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June 26, 2008 10:06 AM

Was Cleary "Swift-Boated"?

Posted by Michael D. Goldhaber

Yesterday's oral argument by Cleary, Gottlieb, Steen & Hamilton, appealing against sanctions imposed on the law firm by a New York federal judge, had a distinctly Battle of New Orleans feel. The skirmish over sanctions comes more than three months after the war ended. Cleary's client in the underlying case, the Republic of Congo, quietly confirmed in March that it had confidentially settled a final batch of controversial claims pushed by distressed debt investors. These so-called vultures sought to recover full value for old debts that they had bought on the cheap, collectively worth more than half a billion dollars, in the face of generous debt forgiveness by the other creditors of Congo-Brazzaville.

The last "vulture" swooping was Kensington International, a unit of Elliott Associates, whose founder Paul Singer is notorious for supporting the "Swift boat" campaign against John Kerry during the 2004 presidential election. Cleary effectively argues that it too has been swift-boated; rather than being acclaimed for its heroic representation of an impoverished nation, the law firm says that its actions have been distorted and its integrity impugned. As explained by Anthony Lin of sibling publication The New York Law Journal, Kensington essentially accuses a Cleary partner of trying to intimidate one of Kensington's witnesses.

Even if the Second Circuit Court of Appeals accepts the Kerry analogy (which is not an argument that Cleary literally makes), and reverses the finding that Cleary misbehaved, Elliott has already succeeded in embarrassing the law firm that has been its main adversary in a string of debt cases that stretches back to Peru in the 1990s, and forward to Argentina. It has also succeeded once again in changing the subject. After all, the media devotes a lot more proportional ink to the 200 Cleary partners who average more than $2 million dollars per year in profits than to the 70 percent of Congo's population who live on less than $2 per day.

The real story concerns the war waged by creative lawyers for distressed debt investors against a heavily indebted (but highly corrupt) poor country--and the flaws that it exposes in the world's financial structure. That story will be told in the Global Lawyer column in an upcoming issue of The American Lawyer.

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