McKee Nelson Rode Subprime Boom to Big Profits, Sees Opportunities Ahead
The small but well-regarded law firm McKee Nelson became something of a powerhouse representing lenders that bundled home loans into securities, grossing $202.5 million in 2006.
The law firm, which helped lenders write or review prospectuses for the securities, was involved in 3,300 deals totaling $2.7 trillion since 2000, the New York Times reports. Now as the subprime industry struggles with increasing mortgage defaults, the law firm is taking a hit.
McKee Nelson trimmed its structured finance department from 115 to 80 lawyers through buyouts, sabbaticals and transfers to other departments, the story says. The cuts come as investors are taking a closer looks at securitization documents.
Mark H. Adelson of Adelson & Jacob Consulting, a securitization and real estate consulting firm, told the newspaper that some offering documents didn’t spell out warnings about the deteriorating subprime market as clearly as they should, though he didn’t comment on the quality of any documents prepared by McKee Nelson.
Reed Auerbach, a structured finance partner at McKee Nelson, said the kind of problems Adelson describes don’t apply to its documents. “We get paid to write good disclosure,” he said. “We think that the offering documents we’ve written disclosed all the risks to investors.”
But as the subprime meltdown affects increasing numbers of investors, there is always the possibility of lawsuits, said Stanford law professor Joseph Grundfest. “Anybody who touched the security in the process of creating or selling it is going to be subject to litigation,” he said.
McKee Nelson also sees the possibility of litigation, and it hopes to be representing banks and hedge funds involved in such lawsuits. The firm held a strategy session in January in Charleston, S.C., to talk about ways it could profit. “We’re heavily committed to doing more litigation,” said name partner William Nelson.
An August profile of McKee Nelson in Legal Times noted that the firm geared up for litigation as early as last February, when it hired litigator Jeffrey Smith from King & Spalding along with five partners and 19 associates.
