Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Cohen & Gresser, the New York law firm that represented Sam Bankman-Fried and Ghislaine Maxwell, is in talks about selling a stake to a private equity group, as the US legal industry begins to open up to outside investment.
The firm has discussed options including the sale of a $40mn convertible note, which would ultimately be swapped for equity in the business, according to people familiar with the matter. The talks could lead to a deal as soon as the first quarter of next year, one of the people said.
“We have been preparing our firm for the entry of modern finance into the legal sector for over a decade,” Lawrence Gresser, the firm’s co-founder and managing partner, told the Financial Times. “We are exploring innovative structures with a number of prominent investment firms that can support our strategic objectives.”
Cohen & Gresser is the latest US law firm to consider bringing in outside shareholders, using a complex structure designed to circumvent a historic ban on non-lawyer ownership.
The ban, aimed at keeping commercial considerations out of legal advice, has made law firms one of relatively few sectors of the economy with little private equity involvement.
But private equity is being touted as a way to help firms attract talented lawyers, invest in artificial intelligence technology and in some cases pay founders.
The FT this month reported that McDermott Will & Schulte, one of the world’s largest law firms by revenue, is considering bringing in private equity investment. Burford Capital, which pioneered litigation finance, has also said it is interested in buying minority stakes in US law firms.
One model being discussed involves splitting a law firm into two parts: a lawyer-owned entity that gives advice to clients and a separate entity known as a “managed service organisation” from which the lawyer-owned firm would buy services.
An MSO can own the law firm’s brand and provide back-office, IT and other services to the legal advice entity in return for a steady revenue stream. Private equity can invest in the MSO without necessarily breaching the ban on owning law firms, although the structure has not been fully tested against the professional ethics rules of US states.
Similar models have successfully been used to bring private equity into medical practices and accounting firms in recent years.
Cohen & Gresser is using the investment bank KBW Stifel to solicit buyers for debt that would convert to equity in a future MSO, said people familiar with the matter. One person said a deal could ultimately bring in more than the $40mn figure first suggested to investors, and other options for taking outside investment could also emerge.
Cohen & Gresser was founded as a New York boutique in 2002 with a commercial law and a white-collar defence practice, and has since expanded to Washington, London, Dubai and Paris with plans to open a Silicon Valley office. Its London white-collar practice has shrunk in recent months after a series of lawyers departed and the office is shifting its focus to corporate work.
Co-founder Mark Cohen defended Bankman-Fried at his trial on charges of defrauding users of the crypto exchange FTX, and earlier defended Maxwell against charges she helped Jeffrey Epstein abuse underage girls. Both clients were found guilty. He has successfully defended hedge fund traders against corruption and insider trading claims.
