Stepping up

With the departure of high-profile practice head Jonathan Kelly, the Simmons financial services litigation team has lost a leader in investment banking disputes work. New chief Robert Turner will have a fight on his hands if the firm is to remain a Magic Circle rival

To say that Robert Turner has big boots to fill is to underestimate the size of the task ahead of him. Turner took over as head of financial services litigation at Simmons & Simmons on 1 April, with a background of acting in disputes on behalf of hedge fund managers. But for all his strengths, he enjoys nothing like the profile and reputation of his predecessor Jonathan Kelly – nor indeed his predecessor’s predecessor, now firmwide managing partner Mark Dawkins.

Kelly announced his departure from Simmons in early February, and joined Cleary Gottlieb Steen & Hamilton in April as the firm’s first English-qualified litigation partner. A member of the board at Simmons, he had led the financial markets litigation practice since Dawkins was elected to the managing partner role in 2005, and had also been responsible for co-ordinating the firm’s US client relationships. His departure seems to be entirely amicable and is driven, he insists, by nothing more than a desire for a new challenge.

Under Kelly’s tenure, and that of Dawkins before him, Simmons has established itself at the top table for investment banking disputes work. Acting for the likes of Credit Suisse, Dresdner Bank and WestLB, Kelly has appeared on some of the biggest cases around, most recently advising UBS on its defence of the $500m mis-selling claims made by HSH Nordbank over HSH’s investment in a synthetic collateralised debt obligation – a rare example of bank-on-bank litigation.

‘To my mind,’ one competitor says, ‘Kelly is the front, back and middleman in the Simmons financial services litigation team. I don’t think I have ever dealt with anyone else there.’

The practice is one of the few where Simmons can genuinely call itself a Magic Circle rival. Stepping into Kelly’s shoes will not be easy.

Standing together

Turner appears ready for the challenge, and says that there is much more to the team than its former chief. Indeed, the firm will have seven partners handling financial litigation following the departure of its most high-profile name, with three focusing on the retail side, and four dedicated to wholesale banking products.

In the retail banking world, Colin Passmore enjoys a good relationship with Barclays, and successfully defended the bank as one of eight defendants in the bank overdraft charges case brought by the Office of Fair Trading, which went to the House of Lords. But alongside retail banking disputes, and as the firm’s head of litigation, Passmore also handles professional indemnity claims for clients including Watson Wyatt, and for their professional indemnity underwriters, and works on insolvency and business crime issues.

The retail banking disputes team was boosted in 2008 with the hire of Marc Thorley as a partner from Clifford Chance, where he was an associate and had completed a secondment at Barclays. A third partner, Caroline Hunter-Yeats, rounds out the group, which Turner says will be a focus for investment going forward.

But it is on the wholesale products side where Simmons has traditionally shone, and where it has managed to compete with the big boys of structured finance from the Magic Circle, despite lacking the same credibility in the non-contentious arena.

Turner says: ‘We have obviously got a fantastic finance practice, and relationships with all the investment banks, but in terms of sheer revenue we are clearly smaller than our competitors. If you have drafted all the deals, there will be disputes on those deals, and they will turn into litigation jobs.’

He adds: ‘We have to be more proactive than our rivals because we don’t have the same volume of work coming through just because we did the original deals. We can’t just wait for work to come in from our non-contentious colleagues.’

A giant leap

Kelly will face nothing like the same challenges at his new firm. Cleary Gottlieb enjoys fantastic relationships with the world’s largest financial institutions, and shared links to the likes of BNP Paribas, Barclays, Credit Suisse and UBS should put Kelly in a good position to handle the English-law aspects of some of the global disputes those banks get tangled up in. The firm is a darling of investment banks across the board, handling M&A, finance and litigation work for them – it was Cleary that assisted Bank of America buying Merrill Lynch and Barclays buying the remnants of Lehman Brothers, for example. To be able to offer such clients English disputes capability seems a natural extension.

Kelly returned from a sabbatical last summer and decided it was time for a change. He declined to comment for this piece, but told LB last month – when he featured as one of our top ten laterals of the year – his reasons for leaving. ‘The way I look at it, and the way Cleary looks at it, is it has a tremendously strong litigation and regulatory practice across the world, with financial litigation in Washington DC and Brussels, and litigators across its European network,’ he said. ‘But it doesn’t have anything of the type that I could offer in English law, so first and foremost the driver is to plug that gap in its network.’

His departure has been just about as friendly as a partner move can be, and he continued to work at Simmons for two months after announcing he was off. The hope for those he has left behind, of course, is that the choice mandates for the investment banks won’t follow him out of the door.

‘Simmons’ profile has really gone up over the past ten years, and it’s now very close behind Freshfields and Clifford Chance.’
David Goddard, 4 Stone Buildings

It is really in the last decade that the firm has turned a corner in banking litigation, with Dawkins’ decision at the end of the Nineties to relocate the contentious team to sit alongside their non-contentious colleagues seen as pivotal internally. Today, Turner et al can be found at desks next to their capital markets and regulatory colleagues, and far from the rest of the litigators. Turner says they ‘went native’.

‘The premise was Mark Dawkins’ initiative,’ he explains. ‘He felt that if you put the people that are drafting the difficult products together with the people that are dealing with the problems that come out of them, both are going to benefit. That is a model that has been very successful for us, but not much emulated.’

The concept came into its own after Lehman Brothers collapsed in September 2008, when Simmons demonstrated its ability to be proactive with aplomb, predominantly for its hedge funds clientele. A whiteboard went up in the finance department naming all the funds that the firm was working with, a taskforce was put in place, and contentious and non-contentious teams set to work talking to clients about issues and potential claims.

The result? It’s fair to say that the Simmons team has been at the forefront of the litigation coming out of the insolvency of the bank in Europe, primarily on behalf of the firm’s formidable hedge fund client base (it works for 32 of the top 50 hedge fund managers in Europe, according to The Hedge Fund Journal). The taskforce, comprising Turner and his finance litigation partners Bill Rodger and Chris Braithwaite, also included regulatory partner Darren Fox, restructuring partners Peter Manning and Alyson Lockett, and prime broking partner Allan Yip.

They advised on the first application in the administration for RAB Capital in the week after Lehman’s collapse, and have since advised three funds, including an RAB Capital fund and a Christofferson Robb & Company fund, on the two main set-piece applications heard last year, concerning both the rights of prime brokering clients and the rights of clients whose money Lehman Europe failed to segregate. The cases concern many billions of dollars and have industry-wide significance, and the firm has been instructed by more than 20 hedge funds in all.

David Goddard, head clerk at 4 Stone Buildings, runs a set where barristers are regularly instructed on the most complex banking and finance disputes. He says: ‘Simmons’ profile has really gone up over the past ten years or so. We have always done lots of work with people like Freshfields, who are the Rolls Royce firm and have been for more than 15 years, but Simmons has come on and is now really high up, very close behind Freshfields and Clifford Chance.’

Walking tall

How much of that is down to the seating arrangements is debatable, and certainly rivals say there are good reasons why they have chosen not to copy the idea. One head of financial services litigation at a competitor says: ‘Whatever system you have, you have to have the ability for both the contentious and non-contentious people to sit down together, that’s a given. But the thing that’s wrong with sitting together is that it puts all the emphasis on financial services expertise, and potentially risks the litigation know-how. It is still litigation, and that should always be the focus.’

Nevertheless, many in the Magic Circle, including Herbert Smith, concede that Simmons is doing something right and is a rival for investment banking disputes mandates, alongside Hogan Lovells. One competitor says: ‘The Simmons team has worked hard at some of the relationships they have, and we do see a lot of them. They will probably have to work harder to keep their investment banking client base up after Jonathan leaves, because when investment banks are looking for lawyers, they are not a name that trips off the tongue. They have had to work hard to get their reputation to where it is, and they may have to work even harder to stay there.’

Aside from Kelly’s work on the HSH Nordbank case, his other mandates for investment banks include advising WestLB in a groundbreaking case arising out of a collapsed $1bn securitisation, and acting for the German lender in a dispute with private equity fund Terra Firma over the collapse of television rentals company Boxclever. He also worked for Germany’s Dresdner Bank in proceedings brought against Banco Popolare Italiana in London concerning a complex structured finance transaction in Italy, following one of the first securitisations of non-performing loans in the country.

These are the kinds of mandates the firm must now fight to maintain. Three other partners – Braithwaite, Rodger and Richard Bunce – work alongside Turner on the wholesale side, but the bulk of their work to date has been for funds rather than investment banks, with Rodger in particular focused almost exclusively on funds and insurance.

Turner concedes that the investment banks are where Kelly had traditionally led the charge: ‘Simmons has a major finance practice of which this group is part, so the relationships with the investment banks are across financial markets, capital markets, regulatory… they are firmwide. I don’t think there are any investment banks with which we have a purely or mainly litigation relationship.’

‘We have to be more proactive than our rivals because we don’t have the same volume of work coming through just because we did the original deals.’
Robert Turner, Simmons & Simmons

He adds: ‘I have obviously been going around talking to the investment banks, and a lot of those meetings I have done with Jonathan. While they will be sorry to see him go, I don’t think any of them see Jonathan’s departure altering the relationship in a fundamental way.’

Turner himself won a large case on behalf of Bear Stearns a few years ago concerning the certainty of oral trading on the UK markets, while Bunce was the second partner working on the Boxclever cases with Kelly. Braithwaite has good relations with UBS and Credit Suisse, and Thorley has made inroads with Citigroup and Barclays.

Nevertheless, while the hedge fund and retail banking parts of the practice may be undented by Kelly’s departure, the investment bank relationships could need serious attention.

Turner says the group has never been afraid to work hard at relationships, in all three strands of the business, with the practice seeing secondments as a crucial part of that. ‘Most of our assistants have been on secondments to our target clients,’ he says, ‘and two of the partners have as well. We are great believers in getting to know our clients, and that’s the only way to really get inside them and see the way they work and the pressures they are under.’

He says the practice normally budgets for as many as four assistants to be out in any one year. ‘That’s how you get an insight into what’s a helpful piece of advice,’ he explains. ‘I’ve been brought up to believe that if you are asked for a view, you give a view, you don’t give two sides of an argument. That’s what the in-house guys expect from us, and if you really become engaged in a sector, that’s what you can offer.’

Denyse Anderson, general counsel at corporate trustee The Law Debenture Trust Corporation, has worked with Turner and the group for many years. She says: ‘The Simmons guys are absolutely second to none – they are very client-focused, which isn’t always the case with law firms. For a client in litigation, it can be quite a daunting process and it’s helpful to have a firm you really feel are on top of things, who are talking to you, communicating with you, and telling you what you need to know at all times. Their approach is helpful in what can be very difficult circumstances.’

The right fit

As if Kelly’s departure were not enough of a concern, there are plenty of other worries to keep Turner on his guard in the new role. A key issue for the practice is conflicts – the perennial bugbear of any banking litigation team in a firm intent on advising financial institutions across the board, but compounded for Simmons because of its unrivalled penetration of the hedge fund space.

Turner estimates that the firm now turns away two out of three potential instructions. He says: ‘There are so many hedge fund clients in this firm, and that is obviously a huge help for us, both in terms of the variety of work that we see, and in the context of Lehman, which has been the biggest thing for us in the past 18 months. But it will inevitably be a problem for us if any of our hedge fund clients has an issue with its prime broker – that is probably an issue we can’t help with. In those situations, often you end up acting for neither, because the investment banks are all big clients, and the hedge funds are all big clients.’

Nevertheless, he contends that the insights the team has into both angles of the hedge fund market are invaluable to clients, with investment banks curious about the buy-side and the market practice in prime brokerage agreements, and the sell-side equally appreciative of the firm’s banking contacts.

Another issue is just the sheer volume of litigation around – no financial services litigator will currently argue that there are many cases seeing the light of day. Turner says: ‘The tsunami of litigation is not here yet, and I’m not sure it will ever materialise. There are a lot of disputes in the process of being resolved, of which the vast majority will not be litigated.’

He says people are still, 18 months on, focused on working out their exposure to the Lehman collapse, and on how they will maximise recoveries. ‘There are disputes,’ he says, ‘but people are resolving them, and there aren’t many troubling the courts. There’s obviously a great deal of sensitivity, not only because of the reputational risks of litigation, but also because of the costs.’

Where a small tsunami is occurring, he says, is in the regulatory arena, with the number of enquiries and investigations doubling or even trebling within many financial institutions over the past year and a half. Most of those cases are dealt with in-house, Turner says, but Financial Services Authority (FSA) enforcement is an area where Simmons is arguably weaker than rivals such as Herbert Smith.

The firm has non-contentious financial services regulatory capability in the form of partner Darren Fox, who took a leading role during the financial crisis, pointing out the difficulties with the FSA’s short-selling rules, which were introduced without consultation. But on the contentious front it is Richard Sims, a senior associate, who leads the effort. He joined Simmons in October 2008 from the enforcement division of the FSA, having led the investigation for them that resulted in the watchdog’s first prosecution for insider dealing. He may not have the experience of Martyn Hopper, Herbert Smith’s contentious regulatory investigations partner who spent four years as head of the FSA enforcement division’s market integrity group, but he does work as part of the wider Simmons crime, fraud and investigations unit. That team, which includes former Peters & Peters partner Louise Delahunty, who has been involved in many high-profile Serious Fraud Office prosecutions, and is led by partner Nick Benwell, covers business crime, civil fraud, money laundering, bribery and corruption, extradition, cartels, regulatory and health and safety investigations.

Turner says: ‘The thing that interests me as a lawyer is where regulation and litigation collide, where civil and criminal collide, and where one litigation regime collides with another. That’s where you get issues that may not be one person’s specialism, but which create lots of difficulties, and that’s what we are good at addressing. We have done that effectively in hedge funds, in regulatory stuff, and across litigation.’

Matthew Cavanagh, the general counsel at hedge fund Christofferson Robb & Company, which is involved in the Lehman client money case, says: ‘When we are picking a firm, we don’t just pick a firm offering bright chaps in court, we need a firm that understands our deal, and knows our business. Simmons has good exposure to the regulated funds world, the hedge funds world, banking and finance, and banking litigation. I would definitely see their contentious financial services litigation practice as being everything we want it to be.’

Best foot forward

Turner cannot afford to rest on his laurels, as competition is hotting up in the contentious financial services space, not least as a result of American firms like Cleary Gottlieb ramping up their transatlantic offerings. Simmons & Simmons cannot compete with those firms seeking to offer joined-up disputes expertise on both sides of the pond: the financial markets litigators have always worked on a best-friends basis with US law firms in transatlantic cases, with the strongest relationships existing with Debevoise & Plimpton; Paul, Hastings, Janofsky & Walker; Stroock & Stroock & Lavan; and Sullivan & Cromwell.

The loss of Kelly is undoubtedly a blow on the US front, as he had led a firmwide transatlantic business development initiative targeting American clients. Simmons says that initiative is now incorporated into the sector strategy, and will be led at team level.

For financial litigation, Turner says the jurisdictional issues arising out of disputes are just as significant in Europe and Asia, where the firm can field cross-border capabilities. He says: ‘That’s definitely one of the challenges for our group, and probably for our industry, going forward, just getting to grips with disputes that cross regulators and jurisdictions. In terms of growth areas, that would be one of the two main areas that I see for the practice.’

The civil crime practice is already represented in Simmons’ offices in Germany, Holland, Italy and Spain, while in Paris the firm has a leading market abuse team, and in Hong Kong there is one of the region’s most sophisticated finance litigation teams. Further finance litigators are expected to join the UAE and Doha offices shortly. ‘Our network is pretty highly developed compared to most of our competitors,’ Turner says, ‘in Europe and Asia in particular, but there are definitely gaps and that is something we are going to be looking to address.’

‘I would like to be orientated, going forward, towards growing the practice without losing quality or profitability.’
Robert Turner, Simmons & Simmons

The other area of growth that Turner identifies is the retail practice. ‘We have obviously been focused on the investment banks rather than the retail banks previously,’ he says. ‘Our litigation revenues are up 70% since 2005, but in terms of numbers of lawyers the increase has been nothing like that. I would like to be orientated, going forward, towards growing the practice without losing quality or profitability.’

The retail practice has, he says, got enormous growth potential: ‘As the financial world has changed, the investment banks have given way to large international banks that have both investment banking and retail arms. Historically, we might have done a lot of work for The Royal Bank of Scotland on the wholesale side, or Citigroup, but there’s no reason why we should limit ourselves.’

He adds: ‘Things like mis-selling are a big theme on both sides. On the retail side, the issue might be the volume of disputes, while on wholesale the issue may be the scale of a single case. There are undoubtedly different issues and different challenges, but within our team we have people who have great expertise with both types of issue.’

For the Simmons group under Turner, there are clearly both opportunities and challenges ahead. Holding that team together, and galvanising the troops in the wake of the departure of its biggest rainmaker, will surely be the greatest challenge of all. The new leader will need to walk the walk. LB