A prestigious Wall Street law firm which a partner and two associates left in recent months to take posts in the Treasury Department has just been hired by Treasury to do that agency's legal work on the New York City financial situation.
The decision to hire Debevoise, Plimpton, Lyons and Gates was not made by the former partner - now a deputy assistant secretary - nor by either of the younger associates.
But one of those associates, John Fouhey who is special assistant to the general counsel, is the main liaison between the Treasury Department and the firm.
All three Debevoise lawyers have severed their relationships to the oldline firm, although Stephen J. Friedman, deputy assistant secretary for capital markets policy, continues to receive payments from an escrow account in New York representing the value of the partnership he sold back to the firm.
Bids were not solicited from other law firms, according to Treasury General Counsel Robert M. Mundheim. Mundheim said that he and Deputy Treasury Secretary Robert Carswell narrowed the choice to Debevoise, Plimpton last January.
Both were aware of the conflicts of interest question when they made their decision, Mundheim said, but were satisfied that the three lawyers who onced worked for the law firm had totally severed their relationship with Debevoise, Plimpton.
But several others in the Treasury Department privately expressed concern that at least there was the appearance of a possible conflict of interest with so many lawyers from the same firm joining Treasury. Many non-career Treasury officials return to their original employers once their government service is completed.
Mundheim justified the choice by saying that Debevoise, Plimpton was the only firm with the expertise and manpower to handle the heavy Treasury workload that was not already engaged by someone else in the New York bankruptcy situation - whether by banks, underwriters, the city, the state or potential creditors such as union pension funds.
The choice was also based, Mundheim said, on his and Carswell's knowledge of New York law firms. Carswell is a former partner in the Wall street law firm of Shearman & Sterling.
Mundheim also noted that the price the Treasury has negotiated with Debevoise, Plimpton - $85-an-hour with a maximum outlay of $150,000 - is a favorable one.
Besides Fouhey and Friedman, another special assistant to General Counsel Mundheim, Paul Lee, also comes from Debevoise, Plimpton.
Friedman has totally disassociated himself from Treasury's involvement in the New York City financial crisis. Last week the agency proposed a $2 billion program of loan guarantees for New York as a substitute for the current seasonal loans to the city.
Lee has never been involved in the New York problems.
Fouhey, who came to the Treasury in early September, said he sees no conflict-interest nor a potential one by being the chief liaison with his old law firm.
Fouhey in a telephone interview said that as far as he is concerned he and Debevoise "have the same client. I have the responsibility to give the best advice possible to the Secretary of the Treasury. Debevoise now has the same responsibility."
Fouhey said that he had totally severed any relationship with the firm. "I've got the farewell clock on my desk." However, he declined to rule out a return to Debevoise, Plimpton when he leaves Treasury.
"That's a long way in the future," he said.
Mundheim said that he and Carswell investigated whether Friedman's position as a deputy assistant secretary would present a conflict and concluded it would not. While Friedman does receive a monthly payment from an escrow account that represents the value of the partnership he redeemed, the amount of that payment depends in no way on how well or how poorly Debevoise, Plimpton does, Mundheim said.
Should Friedman go to work for a competing firm, the escrow payments would stop. That is a standard practice to prevent departing partners from taking clients away from their old firms.
Oscar M. Reubhausen, managing partner of Debevoise, Plimpton, said that the firm has been "very acutely aware of conflict of interest, both direct conflict of interest and the appearance of conflict."
However, Ruebhausen said, he would comment no further than that. "Our posture has been that we do not wish to discuss our client's" business.