* Other lawyers sympathize, say can happen anywhere
* Ropes & Gray clients likely to see case as one-off
By Paritosh Bansal
NEW YORK, Nov 5 A Ropes & Gray lawyer's arrest
in an insider trading case has embarrassed the corporate law
firm in the latest scandal to cast a harsh spotlight on legal
partnerships that oversee billions of dollars in deals each
U.S. prosecutors alleged on Thursday that Arthur Cutillo,
in Ropes & Gray's litigation department, gave out inside
information about deals by the law firm's clients.
These deals include buyouts by private equity firms like
TPG [TPG.UL], Bain Capital and Silver Lake, all of whom used
Ropes & Gray as their counsel. Cutillo joined the firm in 2005
and his practice focused on intellectual property.
Cutillo is one of 14 people newly charged in the biggest
hedge fund-related case in history. The charges come nearly
three weeks after Raj Rajaratnam, billionaire founder of hedge
fund firm Galleon Group, and five others were arrested.
"For a law firm to have this out there is very, very
uncomfortable because there is this immediate sense that that's
a major black eye," said an mergers and acquisition lawyer at a
major law firm. "No law firm wants to see its name in the
lights in this way."
Ropes & Gray said it was deeply disappointed and that the
allegations suggest "an extreme breach of this person's duty of
trust to our clients and to the firm."
Ropes & Gray, which was has more than 1,000 lawyers and
professionals, said it was moving quickly to protect clients
and co-operating fully with authorities.
POLICIES AND PROCEDURES
Cutillo is not the first lawyer to be allegedly involved in
an insider trading scandal.
His arrest comes just days after a respected Toronto lawyer
apparently committed suicide, while his alleged accomplice
pleaded guilty to U.S. and Canadian criminal charges stemming
from a 14-year insider trading scheme.
The lawyer, Gil Cornblum, worked in the Toronto office of
Dorsey & Whitney LLP. He was a partner there when Dorsey fired
him in May 2008, according to the U.S. Securities and Exchange
The SEC alleged some trades took place between 1994 and
1998, when Cornblum was "articling" in a Toronto law firm and
later worked in the New York office of Sullivan & Cromwell.
One of the defendants in the case unveiled on Thursday,
Michael Kimelman, is also a former Sullivan & Cromwell
attorney, although he was at the elite New York-based firm for
less than two years and left more than 10 years ago.
"Beyond policies and procedures, it's fundamentally about
the culture of the institution," said John Reiss, global head
of White & Case's mergers and acquisitions group, without
referring to any specific firm. "It's the institution's job to
assure, quite simply, that people know not to communicate in
any context private information."
But mergers and acquisition lawyers at some rival law firms
sympathized with Ropes & Gray's predicament, saying the scandal
could happen anywhere and clients are ultimately likely to see
this as a one-off case due to a rogue employee.
"The policies are sufficient. It's just human nature is
what it is," said Harold Gordon, a partner in Jones Day's SEC
practice. "It is virtually impossible to stop a rogue attorney
from revealing client confidences if they are going to insist
on doing that."
These experts added that despite other recent insider
trading cases involving corporate lawyers, law firms have
enough policies and procedures in place and that such cases
happen due to bad actors that no one can totally stop.
Indeed, one private equity firm said that a single rogue
employee would not influence their decision to use the firm.
A spokesman for Ropes & Gray declined to comment further.
In a sign that it is business as usual for now, the firm
advised TPG and Canada Pension Fund on a $4 billion buyout of
IMS Health Inc RX.N -- the biggest leveraged buyout deal of
the year -- announced on Thursday. [ID:nN05111965]
(Additional reporting by Megan Davies; Editing by Tim Dobbyn)
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