The Score

February 26, 2009 6:58 PM

THE AM LAW 100: Immigration Powerhouse Reports Big Dip in Profits Per Partner

Posted by Ben Hallman

The stars didn’t align for immigration specialist Fragomen, Del Rey, Bernsen and Loewry in 2008. A U.S. Department of Labor investigation, a big percentage increase in the number of equity partners and, most especially, a truly atrocious end to the year as clients drastically slowed their overseas hiring, contributed to a startling fifty percent drop in profits per equity partner, from $1.9 million to $916,000. 

As The American Lawyer’s Susan Beck reported in a feature story last June, Fragomen's business model more closely resembles corporate America than a traditional Am Law 200 law firm. The firm represents such blue chippers as The Goldman Sachs Group, Inc., General Electric Company, International Business Machines Corporation, and Cisco Systems, Inc., on all matter of immigration issues, from processing H-1B work visas--which provide temporary residence to certain highly skilled foreign workers--to filing visa extensions. This work is done mostly by a huge pool of paralegals on a fixed-fee basis.

In recent years, Fragomen grew precipitously, adding offices overseas and boasting double-digit revenue jumps. In 2007 revenue was up a whopping 38 percent, to $247 million. Austin Fragomen, the firm chairman, says the 2007 numbers were skewed by a huge project involving the change in regulations on permanent resident status for work, which meant "endless hours" for firm lawyers. Based on that growth, the Fragomen firm added 50 lawyers last year, to 280, and a dozen new equity partners, to 54. For a firm as highly leveraged as the Fragomen firm, this represents a hiring jag--a 22 percent increase in lawyers and a 29 percent jump in equity partners. Even in a good year, the firm would have needed a monstrous increase in revenue to also post a boost in revenue per lawyer and profits per partner.

It was not a good year.

In November 2007, the Labor Department announced it was auditing the firm on suspicions that it had been improperly advising clients about labor certification applications. In September, the Labor Department abruptly dropped the investigation. Fragomen says the investigation didn't make a huge impact on the firm’s bottom line, but that it “made business development a difficult chore.”

Just as soon as the Fragomen firm escaped from that dark cloud, the bottom fell out of the financial services market and work from its big institutional clients slowed. Fragomen says he expects the trend to continue. He says he expects work doing H1-B visas, for example, to be off by half in 2009. (The economic stimulus bill that Congress recently approved requires banks and other institutions receiving federal bailout money to give hiring priority to American workers. Also, Fragomen says, clients will simply be doing less overseas hiring. Fees from processing these types of visas accounts for about 10 percent of firm revenue.)

Also, there were no real fee increases in 2008, Fragomen says. Toward the end of the year, clients were asking for discounts.

Still, it isn't all bad news for the Fragomen firm. Despite all the bad news, revenue was slightly up in 2008, about four percent, to $257 million. Global growth was strong, Fragomen says. Also, in 2006, Fragomen notes, the firm posted profits per partner of about $1 million--close to the $916,000 posted this year--which he says is a more realistic threshold for the firm going forward. Finally, good news for the more than 500 paralegals and 230 or so associates: Fragomen says he doesn't expect any more staff reductions beyond the handful of associates and about 50 staff that The Am Law Daily reported were fired in the fall.

Click here for the final published results of last year's Am Law 100 ranking.

This report is part of The Am Law Daily's ongoing Web coverage of The Am Law 100s 2008 financials, bringing you our own reports and those from our sibling publications at Incisive Media. Results are preliminary.

Final rankings and full results for The Am Law 100 will be published in The American Lawyer's May issue and on The Am Law Second Hundred will be published in the June issue.

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This is an interesting read. I wonder how some of the legislative bills that are being passed around right now might affect their profits in the future.

There's no requirement that H-1B recipients be "highly-skilled" and, according to the Department of Laobr, the vast majority are not.

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