Goldman Sachs Legal Bills Could Top $100 Million

Even as news of the Securities and Exchange Commission's filing of civil fraud charges against Goldman Sachs (GS) surfaced, the Wall Street investment bank was forced to turn on the meter racking up the legal bills.

And if history is any indication, by the time this is all over, the bills from the lawyers helping defend Goldman's storied Wall Street reputation and actions could soar to over $100 million.

In the last decade, accounting firms KPMG and Arthur Andersen each reportedly spent $50 million fighting federal charges. And given the stakes, the Goldman case could cost double that, especially if the charges move to the criminal realm.

Troy Eid, a former U.S. Attorney General for the state of Colorado, says that even before a company hires a law firm, the bills start piling up. A simple grand jury subpoena, done before any formal investigation gets underway, can cost $100,000 just to get documents ready, he says.

"That's just the tip of the iceberg," says Eid, who oversaw the prosecution of Qwest Communications Chairman and CEO Joe Nacchio in 2005. Nacchio was found guilty of 42 counts of insider trading.

Criminal Defense Costs Big Bucks

Once corporate cases progress to civil fraud, like what's happening now with Goldman Sachs, the legal fees go into overdrive. If a case goes the criminal route, you might as well turn on the spigot. In the Nacchio case, legal bills reportedly reached $70 million.

"This is a tremendously big deal in terms of legal costs," says Eid, who is now in private practice with law firm Greenberg Traurig. "It affects investors, liability insurance, all of which hits the bottom line."

The SEC on April 16 filed a civil suit charging Goldman Sachs and an employee with fraud for allegedly misleading investors or failing to tell them facts that would have affected their financial decisions. The company and employee have denied any wrongdoing.

Corporate Attorneys Pay Reaches $1,000 an Hour

On Friday, the Justice Department confirmed that it has opened a criminal investigation over the deals surrounding Goldman's mortgage securities. The firm didn't comment for this article.

Executives for the Wall Street stalwart testified this week in front of a Senate investigative panel about their investments during the time the nation's housing market was collapsing.

Jon May couldn't help notice that during the testimony, each executive was represented by several attorneys. May, chairman of the White Collar Crime Section for The National Association of Criminal Defense Lawyers, conservatively estimates that each of the lawyers was making a minimum $550 an hour, but more likely closer to $1,000.

"We are talking tens of millions of dollars, possibly hundreds, in legal fees for cases like this," May said. "You have a multiple of law firms representing individuals, and all kinds of specialists."

Companies Foot the Bills for Executives

Most companies will pick up the lawyer bills in the civil cases through their insurance plans, but if the investigation goes criminal, all bets are off.

In the criminal case of the R. Allen Stanford alleged Ponzi scheme, insurer Lloyd's of London tried to get out of defending the jailed Texas billionaire and other executives. A judge recently ruled, however that Lloyds must pick up the legal bills.

Lloyd's has said that Stanford's company would pay for up to $100 million in legal fees if executives were accused of crimes.
"Companies don't mind covering the civil part, but it becomes much more difficult to spend money on an employee who may have been engaged in illegal activities," said May, adding that it's difficult to justify to stockholders.

The legal bill clauses have become routine for corporate executives. The government had tried to get KPMG to back off of paying legal bills against the accounting firm's employees in the civil case, but lost a precedent-setting decision that basically killed the government's criminal case against the firm.