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So far, the sprawling assignment has gener-ated $120 million in fees for Baker Hostetler,and thats just the beginning. At press time thefirm had not yet submitted a fee applicationfor the time its logged since September 30,

which is likely to be its biggest request yet. (Asthe firm stresses in each fee application, its feesare not paid out of funds recovered for Ma-doffs customers, but instead are paid by theSecurities Investor Protection Corporation, aprivate entity funded by broker-dealers.)

This surge in activity boosted the700-lawyer firms revenue last year by 17percent, to $386 million, which was thethird-highest percentage increase amongAm Law 100 firms. The firms profits perpartner jumped 28 percent, to $765,000,giving it the fourth-highest percentageincrease. Largely because of the Mad-

off work, Baker Hostetlers presence inNew York has doubled since December2008; the firm now has roughly 150 law-yers at its office at 45 Rockefeller Plaza.

At press time the 69-year-old Picard had

recovered or reached settlements for a to-tal of $7.6 billion. And Picard isnt stoppingthere. Hes filed $100 billion worth of law-suits against deep-pocketed banks and otherwealthy investors who, he claims, knew orshould have known that Madoff was run-ning a scam. Thats more than the amount ofmoney lost to Madoffs scheme: Picard has de-termined that roughly $20 billion in investedmoney was lost, and an additional $44.8 bil-lion in fictitious profits were credited to cus-tomer accounts.

Baker Hostetler is understandably thrilledto have this assignment, which it promi-

nently promotes on its Web site. But everyfirm knows that its risky to rely on one mat-ter for a large percentage of its revenue. Thechallenge for Baker Hostetler, which earned20 percent of its 2010 revenue from Madoff work, is not just managing this colossalmatter. Its figuring out how to leverage thisgem of an assignment into a successful futurewhen the Madoff case winds down.

WEVE ALWAYS

been kind of a quiet firm,says R. Steven Kestner, the 56-year-old ex-ecutive partner of Baker Hostetler. Our goahere is to make sure were doing the best tolet people know about all the great lawyerswe have.

Kestner sits in a windowless conferenceroom in the firms Cleveland office, where heis based. On one wall hangs a framed signedathletics jersey of one of Clevelands most beloved sports icons, former Indians shortstopOmar Vizquel. Opposite it hangs the signedjersey of a certain basketball player who isno longer welcome in this town. Seated nex

to Kestner is one of the firms recently hiredpublic relations professionals, who keep atight rein on the medias access to anythingMadoff-related. (The American Lawyerwasnot permitted to talk to Picard, and couldtalk to Sheehan and others in New York onlyby phone for a limited time. The firm agreedto discuss its management of the Madoff liq-uidation proceedings, but declined to discussspecific litigation or case strategies.)

We would have had a good 2010 in anyevent, Kestner says, explaining that thefirm would be busy even without the Mad-off work. Most of Baker Hostetlers practice

areas are up, including corporate and non-Madoff litigation, he says. The firm has re-cently expanded in Chicago and WashingtonD.C., and has added lateral partners in intel-lectual property, health care, and mergersand acquisitions. In late March it brought ina 17-lawyer group from the defunct Howreyincluding Robert Abrams, the cochair of itsglobal litigation group. The firms clientsinclude Major League Baseball, The Progressive Corporation, Cardinal Health, Inc.Ford Motor Company, Inc., and Wal-MarStores, Inc.

Still, theres no doubt that Madoff is Bak-

er Hostetlers claim to fame these days. Thewhole visibility and profile of the Madoff as-signment has been very helpful to us, Kest-ner notes, adding that its led to some stronglateral hires and new engagements, althoughhe declined to name any of these new assignments. Looking forward, the firm has formeda strategic development group to plan how tocapitalize on its Madoff expertise, but Kest-ner says its too soon to reveal details.

When asked if hes concerned that somuch of the firms revenue stems from onematter, Kestner sidesteps the question. Ithink every day in any business, you have to

WHILE IRVING PICARD, TOP LEFT,IS THE MADOFF TRUSTEE, ITS HIS COLLEAGUE DAVID SHEEHAN,TOP RIGHT,WHO HAS BEEN THE MOST OUTSPOKEN ABOUT INVESTORS FEEDING AT MADOFFSTROUGH OF GREED.

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ask where your business is coming from to-morrow, he says. Its obviously a significantamount. Our lawyers are getting great results,and were looking to build on this work.

The $7.6 billion that Picard and his BakerHostetler team have already recovered or

reached settlements for is more money thanmost observers thought possible at the start.(Another $2.5 billion in forfeited property isheld by the U.S. Department of Justice and

may be distributed to customers.) Of thisamount, $5 billion comes from a settlementwith the widow of investor Jeffry Picower,which is under appeal [see Hunting for $100

Million, below left]. Picards outstandingclaims include a $9 billion suit against HSBCHoldings plc, a $6.4 billion suit against JP-Morgan Chase & Co., and a $1 billion claimagainst a group of investors including the topexecutives of the New York Mets.

The Madoff matter is mind-boggling inits size and complexity. In rough numbers thefirm is overseeing 16,500 customer claims,of which 2,400 have been approved as valid;

4,700 objections have been filed by thosewhose claims Picard rejected. The 1,000lawsuits that Picard has filed include actionsagainst so-called feeder funds that funneled

money to Madoff on behalf of investors, andhigh-profile investors (like Picower and theMets owners) who, Picard claims, knew oshould have known that Madoff was up to nogood. The firm is investigating activities in atleast 20 countries.

And who manages all of this? DavidSheehan, says Kestner. David is a masterat keeping all the trains running on time andmoving in the right direction.

THERES NEVER BEEN a case like the Madofcase, says Sheehan in an interview in MarchWeve had, to a large extent, to create a newtemplate for large-scale litigation with whawere doing here.

Sheehan neatly outlines the process omanaging this mountain of work in a waythat makes it sound simple. Hes divided thework into four tranches, as he puts itpure avoidance actions, bad-faith cases, suitsagainst feeder funds and banks, and customerclaimsand assigned teams from differenoffices to each task. Hes also organized com-

mittees to make sure that the firm takes aconsistent approach to handling claims. Onecommittee looks at every proposed settle-ment, another considers investor hardshipcases, and a third focuses on overall strat-egy. He has a remarkable gift for makingcomplex things very plain, says Oren War-shavsky, a Baker Hostetler partner who servesas Sheehans lead Madoff deputy.

To organize the blizzard of documentswhich the firm estimates may reach 25 mil-lionBaker Hostetlers IT professionalsled by chief information officer Bob Craighave built an ambitious intranet to organize

and share information. Craig says that doz-ens of other clients have been able to ben-efit from the technologies developed for theMadoff case.

You dont have to have the next Madof[case] to take advantage of these resources,says partner Judy Selby, who heads the firmsdiscovery management team. We offer a re-ally top-notch document review team. Theefficiencies are four times greater than if aclient did an outside [document] review.

It sounds like were the Seventh Army,says Sheehan, referring to the famed Ameri-can unit of World War II. But its not

quite that.Sheehan is a student of military history

and served as a lieutenant in the U.S. NavyJudge Advocate Generals Corps during theVietnam War. He credits this experience withhelping him oversee a mammoth project. Icame away with real insight into managingpeople and achieving good overall team re-sults, he says.

He honed his management skills dur-ing his 17 years as the managing partner ofthe Gibbons law firm in New Jersey, whichgrew from 45 to 200 lawyers during his ten-ure from 1987 to 2004. It was at the Gib-

HUNTING FOR $100 MILLION

As trustee for the liquidation of Bernard L. Madoff Investment Securities LLC, Baker &

Hostetlers Irving Picard has filed roughly 1,000 lawsuits in his effort to recoup $100 billion for

Madoffs victims. Here are four of the most prominent cases:

IRVING PICARD V. JEFFRY PICOWER

Picard sued this longtime Madoff investor and his wife for $7.2 billion. After Picower was found

dead in his swimming pool in 2009, Picowers widow, Barbara, agreed last December to settle for

$5 billion. This represents the largest Madoff settlement to date. U.S. bankruptcy court judge Burton

Lifland approved the settlement in January. It is under appeal by certain investors.

PICARD V. SAUL KATZ AND FRED WILPON

Here, Picard has gone after a group of investors who include the top executives of the New York

Metssuing the baseball teams chief executive officer, Fred Wilpon, and president, Saul Katz, as

well as their investment fund, Sterling Equities, Inc., and their family members. Picard seeks the re-

turn of $300 million in fictitious profits, plus $700 million in principal as a fraudulent conveyance. The

defendants lawyers at Davis Polk & Wardwell have called Picards allegations indisputably false.

PICARD V. JPMORGANSeeking $6.4 billion, Picard claims that the megabank was Madoffs primary banker for more

than 20 years and was complicit in his fraud by turning a blind eye to suspicious behavior. Picard de-

mands $1 billion in fees and profits and $5.4 billion in damages. JPMorgan Chase & Co., represented

by Wachtell, Lipton, Rosen & Katz, asserts that it wasnt aware of any fraud and at press time was

trying to get the case transferred out of bankruptcy court and into federal district court.

PICARD V. HSBC

In his biggest action to date, Picard seeks $9 billion from the British bank, a network of feeder

funds, and the mysterious Austrian banker Sonja Kohn. The trustee claims that the bank marketed

Madoff feeder funds to investors throughout the world with the assistance of Kohn, while it ignored

warnings of fraud from its own auditors. Represented by Cleary, Gottlieb, Steen & Hamilton, HSBC

Holdings plc has stated that it wasnt aware of Madoffs fraud and itself lost $1 billion to Madoffs

scheme. Like JPMorgan, its seeking to get this case transferred to federal court.

WEVE HAD TO CREATE A NEW TEMPLATE FOR LARGE-SCALE

LITIGATION WITH WHAT WERE DOING HERE, SAYS SHEEHAN.

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Reprinted with permission from the May 2011 edition of THE AMERICAN LAWYER 2011 ALM Media Properties, LLC. All rights reserved. Further duplication without permission isprohibited. For information, contact 877-257-3382 or reprints@alm.com. # 001-04-11-10

bons firm that Sheehan became friends withPicard, who was a partner there.

The Gibbons firm declined to comment onPicards departure for Baker Hostetler shortlyafter he was appointed trustee. Gibbons

represents numerous victims of the Madofffraud, the firm said in a written statement. Insome instances, we are adverse to the trustee.As a result, we are not in a position to com-ment about Mr. Picard or his lawyers. Thefirm declined to say if Picards trustee assign-ment created a conflict that prompted him toleave. (Baker Hostetler says that it did not.)Gibbons clients with Madoff claims includethe Lautenberg Foundation, established byNew Jersey senator Frank Lautenberg, andDavid Bershad, the former name partner ofMilberg, Weiss & Bershad.

Like Picard (who is the most prolific SIPA

trustee in the laws history), Sheehan has ex-perience working on cases arising from failedbrokerage houses. (The SIPAwas enacted in

1970 to protect the customers of failed bro-kerage firms.) Sheehan is also a seasonedlitigator. A fellow in the American College ofTrial Lawyers, hes tried more than 100 cases,ranging from product liability to intellectualproperty to antitrust.

Baker Hostetlers team may not be theSeventh Army, but it is big. The firms mostrecent fee application listed 100 partners andcounsel, 177 associates, and 68 paralegals,clerks, and other staff who billed time on Ma-doff matters in a four-month period. Sheehan

and Picard are billed out at $825 an hour. As a point of comparison, Baker

Hostetlers fees (which include a 10 percentpublic interest discount) are significantlylower than those charged by Weil, Gotshal& Manges in the ongoing Lehman Brothersbankruptcy. In large part, thats because thefirm is using lots of lawyers and staff fromCleveland, Houston, Denver, and other of-fices with lower rates. Weils average partner

rate for Lehman work ($874) is 46 percenthigher than Baker Hostetlers average part-ner rate for Madoff work ($598). And Weilsaverage associate rate ($539) is 52 percenthigher than Baker Hostetlers average associ-

ate rate ($353).In the first 20 months of the Madoff case,Sheehan has logged an average of 265 hoursa month on the matter. (His Madoff hours fellslightly last fall because he was helping to tryan unrelated trademark case on behalf of theUnited States Polo Association against PoloRalph Lauren Corporation. At press timethe case had not been decided.) Thats a lotof time for someone who is past the manda-tory retirement age at many firms. Five yearsago, when Sheehan joined Troutman Sandersfrom Gibbons, a reporter for sibling publica-tionNew Jersey Law Journalasked him why

he was seeking new opportunities at his age.Im a 62-year-old in a 36-year-old body,joked Sheehan.

Hes a man that inspires loyalty and hardwork, remarks Timothy Pfeifer, a BakerHostetler counsel. We dont want to disap-point David.

IN SEPTEMBER 2009 Picard and Sheehan ap-peared in a 60 Minutessegment called Meetthe Liquidator. As they were interviewedby correspondent Morley Safer, Picard ap-peared calm and relaxed; SheehanwhomSafer described as Picards bloodhoundcame across as more strident, and did most

of the talking. Wearing his trademark thick-framed black glasses, Sheehan soundedpersonally affronted by the actions of Ma-doff, his family, and some of his investors.If you were those sons, and you knewwhat you [know] today, about where all themoney came from, wouldnt you be embar-rassed to keep that money? Sheehan asked.They should give it all back, and if theydont give it all back, I think we have an ob-

ligation to go get it and take it all back. Headded, As everyone was participating in thisand just feeding at this trough of greed . . they were hoping that it was never going toend. (This interview took place more than

a year before Madoffs son Mark committedsuicide. After the younger Madoff s deathPicard publicly said: This is a tragic devel-opment, and my sympathy goes out to MarkMadoffs family.)

Lots of criticism has been directed atPicard and Sheehan. Theyve been attackedfor their stance that there are blameless goodinvestors and culpable bad investors. Theyvebeen criticized for their claims that the al-leged bad investors, as well as certain bankand feeder funds, knew or should have knownthat Madoff was up to no good, and bearsome responsibility. Davis Polk & Wardwell

which represents the Mets executives FredWilpon and Saul Katz, has blasted Picard asirresponsible, and accuses him of distortingthe evidence. Picard issued a statement sim-ply stating: The Katz Wilpon defendants arewrong on the facts and the law. The trusteewill prevail.

So far, Manhattan bankruptcy judge Bur-ton Lifland, who is presiding over this casehas mostly sided with Picard and SheehanIn February he issued a key ruling in whichhe signaled that he is receptive to Picardsarguments that sophisticated investorsand their children, spouses, and other family

memberswho should have caught on thatMadoff was running a Ponzi scheme beasome liability compared to other more inno-cent investors. In that ruling, Judge Liflandrefused to dismiss a case that Picard broughtagainst the family of the late Stanley Chaiswho was one of Madoffs largest investorsJudge Lifland has also endorsed Picardsnet losers approach to apportioning the re-covery. (The U.S. Court of Appeals for theSecond Circuit heard an appeal on this issuein February.)

Given all these unresolved issues, as welas the fierce fight that Picards biggest target

will surely wage, its a good bet that BakeHostetlers Madoff work will continue forquite a while.

E-mail: sbeck@alm.com.

PICARD HAS FILED $100 BILLION WORTH OF LAWSUITS

AND, SO FAR,RECOVERED $7.6 BILLION.