited as a key move as it transitioned to remote-working during the Covid-19 lockdown.

The year also saw a number of reversals that management will be keen to put behind it. Unsavoury headlines last year around the SRA’s prosecution of former London restructuring partner Ryan Beckwith are unlikely to be forgotten in a hurry. The firm also suffered several blows in the form of departures, not least when the well-respected M&A partner Sam Newhouse decamped to Latham & Watkins earlier this year.

Alan Mason, global client partner, said: ‘Technology and life science businesses are increasingly shaping the global economy, and this is being accelerated by Covid-19. Our continued US expansion means we are ideally placed to help these companies achieve their ambitions. Top-tier US talent is critical.’

nathalie.tidman@legalease.co.uk

Legal Business

‘Making Freshfields an American brand’ – Inside the Silicon Valley launch handing the City giant a rare opportunity

‘Making Freshfields an American brand’ – Inside the Silicon Valley launch handing the City giant a rare opportunity

Roughly 30 seconds into conversation with Boris Feldman it becomes apparent why the charismatic litigator is regarded as a local legend in California’s legal community. Spitting out colourful quotes with the confidence that comes from having acted for pretty much every Bay Area brand name going, the bow-tied Feldman has nonetheless chosen an odd time in his lengthy career to change firm, let alone quit a local bellwether like Wilson Sonsini for the uncertain embrace of London’s oldest elite law firm.

But then Feldman’s move alongside four other senior lawyers to set up a Silicon Valley arm for Freshfields Bruckhaus Deringer speaks to two key issues of huge strategic importance for the storied London firm. The first point is that for the first time in its 43-year history in the US, Freshfields is attracting the kind of star power widely accepted as a prerequisite of success stateside. The second point is directly related: the acquisition of said talent has dramatically changed perceptions of the London firm in the US in just eight months after years of mixed opportunities and bad PR.

‘When you write an article in 2025 about Freshfields in Silicon Valley, there’s two metrics I’d like to judge us by,’ notes Feldman. ‘Firstly, the quality of talent [we’re hiring] and second, that we’ve helped to make Freshfields an American brand as well as a global one.’

To an extent that would have seemed unthinkable a year ago, such sentiments are no longer dismissed as hyperbole by peers, even if Freshfields has a long way to go on this journey. But consider the names signing up to help light the way.

As one of the leading securities litigators on the West Coast, Feldman has acted for many of the top names among California’s fêted technology giants, including Google, Facebook, Netflix, Salesforce, LinkedIn, Snap and Hewlett-Packard.

On the transactional side, Feldman is supported by a figure of comparable stature, Davis Polk & Wardwell veteran Sarah Solum, who oversaw the Wall Street firm’s launch and transformation into a serious presence in the West Coast securities market.

Solum, who is running the new, seven-partner operation, is touted as a ‘superstar’ by Freshfields partners, with one noting: ‘You can’t get better than that. She seems to have mentored everyone in Silicon Valley.’

The team is fleshed out by John Fisher, an M&A partner from Sidley Austin, Latham & Watkins executive comp partner Maj Vaseghi and Wilson Sonsini litigation associate Doru Gavril, who joined as a partner. The seven-partner outpost includes Freshfields partners Pamela Marcogliese (capital markets) and Alan Ryan (antitrust), transferring respectively from New York and Brussels.

Freshfields gets additional props for having pulled off such an audacious move remotely, given that serious discussions with the group did not begin until just before coronavirus-driven lockdowns. ‘I’ve done this whole thing from my closet,’ jokes Solum, decrying the limits of home-office space.

Aside from the undoubted quality of the two senior individuals in the group, the practice mix is astute. The team includes Fisher as an up-and-coming deal hand in the key technology and life sciences sectors, and in Gavril provides a protégé to Feldman, now in his 60s, to build in succession.

Shipping in a trusted operator like Ryan on antitrust is likewise a no-brainer at a time when America’s technology giants are spending half their time squaring up to European agencies on business-critical issues of competition, tax and data security. Marcogliese, likewise, has an admirable CV having in 2019 advised on the high-profile float of Pinterest and Google’s 2015 corporate reorganisation.

Aside from a well-regarded move in itself, Freshfields’ Silicon Valley adventure builds upon on its recruitment in October of a four-partner M&A and securities team in New York from Cleary Gottlieb Steen & Hamilton, which brought in Marcogliese.

While Freshfields’ previous moves in New York’s transactional space had generated at best mixed reviews, the Cleary team led by deal heavyweight Ethan Klingsberg has garnered grudging but undiluted admiration, not least for the circa-$10m package it took to bring him in.

Aside from shipping in the kind of deal lawyers that had until now proven beyond the grasp of the London elite, the Cleary team brought additional benefits given its impeccable West Coast connections. Aside from major work with clients like Google, Pinterest and Hewlett Packard Enterprise, Klingsberg is hugely prominent in California’s legal community, having hosted a well-attended annual M&A conference in San Francisco with the Berkeley Center for Law and Business. Certainly, Feldman and Solum make it clear that Klingsberg’s presence was material to their taking Freshfields’ call, going as far as to call the former Cleary partner ‘the most important M&A lawyer in the West Coast’.

And eye-catching team moves in Silicon Valley and New York have been followed by other notable recruitment, with Freshfields shipping in ten Cleary associates since October. The firm also in July hired well-regarded securities litigator, Willkie Farr & Gallagher partner Mary Eaton, reinforcing a key strategic discipline in the US market.

All in, even the most sceptical of peers are impressed. ‘That’s the most interesting thing that’s happened in the market, in terms of what the Magic Circle firms are doing, for quite a while,’ observes one managing partner of a major US firm of Freshfields’ West Coast move. ‘That’s really playing at the top of the market.’

‘CC ringing in our ears’

Before this piece turns into a love letter to Freshfields’ US operation, it must be remembered that Freshfields’ US strategy has had more false starts than a vintage Jag. So persuading US peers and potential recruits that it is serious this time is no done deal, however impressive its recent efforts.

On top of which, the Magic Circle’s collective chequered history in New York looks like a triumph of execution compared to London leaders’ efforts in California so far. Freshfields had previously flirted with launching locally – including considering taking a productive M&A team led by Richard Climan from the imploding Dewey & LeBoeuf.

The Climan team ultimately went to Weil, Gotshal & Manges before becoming a highly-profitable fixture at Hogan Lovells’ West Coast practice.

Previously, Freshfields’ nerve usually faltered at persuading its conservative partners, particularly in Germany, why it should make such investments. One partner concedes the move had previously been seen as an ‘add-on’ or ‘distraction’ before the growth of California’s corporate champions led to the conclusion that this was fundamental to Freshfields’ global aspirations.

Another Freshfields partner concedes that ‘CC is ringing in our ears’ in wariness of avoiding the fate of Clifford Chance’s disastrous foray into California nearly two decades ago. Having hired a large team from Brobeck, Phleger & Harrison in 2002, CC shut its local operation several years later amid much acrimony.

However, there are many reasons to believe that the London giant can proceed far more quickly in California now than in the war of attrition it inevitably faces on Wall Street, even with expensive soldiers to bolster its campaign.

For one, the days in which the Bay Area was a graveyard for out-of-towners are long gone. Sure, Cooley and Wilson Sonsini remain potent forces in the local technology community, as do smaller outfits like Fenwick & West and boutique Gunderson Dettmer Stough Villeneuve Franklin & Hachigian.

But even if emerging company work remains largely the preserve of local leaders, for mature-stage capital markets, M&A, disputes and private equity the last 20 years have seen huge inroads from East Coast rivals. Likewise, office head Solum has a proven track record of selling old-money institutions to California’s youthful executive class. Recalling her experiences launching her Wall Street firm’s local operation, Solum makes light of the challenge of pitching a 300-year-old London outfit to the locals: ‘I am used to it, they used to call us, “David Polk”.’

Among the firms to have carved strong local positions are Davis Polk for securities, Skadden, Arps, Slate, Meagher & Flom and Hogan Lovells for general M&A, with Simpson Thacher & Bartlett and Kirkland & Ellis established for private equity matters.

This is the client base of core concern to Freshfields with the London firm obviously looking to put an added global spin on its proposition to marquee clients. ‘All my clients, all their problems now have global dimensions,’ reflects Feldman. ‘It would be great for them to have a unified global team.’

Moreover, as Freshfields corporate partner Alan Mason, acknowledged as the architect behind the Silicon Valley move, notes, the economic case for the launch is compelling. ‘There’s been a huge amount of analysis focused on growth. This is where we see the growth of the legal market.’

Given the dramatic rise of California’s technology giants to global dominance over the last 20 years, who can argue with such sentiments? As the US’s most populous state, California’s economy is often touted as being the fifth largest in the world if it was an independent country (edging out the UK on most metrics).

Moreover, the current Covid-19-induced crisis has if anything strengthened the relative hand of the West Coast’s global technology champions, given the increasing demand for their services as remote working booms amid the pandemic. With stock market valuations of marquee West Coast companies shrugging off the global economic crisis, technology clients have been raising capital like it’s going out of style.

The bullish mood among local lawyers, particularly in capital-drenched North California, speaks also to the opportunities in a market that is still far from London/New York levels of saturation for commercial lawyers.

Huge progress can be made with far smaller teams than demanded in Wall Street or the City – Skadden became a major force locally fielding around 70 lawyers in California, one of the largest from an East Coast player. And despite the rocketing costs of Bay Area real estate, investing is still cheaper than cracking Manhattan; against the $10m package for Klingsberg – roughly double the top of Freshfields’ mainstream equity ladder – the highest package offered for a transferring partner was under $7m, according to one insider.

Aside from the words, Clifford and Chance, the only mystery around Freshfields’ move is not why but why the firm and its peers waited so long given the rich strategic pickings on offer.

As one London rainmaker remarks, ‘If we get this right this could be the inflexion point we have all been hoping for in the US.’

When stars align

Such an inflexion point won’t quite be enough to finish the job in the US for Freshfields. Bringing in the Cleary team will break a few eggs as some of the previously shipped in deal partners are expected to move on. An earlier sign of this occurred with the departure of US M&A head Mitchell Presser for Morrison & Foerster in April. This kind of turnover is largely priced in already. But with credible US positions in antitrust, investigations, securities litigation and corporate, Freshfields is rapidly putting together the pieces to position it as a strategic boardroom adviser to major corporates stateside. Obvious next moves would be to bulk out its US private equity practice and expand out the mid-level associate ranks – with under 250 lawyers stateside, Freshfields is still going to need considerable growth to fulfill its ambitions.

There will be much attention on its leadership elections this year to see if Freshfields has the stomach to sustain such audacious and expensive investment, particularly in the face of a conservative German partnership. As one former partner notes of its US hires, ‘Europe should be trimmed to pay for this but that’s hard to do in an election year.’

The Silicon Valley move suggests Freshfields’ progressive wing is winning the argument on future direction but the replacement for senior partner Edward Braham will settle the point. While there has been much talk of a team forming around German partner Helmut Bergmann, possibly including partners David Sonter and Jennifer Bethlehem, other potential figures to watch include Mason and Asia head Georgia Dawson.

By all accounts, Freshfields’ deal team has remained on solid form through the crisis, securing a number-two ranking in Mergermarket’s global tables for the first half of 2020. Recent US deals have included acting on the merger of Stagwell Media and MDC Partners, while Klingsberg has just advised Hewlett Packard Enterprise on its pending $925m acquisition of Silver Peak. If the stars are not only joining but aligning now for Freshfields in the US, they never will.

As Legal Business argued recently, the current crisis will likely be the best opportunity the London elite will get to reassert themselves on the global stage before they are effectively pushed into second tier status by a group of US rivals. And seizing this moment to revive their faltering US strategies – which have always been far more self-imposed failures than the inevitability of market dynamics – would be the most powerful expression of that rebirth.

Having worked through repeated torturous setbacks to be in a position to persuade star names of the likes of Solum, Feldman and Klingsberg to sign up, this is surely Freshfields’ moment. For the sake of City law as a global force and tradable brand, let’s hope they don’t squander it.

alex.novarese@legalease.co.uk

For more analysis, see our Deal View column on Freshfields in Wall Street