Summary List Placement
On July 25, 2019, lawyers from Paul Weiss drove out to a private golf club in Southampton, New York, where their longtime partner and friend Brad Karp was hosting a reception for his 60th birthday.
Dozens of lawyers, family members, and business magnates stepped out onto a lush lawn with a scenic view of the greens at the members-only Sebonack Golf Club, which comprises 300 acres codesigned by the golf legend Jack Nicklaus.
One attendee likened the affair to a fancy wedding, with a cocktail hour outside and remarks from Karp’s wife and children. Guests feasted on a variety of cuisines at a dinner inside the clubhouse, with access to a veranda on the second floor, another person said.
Some who dined at the Sebonack knew Karp from living in Bellport, Long Island, where affluent businesspeople retreat when they aren’t billing by the hour in Manhattan. Others knew him from the courtroom, as they hailed from New York’s white-collar defense and restructuring elite.
Then there were his clients — some of Karp’s most valuable relationships. And one of them, in recent weeks, had faced a public-relations nightmare, his name flashing over headlines that connected his charity with the convicted sex offender Jeffrey Epstein.
When Leon Black, then the CEO of Apollo Global Management, stepped onto the lawn, his presence came as no surprise to those who know Karp, who had become close to the private-equity mogul over more than a decade.
Apollo had directed over $100 million of annual legal work to Paul Weiss, a person with direct knowledge of the matter said, and Black had relied on the firm to advise on investments managed by Black’s family office, Elysium Management.
The relationship between Karp and Black served as a bridge between their organizations: Paul Weiss, with 1,000 lawyers in New York City, and Apollo, with more than $400 billion in assets under management, including restaurant chains, family entertainment centers, and media companies.
When Apollo pounced on investment opportunities, Paul Weiss lawyers rushed to negotiate the most favorable terms.
And when employees left Apollo, the law firm was there to protect its interests — as it did when several of them filed a whistleblower complaint with the Securities and Exchange Commission in 2016 alleging Apollo inflated its investment returns, among other disclosure failures, multiple people familiar with the matter said. The SEC issued a subpoena to Apollo seeking documents. Paul Weiss attorneys spoke with officials on behalf of Apollo, and the SEC dropped the inquiry.
“After receiving the subpoena, we cooperated fully with the SEC — responding to all of their document requests and meeting with them several times,” Joanna Rose, an Apollo spokesperson, said. “They ultimately closed the matter without any negative findings or actions.”
Scoring Apollo as a client has boosted Paul Weiss’ fortunes. The relationship has pumped up the law firm’s sizable earnings and lifted its dealmaking profile, leading to nearly 100 mergers and acquisitions in which Paul Weiss advised Apollo and its affiliates, according to Dealogic.
But there has also been a cost to the cozy relationship, according to interviews with 13 people who have worked in its corporate department over the past decade.
Insider also interviewed several dozen others, including current and former Paul Weiss attorneys, consultants, and recruiters, as well as competitors, to offer an account of how Paul Weiss became so involved in Apollo’s business — a relationship one former firm lawyer likened to a plot line in the TV show “Mad Men,” when executives at a fictional ad agency scrambled to please its Big Tobacco client, Lucky Strike.
With tens of millions on the line, the Apollo account rejiggered Paul Weiss’ internal makeup, with a practice group created to service the client’s needs and positions specially tailored to handle the routine legal work that emanated from the investment giant’s deal pipeline. It also placed strain on the firm’s culture.
Some of the former Paul Weiss lawyers, who spoke with Insider on the condition of anonymity to preserve business relationships, said the client created a divisive power center within the firm. And some partners at competitor firms questioned whether Paul Weiss’ lucrative work for Apollo blinded lawyers to the potential consequences of Leon Black’s relationship with a convicted sex offender.
Some attorneys like to ensure they are not overreliant on one client’s revenue and maintain separate workspaces so there is no question as to whether their advice is biased, according to two lawyers who specialize in legal ethics.
But sometimes, law-firm attorneys can “go native,” becoming enmeshed in the client’s business, according to a consultant to law firms. And close personal relationships — such as between a lawyer and a CEO — can present uncomfortable situations, especially in internal investigations into an executive’s behavior, where a lawyer generally must either represent the executive’s interests or the company’s.
Paul Weiss confronted a similar scenario as Black’s 2019 troubles spiraled into a full-fledged crisis — which culminated in his resignation from the investment firm he founded in 1990.
A report by the law firm Dechert, which had been commissioned by Apollo to conduct an investigation into Black’s relationship with Epstein, showed that Black paid him $158 million. Dechert found no criminal ties between the two men, but public outcry ensued, with activists calling on Black to step down as chairman of the Museum of Modern Art.
Throughout the turmoil and events leading up to it, Paul Weiss guided Black, representing him throughout the Epstein investigation, handing over evidence to Dechert, and helping Black negotiate his exit from Apollo.
Five attorneys with experience in internal investigations said that attorneys who have long advised a company and its executives often refer an executive to separate counsel in the event of an investigation into allegations of his or her wrongdoing, in part because the interest of the client and corporate entity may diverge.
These attorneys said there wasn’t necessarily any ethical violation in Paul Weiss’ representation of Black but that its lucrative business relationship with Apollo created an unusual and potentially messy situation, depending on the findings of the investigation and the consequences for Black.
That’s because Paul Weiss, in representing Black in the Epstein investigation, would inevitably need to have an eye on both clients’ interests, these attorneys said, and those interests could conflict.
“It’s pushing into the proverbial gray area of what they can do,” one attorney said.
Following Dechert’s investigation, Black initially agreed to resign as CEO but stay on as chairman. Later, he relinquished both posts.
Paul Weiss Chairman Brad Karp said that the firm obtained conflict waivers from Apollo “whenever required” and that there were no ethical concerns regarding its representation. Milbank represented Apollo during Black’s exit negotiations, he said, while Dechert represented the Apollo board’s special committee that oversaw the investigation into Black’s relationship with Epstein.
Rose, the Apollo spokesperson, said Apollo was fully aware of the scope and nature of Paul Weiss’ role and the firm was entirely comfortable with it. With regard to the Dechert investigation, she said, “we believe that Apollo and Leon shared the same basic interest — i.e., to cooperate fully with Dechert, share all relevant information, and help Dechert complete its review.”
Now, with Black sidelined, and new CEO Marc Rowan focused on expanding the firm’s credit and insurance businesses — areas where Apollo has leaned on other law firms for guidance, such as Milbank, Sidley Austin, and Skadden — people close to Apollo have privately speculated about Paul Weiss’ standing with the firm under Rowan’s leadership.
In a statement, Karp called Apollo a “longtime, valued client” and said the firm was “one of many close client relationships we are privileged to have in the private equity space and beyond.”
“The significant growth of our firm over the past decade is a testament to the talent of our lawyers, the strength of our core practices, and the confidence our clients repose in us,” he said.
Numerous Paul Weiss attorneys who work on Apollo matters declined to be interviewed, and Karp called criticisms by anonymous sources who do not work at the firm “entirely misplaced and unfounded.”
Paul Weiss made its name decades ago as a go-to litigator for defending executives of the financial world in their biggest scandals — including Michael Milken, the “junk-bond king” whose conviction on fraud charges landed him in prison for two years. And in 2008, when the financial crisis hit, the firm represented big banks, including JPMorgan, Citigroup, and Bank of America, in legal battles over everything from the collapse of Bear Stearns to Citigroup’s subprime-mortgage exposure.
What the firm hadn’t done was build a thriving transactional practice that mirrored Paul Weiss’ army of litigators.
A fateful case gave Karp the opportunity to set Paul Weiss on that path.
In 2008, the chemicals company Huntsman sued Apollo and one of its portfolio companies, Hexion, seeking more than $3 billion in damages over a busted merger. A Delaware court issued a bruising ruling that could have exposed Apollo to billions in damages.
But Karp helped Apollo executives work out a settlement, with Apollo making a $250 million investment in Huntsman and paying it $425 million, according to news reports at the time.
Karp then held discussions with Apollo’s general counsel, John Suydam, about how Paul Weiss could do more work for Apollo. And by 2011, he had staged a coup — bringing over seven partners from O’Melveny & Myers, Suydam’s former employer and a firm he had relied on for guidance around financing for mergers and acquisitions and tax intricacies.
Almost overnight, the outside hires tilted the power balance within the firm, according to former Paul Weiss attorneys. The firm subsequently took some associates off other corporate work and staffed them on Apollo’s robust pipeline of deals.
One former Paul Weiss attorney said that the acquisition of O’Melveny lawyers was like a “takeover” of Paul Weiss’ corporate department. “You bring in very forceful personalities and talented lawyers to staff one big client, there are going to be problems,” this person said.
Shortly after the seven O’Melveny partners joined Paul Weiss, Apollo became known as the toughest account to work on as an associate in the corporate department, according to three people who worked on the team.
One former associate expressed frustration with the monotony of the work, saying that some of it amounted to little more than clerical duties, such as preparing the signature pages on deals, while another said that they felt spread thin across more deals than they could reasonably handle.
The first former associate said they kept a sleeping bag under their desk at Paul Weiss and billed 2,800 hours a year before finding an escape working with a partner with a more diverse client base. The other associate quit the firm, overwhelmed with the constant weekend duties and requests that the team be seated in the office, even in the days after Hurricane Sandy when subways were shut down.
Some of the issues arose because the O’Melveny partners who joined Paul Weiss didn’t bring their associates, meaning that they were understaffed before Paul Weiss assigned associates to work on their matters, according to two people familiar with the situation.
But even after that, some of the staffing headaches persisted.
A third associate who worked at Paul Weiss in 2018 said that if he received an Apollo-related assignment from a partner, he felt that he had to devote more time and attention to it than other assignments.
“It didn’t matter how much you billed — money didn’t matter — it was just do it because they were such a huge account,” said this person, who left Paul Weiss a few months after being assigned to work on Apollo matters.
Apollo came along and, like when a parasite takes over its host, they changed the whole culture of the corporate department.Former Paul Weiss attorney.
A fourth associate who worked at Paul Weiss in 2017 said that senior Paul Weiss partners began pitching associates on working for Apollo by saying that the client marked the dominant group within corporate. This associate said they understood the message the partners conveyed: “If you want to continue on a partnership track here, you need to get on board with them.”
In the years following the acquisition of the O’Melveny lawyers, between 2012 and now, Paul Weiss promoted 30 people in the corporate division to the partner level — double the number of litigators who made partner over the same period.
But two recruiters and three people who have worked in the Apollo practice group said the swell of partner promotions belied significant barriers to partnership within the group.
“There’s a log jam in terms of who is going to make partner,” a New York City recruiter familiar with the matter said. “The Apollo pie can only grow so much.”
Another recruiter said they had spoken with job candidates who refused to join Paul Weiss because of its Apollo group, with them citing a “bad reputation.”
Some lawyers who worked in the Apollo practice group said a number of colleagues found themselves stuck because of their assignments to service routine work for Apollo. And they said the group’s singular focus meant colleagues weren’t developing other client contacts that could become a book of business — a key asset to an attorney’s career.
“You often aren’t on partner track if you’re in that group, and you work terrible hours,” the second recruiter said.
Paul Weiss promoted some attorneys to “counsel,” a rank that’s more senior than associate but doesn’t have the equity of a partner. The position can translate to a seven-figure payday, according to two people familiar with the matter. But several on the counsel level who staffed the Apollo account still left the firm.
Tensions also brewed in the senior ranks, according to a person with direct knowledge of the matter.
This person pointed to pay packages obtained by several senior members of the Apollo group that placed them in a higher bracket than some other veterans in the corporate department.
As of 2017, partners Greg Ezring, John Scott, and Brad Okun were all earning more than $6 million, this person said.
“Apollo came along and, like when a parasite takes over its host, they changed the whole culture of the corporate department,” one Paul Weiss attorney said.
The power center that formed within Paul Weiss as a result of its work for Apollo is by no means unique, as other law firms, including Simpson Thacher & Bartlett and Kirkland & Ellis, similarly handle the legal work on many of the deals that spawn from firms like Blackstone, KKR, and Vista Equity Partners.
These large private-equity firms command hundreds of millions of dollars in annual legal spend. And the work is constant, as private-equity shops continually raise money for new funds, deploy capital, and sell off investments, on top of the litigation work that naturally crops up from contentious takeovers.
Law firms have scrambled to win these clients over the past decade, and certain firms have established deep connections. The most profitable ones include Kirkland & Ellis, which received annual billings of about $80 million from Vista Equity Partners, according to a Bloomberg report in February.
Keith Wetmore, the former chair of Morrison & Foerster who is now a legal recruiter, said corporate attorneys would “crawl over burning glass” to land business with large private-equity firms.
“They aren’t asking you to please bill your time by the tenth of the hour,” he said.
Raj Goyle, the CEO of Bodhala, a company that helps private-equity firms and corporations manage their legal spend, said legal fees could pile up to more than $10 million per private-equity deal, depending on the size and complexity.
“Many PE firms treat the outside law firm like an external” general counsel, Goyle said.
But the level of integration between Apollo and Paul Weiss is on the extreme end of cozy relationships between law firms and clients, both because of the amount of business Paul Weiss is responsible for handling for Apollo and because of its staffing structure, in the experience of attorneys familiar with the matter.
Any suggestion that our legal relationships are anything other than appropriate and ethical is baseless and false.Joanna Rose, Apollo spokesperson
“It’s a level of embeddedness that I haven’t experienced before,” said one former Paul Weiss attorney, who pointed to a Paul Weiss lawyer who used office space at Apollo headquarters until the pandemic hit.
A senior M&A attorney who works at a competitor law firm said that before the pandemic, Paul Weiss sent attorneys to Apollo regularly to be available for executives with any legal concerns.
A third lawyer, who has worked on Apollo transactions at a separate law firm, said Paul Weiss lawyers sometimes helped with “general housekeeping” on deals led by other firms. They would gather the appropriate documentation from Apollo entities to consummate a transaction and offer their expertise from their institutional knowledge of Apollo as needed, rather than being involved in strategic discussions between parties, this lawyer added.
“When we have a big deal we are leading, there is no doubt Paul Weiss has involvement because they are so integrated within the Apollo organization,” this person said. “I frankly welcome their involvement.”
Such a tight-knit relationship has opened Paul Weiss to criticism about its independence — several of its adversaries depicted the firm as Apollo’s fixer, pointing to its threats to sue journalists who report critical stories about Apollo.
And while Apollo and Paul Weiss deny that the law firm is embedded, one former Paul Weiss employee said that he held a desk at Apollo for more than a year in 2014. This employee was not on “secondment,” a routine internship that typically places law-firm staff at a client for six to nine months before they return to the firm.
For the time he worked at Apollo’s office, the staff member sat in a cubicle with a name tag on it, he said — until someone swiped it when the SEC conducted a routine audit. Paul Weiss later summoned the employee back to its offices and distanced him from Apollo, he said.
Apollo disputed the source’s account and said that desks didn’t come with name tags. Insider also found no formal complaints about Paul Weiss’ staffing structure at Apollo. But the former employee’s experience reflects why some question whether Paul Weiss may have become too close.
Karp, Paul Weiss’ chairman, said members of the law firm were not allowed to do work at Apollo that could otherwise be handled at the firm and beyond what any attorney would normally handle at a client’s offices.
“No one from Paul Weiss, other than those who are actually doing temporary secondments (an ordinary and customary arrangement between clients and law firms), is seated full time at Apollo,” he said in an email to Insider.
“Members of the Apollo-focused group do not have Apollo emails, phone extensions or offices, nor do they have access to Apollo computers,” he added.
But when it came to off-site events, Paul Weiss and Apollo projected unity.
At an event held at the Bellagio resort in Las Vegas in or around 2018, that affiliation was on full display. Apollo portfolio-company executives convened to share best practices, with outside lawyers in the mix. One lawyer who attended recalled Paul Weiss’ prominence at the gathering: “It was almost like a joint Apollo / Paul Weiss event, where several of the other firms were more like attendees,” they said.
More recently, Educational Alliance, a nonprofit that Karp’s wife chairs, honored Apollo’s general counsel, Suydam, for his civic contributions and collected donations in the hundreds of thousands from top Apollo executives — including Black and his wife, Debra.
Rose, the Apollo spokesperson, said that Apollo used numerous law firms hired on the basis of their expertise in a given area and efficiency. “Any suggestion that our legal relationships are anything other than appropriate and ethical is baseless and false,” Rose added.
Paul Weiss seems to have diversified in recent years. It has expanded its corporate department under a new leader who is focused on public-company M&A, an area that’s perhaps splashier than the work generated by the Apollo practice group. The firm is also planning to tap into technology clients after opening a San Francisco office earlier this year.
Scott Barshay, a lawyer Karp recruited from Cravath Swaine & Moore in 2016, now chairs the corporate department, and several of his associates have become partners. And deals he has advised on, including the initial public offering of the mortgage provider Rocket Cos. last year, have led to collaboration with some lawyers who typically work on the Apollo account.
“While Apollo is a significant client, a lot of our other clients in the public M&A practice have grown,” said one Paul Weiss attorney.
The firm has also tacked on more private-equity business, sources said, with clients including General Atlantic, Oaktree, and Roark Capital. And Apollo is not the only demanding client of the group. Roark’s general counsel, for instance, keeps associates busy by insisting on negotiating deals late at night, when the other side is more likely to cede points, according to a person with direct knowledge of the matter. (Kate Thompson, a spokesperson for Roark, said the firm had no comment.)
The extent of Paul Weiss’ work for Black has also become a subject of discussion. The firm has long handled the legal work for Black’s family office. But some associates have begun to wish that was no longer the case, according to one of their direct colleagues.
Black’s public profile has come under further attack since he stepped down as Apollo’s CEO. In early June, a former model named Guzel Ganieva filed a defamation and sexual-violence lawsuit against Black, alleging he raped her and attempted to control her through extending her loans. Black denies the allegations. Paul Weiss is not representing Black in the matter.
The firm’s business with Apollo could dissipate as well, according to a person who is intimately familiar with the relationship: Apollo is set to expand its credit and insurance business at a faster clip than its private-equity business, which has traditionally been Paul Weiss’ specialty.
This person said that early on, Apollo had its choices of full-service law firms to develop a deeper relationship. If it had gone with Simpson Thacher, Apollo would have marked its third large private-equity client, next to Blackstone and KKR. And there were already dozens of private-equity clients at Kirkland, too.
But because Paul Weiss recruited an M&A team from O’Melveny with longstanding ties to Apollo, the investment giant was more inclined to dish the firm business, which came with special discounts for handling low-level legal work, like the nondisclosure agreements in deal talks, the person added.
The extra attention appealed to Apollo, this person said, adding that it wants “to be the 800-pound gorilla.”
“It makes some people unhappy,” this person said, referring to some Paul Weiss partners — who may wish they could go back to a simpler time when deadlines weren’t so intense, clients were smaller, and they didn’t feel as beholden to a single client’s demands.
But Apollo has interests of its own, this person said, and if some parties at its outside counsel are irritated with the demands of its deal flow, its executives’ thinking is this: “We don’t care.”
Yoonji Han contributed to this report.