Arizona's Highest-Paid CEOs
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Yahoo
2 hours ago
- Yahoo
It's illegal in most states for private equity to buy a law firm. Lawyers have figured out a workaround.
Legal ethics rules generally don't allow non-lawyers to own law firms. MSOs are a workaround to allow nonlawyers, including private equity firms, to effectively invest. Law firm owners can use the investors to scale, as well as for succession planning. Real estate, airlines, fashion. It might seem like private equity has climbed the mountain of the American economy, declaring everywhere the light touches as part of its kingdom. But one corner remains in the shadowlands: Law firms. Nearly every state has adopted a professional ethics rule from the American Bar Association forbidding lawyers from working for nonlawyer-owned firms. Lawyers, of course, have figured out a way around it. The loophole, known as a "managed services organization" — or MSO — allows non-lawyers to effectively own part of law firms through a second corporate entity. Business Insider spoke to two attorneys who advise law firms on the arrangement, which they said is becoming increasingly common. In June, Puerto Rico's high court allowed non-lawyer investment in law firms in order to spur economic development in the territory. Arizona, the only state that has done away with the ABA rule, in 2020, now has over 100 law firms that are open to outside investors, according to a recent Stanford Law School study. Large companies like KPMG and Rocket Lawyer now own law firms in the state outright. The MSO model, which isn't limited to only Arizona, could appeal to law firm owners who want to retire or who don't want to hand their firms over to a law partner. "We're in the midst of the largest rolling retirement of lawyers in history," said Lucian Pera, a legal ethics attorney at Adams & Reese who advises lawyers and businesses about setting up MSOs. "The baby boomers are getting old and retiring. And that's a real opportunity for some people." Using an MSO can give private equity firms — or other kinds of companies — a chance to effectively buy a slice of legal practices. And it gives lawyers the chance to sell stakes of their companies for cold, hard cash. It could also offer the chance to partner with a deep-pocketed company that could boost the firm and help scale it to new heights. Traditionally, law firms have operated as partnerships among attorneys, where equity partners own shares in the firm and help manage it. That's partly because of ethics rules designed to maintain attorney independence, such as ABA Model Rule 5.4(d), which largely prevents nonlawyers from owning law firms or from having the right to control the professional judgment of a lawyer. The ABA's rules have made law practices distinct from many other white-collar professions, like finance or consulting, which may have robust ethical rules and norms but don't impose such stringent limits on ownership. There are plenty of publicly traded banks and consulting firms, but no publicly traded law firms. As a workaround, the law firms can set themselves up as two corporate entities, Pera said. One is the law firm itself, composed exclusively of lawyers and owned only by lawyers. The second is the service organization, which can be owned by anyone and acts as a vendor for the law firm. It is essentially the back office, taking care of all non-lawyer tasks, including marketing, accounting, human resources, real estate leases, and employing paralegals. The two corporate entities enter into a long-term contract. Under this MSO arrangement, non-lawyers can invest in the service corporation, though not the law firm itself. Presto! You have an ethically independent group of lawyers who are exclusively working with a company that can sell shares, Pera says. According to Pera, no state bars have issued ethics opinions that expressly bless the MSO model, but no court or regulator has found a problem with it, either. "The pieces fit well, and there's no regulatory approval required for a law firm to do it, just like there's no regulatory approval required for a law firm to take out a bank loan," Pera said. A spokesperson for the American Bar Association said its Center for Professional Responsibility doesn't have any ethics opinions on non-lawyers investing in MSOs. "Lawyers are not subject to the ABA Model Rules," the spokesperson said. "Instead, they are regulated by the state supreme courts in which they are licensed." Tom Lenfestey is the founder and CEO of The Law Market Exchange, a sort of Craigslist for law firms. He says private equity companies are typically interested in consumer-driven firms, like personal injury. Investors might be able to introduce new efficiencies into those firms and get a steady stream of revenue in a larger portfolio, said Lenfestey, who also advises on law firm mergers and acquisitions. Private equity companies might be warier of investing in Big Law firms, which typically service corporations and have fewer but bigger clients, he said. Lawyers could always jump ship and take clients with them, but consumer law firms tend to do steadier business, he said. "Personal injury is brand-marketed — it's the billboards, it's the TV, it's the digital marketing," Lenfestey told Business Insider. "It's not attorney relationship-based." Because law firms aren't required to disclose their use of service organizations, it's difficult to know how widespread the practice is. Both Pera and Lenfestey declined to list the firms they've worked with using the structure, citing confidentiality obligations to their clients, but said it's becoming more common. Pera said he knows of one firm that used the structure as far back as 2006. In more recent years, more law firms and investors have become interested in using MSOs, Pera and Lenfestey said. "There are many more that are in process right now, and some of them are quite large," Pera said. "There's a fairly large insurance defense firm in this country that's looking at doing this. There's a fairly large AmLaw-ranked law firm that's looking at this. So there's a non-trivial number of these that are going on." Lawyers who have built up their practices, and who want to cash out, can do so by effectively selling part of their firm to someone else to manage. They can also help firms scale. Selling shares of an MSO could help finance lead generation or advertising. Catalex Network, which launched earlier this year, is using the MSO model to invest in law firms with a longer time horizon. While a private equity firm might want to stick with a law firm for a few years before selling its stake, Catalex Network says it aims to form long-term partnerships with law firms by helping them establish MSOs, buying substantial stakes in them, combining their back-offices, and giving the firms the resources to compete with Big Law. Catalex Network offers bread-and-butter services like IT, payroll, compliance management, and accounting. But also services that are more specific to the legal industry, like recruiting and sophisticated enterprise software that would be cost-prohibitive for smaller firms. "I've seen kind of what big law resources are and I've seen what small law resources are," said Jeffrey Goldenhersh, a Catalex Network founding partner, who previously worked at the Big Law firm Skadden Arps before moving to a boutique firm. For Catalex Network, the MSO structure offers a way for the company to grow with law firms. The American Bar Association's rules meant to preserve attorney independence, such as limits on fee-sharing with non-lawyers, are a non-issue. And while Catalex Network handles the back office, the lawyers can do less managing and more lawyering, Goldenhersh says. "There's a real consolidation going on at the top end of the legal market and some of these smaller, midsize, boutique-type firms are getting a little bit left behind," Jesse Hamilton, another Catalex founding partner, told BI. "So we're trying to help them catch up and be able to step into the ring with some of the larger firms that have consolidated, have the best technology, the best AI, the best back office staff, and have them be able to compete and stay relevant in the industry." Read the original article on Business Insider
New York Post
2 hours ago
- New York Post
Trump can't give up the fight against foreign meddling in US tech
President Donald Trump last month got Canada to kill a blatantly unfair tax on US-based companies, but the fight against foreign meddling in America's tech industry has a long way to go. Canada's Digital Services Tax was set to slap companies like Google, Meta, Amazon, Uber and Airbnb with a 3% levy on revenue from Canadian users — until Trump canceled trade talks over what he rightly slammed as an 'egregious' move. Prime Minister Mark Carney promptly nixed the fee hours before it would've kicked in. Good: The tax was a shameless cash grab at the expense of American companies — and it was retroactive, demanding US-based tech firms fork over a whopping $2 billion. Note that the Biden administration also opposed the tax, and even whined that it might violate the USMCA trade agreement — but did nothing to actually stop it. Making Carney back down is fresh proof that Trump's big-stick trade tactics can work — and work to protect cutting-edge knowledge-based industries, not just brick-and-mortar manufacturing. It also shows that, despite all the ink spilled over Elon Musk's tiff with Trump, the tech industry still has plenty of reason to stay friendly with the administration. Especially since, as the prez pointed out on TruthSocial, Canada was just seeking to copy the European Union, which shamelessly uses its Digital Markets and Digital Services Acts to fill its coffers and bend US tech to its will. Six of seven tech companies the European Commission has highlighted as 'gatekeepers' to be reined in are American: Google, Apple, Meta, Amazon, Microsoft and The EU has already hit Apple and Meta this year with massive fines for allegedly breaking the Digital Markets Act's antitrust rules. Keep up with today's most important news Stay up on the very latest with Evening Update. Thanks for signing up! Enter your email address Please provide a valid email address. By clicking above you agree to the Terms of Use and Privacy Policy. Never miss a story. Check out more newsletters Far worse: The Digital Services Act chills free expression by threatening steep financial repercussions against companies that allow speech that the EU considers 'disinformation,' 'hate speech' or threats to 'civil discourse' — concepts so nebulous that it's hard to see how companies can comply without stomping on the First Amendment. It's beyond unacceptable for Brussels to determine what Americans can say on American–owned sites. The EU's legal harassment of US-based tech firms is so egregious that Trump aide Peter Navarro slammed it as 'lawfare' in April. These 'fines' are basically tariffs by another name — milking successful American companies by creating strict regulations that target them especially. Canada clearly meant to get its own slice of that pie, only for Trump to slap down Ottowa's grasping hand. Making the Europeans back off should be high on the president's agenda as he starts his next tariff offensive. Don't let America's trade partners reap the benefits of our thriving, innovative tech industry while spitting on the free-speech and free-market ideals that make it possible.
The Hill
4 hours ago
- The Hill
Democrats might be ‘overthinking' strategy to recapture voters
Democrats are rethinking ways to recapture voters they've lost to President Trump in recent election cycles, and they may have been offered an important lesson in the New York mayoral primary. In various post-mortems and focus groups done on the heels of their devastating 2024 election loss, Democrats have thoroughly examined exit polls and voter demographics in search of the gaps in their party's appeal. But Democratic strategist Chuck Rocha, who served as a senior adviser on Sen. Bernie Sanders's (I-Vt.) presidential campaign in 2020, said Democrats are 'overthinking' the solution by analyzing the voters who flipped sides or skipped voting during the last election. 'It's more simple than that,' Rocha said. 'Just concentrate on people who are frustrated as hell and get both of them.' Rocha pointed to the New York mayoral race as proof. He says progressive upstart-turned-party nominee Zohran Mamdani (D) was able to capture voters — including those who did not vote a few months ago in the presidential election — by talking about affordability and other tangible economic issues that appealed to them. Rocha said voters 'want anything that's different' from the status quo when it comes to the cost of living. 'It shows how desperate people are,' he said. While many Democrats disagree with Mamdani's politics, they say the campaign he ran shows the unwavering preeminence of economic issues. And Trump taught the same lesson in 2024, political observers say, by telling voters what they wanted to hear on the economy and his message on 'draining the swamp.' 'Donald Trump and Zohran Mamdani just showed, in very different elections, that economic issues are still king — and that you can appeal to a wide, bipartisan swath of voters by saying you'll bring down the cost of living,' said Democratic strategist Christy Setzer. 'Working-class voters have been drifting away from the Democratic Party on so-called 'cultural' issues for a long time, but they're still very gettable through a clear message and from a compelling messenger.' According to exit polls, Democrats in 2024 lost significant ground with middle-class voters, a cornerstone of their traditional base, down 10 percentage points from 2020. At the same time, there is a decreasing sense of strong party leadership and little optimism about the party's future, respective CNN/SSRS and AP/NORC polling out in May revealed. But Mamdani, a self-proclaimed democratic socialist, took aim at the Democratic establishment, calling for draining the swamp to make room for change. It was an echo of Trump's messaging in his 2024 campaign. 'Donald Trump was successful because … he wasn't afraid to be against and call out people in his own party and other parties,' said Susan Del Percio, a longtime New York-based Republican strategist who does not support Trump. 'Mamdani was the exact same. He was calling out everybody, and then that's when you get to act with no fear.' Mamandi strayed from the Democratic establishment with a clear message of affordability and came out on top in a crowded and competitive primary. Former New York Gov. Andrew Cuomo, Mamdani's only serious competition, ran on a message of protecting New York City from Trump. But the New York City electorate is drastically different from the rest of the country, political observers say, noting someone like Mamdani may not appeal to moderates and centrists. 'Being a self-proclaimed democratic socialist … doesn't play in swing districts. It plays in New York City primaries,' Del Percio said. 'The Democratic candidates have to look more like Elissa Slotkin talking about the cost of living than they do Mamdani talking about the cost of living.' Realizing they need to do more to appeal to the middle class, Democrats across the country have begun to put forward plans and back legislation to regain lost ground. Sen. Elissa Slotkin (D-Mich.) recently came out with her 'Economic War Plan,' the goals of which, she has said, are to reconnect the Democratic Party with the middle class. At the same time, Gov. Gavin Newsom (D-Calif.) signed a bill this week overhauling California's environmental protection laws to accelerate much-needed housing construction in the state. In the name of bringing down the cost of living, Newsom's move goes against a history of California Democrats unconditionally defending the state's environmental protection laws. But the New York race gave some Democrats an injection of hope that their party was starting to turn things around after the crushing loss last year. 'We have proof now, and the proof is the NYC mayor's race,' Rocha said. Mamdani won 'the same precincts in New York City where Donald Trump overperformed in the general election,' he explained. Democratic strategist Jamal Simmons said while not every voter is gettable, 'a lot of them are,' and he said some of the people who supported Trump are Democrats who simply found Trump's message more compelling than the Democratic ticket in the 2024 race. 'Voters are not captive to any political party,' Simmons added. 'They have agency. They get to make their own choices, and if politicians aren't speaking to them, they'll look elsewhere.'
