The New York courtroom waspacked in December 2011 forthe start of what would bethis century’s biggest caseagainst Wall Street. But the

crowds were not spectators or reporters.Instead, jammed shoulder to shoulder,snaking out along the walls of thecourtroom and even spilling into thejury box, were 110 lawyers. Theyrepresented 16 of the best-known banksin the world.Against them, almost comicallyoutgunned, stood a small team led byPhilippe Selendy, a partner at QuinnEmanuel Urquhart & Sullivan, a scrappyplaintiff’s law firm. Selendy and ahandful of others were demanding tensof billions of dollars from the banks incompensation for wrongdoing in thefinancial crisis. “If there was anythingwe needed to underscore that we wouldface multiple armies of defence counselagainst us, that first day made the pointfor us,” says Selendy.Not only was the opposition ferociousbut the very demand seemed fanciful.Ever since markets tumbled and

unemployment surged in 2008,Americans have wanted to see some sortof reckoning from the financial industry.But until now they had beendisappointed. Selendy’s attempt todeliver that reckoning in court – viaclaims that banks had knowingly stuffedhundreds of billions of dollars of dodgy

mortgages into securities and sold themto US government-backed entities –faced extremely long odds.Wearing shorts and a polo shirt – hispreferred summer uniform – and lookingyounger than his 47 years, Selendymakes for an unlikely scourge of WallStreet. Leftwing by US standards, he has

The man who took onWall Street

| Saturday August 30 / Sunday August 31 2014 | USAWorld Business Newspaper

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Tom Braithwaite andKara Scannell on alawyer who sued thebanks for their part inthe financial crisis

Philippe Selendy in his New York office Flora Hanitijo

a soft, professorial way of speaking and peppers his conversation withreferences to Wittgenstein’sPhilosophical Investigations, hisfavourite work from his favouritephilosopher; Thomas Piketty’s recentstudy on income inequality; and, mosttelling of all, George Packer’s TheUnwinding, a dissection of the frayingof the American safety net and the riseof organised money.He is prone to starting sentences withphrases like, “As a macropessimist . . .”and venturing that, “It would be kind ofcool if we could combine cloudcomputing with solar technologysomehow.”Selendy wasn’t even sure he wanted tobe a lawyer. Long a seeker of calm, hechose boarding school to escape hisparents’ divorce: “My parents weresuing each other and I wanted someneutral territory.” His father is a (nowretired) doctor who fought in the 1956Hungarian revolution before studying

in Belgium, giving Selendy his Frenchfirst name and instilling a sense ofpublic service. Even after graduatingfrom Harvard Law School in 1993 andlanding a plum associate position atprestigious firm Cravath, Swaine &Moore, Selendy carved out a deal thatallowed him to take a year off to finisha dissertation on Wittgenstein (he neverdid). At Cravath he met his wife,Jennifer, who is also a lawyer. Thatpath eventually led him to Quinn andthe case of his career.Quinn Emanuel is not one of the elite“white shoe” US law firms – and notjust because Selendy dares to wearsandals in the office. Those firms, manyof which defended the banks, have beenaround for decades and offer advice thatranges from regulation to mergers andacquisitions. Quinn Emanuel’s mantrais “litigation only, all the time”. Itslawyers boast publicly of one client’sdescription of them as “hungry dogs”and do not brook condescension from

elite rivals.“I know they respect us,” says JohnQuinn, a founding partner of the firm.“They pay our clients billions of dollars– they won’t go to trial against us.”Selendy is methodical, with a trackrecord of winning. “He’s like anassassin that you would let babysit yourkids,” says Jonathan Harris, counsel atthe bond insurer MBIA, which hiredQuinn Emanuel in 2008 in a successfulfive-year battle against Bank ofAmerica – an outcome which Harriscredits with saving his company frombankruptcy.It has taken four years but Selendyhas used his experience to do what USauthorities failed to do: extract realmoney from the institutions whosemisbehaviour lay at the heart of thefinancial crisis. So far this amounts to$20bn from more than a dozeninstitutions.“It nearly killed us,” Selendy says. “Itwas incredibly hard just to keep up with

Selendy with (clockwise from bottom left) Maria Ginzburg, Sean Baldwin, Christine Chung, Manisha Shethand Adam Abensohn Flora Hanitijo

the pressure of it, to perform at a veryhigh level and validate what we weredoing.”

The case was born under a clear bluesky in the spring of 2010, whenSelendy and his colleague ManishaSheth, a former federal prosecutor,boarded a train to Washington DC, ajourney that took in rows of boarded-up homes in Baltimore – the sort ofurban blight exacerbated by thehousing crash. “For a private lawyerto go down to DC, it’s almost like youhave a sense of mission with it,” saysSelendy. “It’s very special because youknow that you’re in the midst of adisastrous time, this crisis, and thepossibility of actually levelling thefield a little bit, especially on such ascale, is just wonderful.”Selendy was there to pitch a plan tothe Federal Housing Finance Agency(FHFA). He wanted it to sue morethan a dozen banks – from JPMorganChase to Deutsche Bank to Barclays –over the $200bn of bad mortgage-backed securities they underwrote inthe run-up to the crisis.On the face of it, the pitch wasunlikely to succeed. The FHFA is agovernment agency created in 2008whose mission, in part, was to mop upafter the housing market crashed.It oversees Fannie Mae and FreddieMac, two government-backed insti -tutions, which collapsed underballooning losses when the mortgagesecurities proved to be backed withhome loans the borrowers could notrepay.Under Ed DeMarco, who ran theagency from 2009 until January thisyear, the FHFA was loathed byDemocrats for refusing to helphomeowners by writing down thevalue of their outstanding mortgagedebt. Supported by general counselAlfred Pollard, a former bank lobbyist,DeMarco seemed unlikely to dosomething as radical as what Selendyproposed.Selendy wanted to recoup the lossesfrom the banks partly because he sawthem as guilty of a “misuse of power”.He worried about the social impact ofthe financial sector: “The truth is, Iactually feel that the banks havegotten away with too much for toolong and that regulation has beenstymied by lack of resources [and]often by a revolving door, with peoplewho become very knowledgeable and

then . . . go back to industry.”Pollard saw the decisions quitedifferently. “We’re not talking aboutpenalising someone,” he says. “Thedefendants are making somebodywhole for losses they created. So, no,I don’t think we look at this aspunishment.” But the FHFA decidedSelendy’s suggestion to sue wassquarely in its mandate. It sentsubpoenas to the companies in July2010, demanding information on theirmortgage business. Though legally

obliged to respond to the letters, mostbanks used the same tactics as theirown delinquent borrowers: theyignored them and hoped they wouldgo away. So in August 2011, the FHFAsued.

There was an initial flurry of excite-ment – but the bank lawyers soonbecame increasingly confident thatthe cases would either fail altogetheror settle for a tiny fraction of thevague “billions” being claimed. “Theywere very belligerent at thebeginning,” says Selendy. “They toldus that they expected to win on oneground or the other.”And so, in the Manhattancourtroom, the legal teams eventuallyfought it out. Did the securitiesplunge in value because they werestuffed full of loans that were worsethan stated or would they haveplunged in value anyway in therecession? Could the government relyon sampling loans or did it need to gothrough every single mortgage file tofind underwriting errors, animpossibly huge task?One by one, the rulings started to gothe way of Selendy and thegovernment. Bank lawyers continueto insist that the judge, Denise Cote,has erred in the rulings. Selendy hasa different take: “Although we wererepresenting the government, we’re

much nimbler, we can move muchfaster than this morass ofdefendants,” he says. Either way, therepeated defeats caused mountingpanic among the flanks of banklawyers. In a desperate gamble, theytried and failed to get Judge Cotereplaced.Citigroup did not even wait for thatresult. In May 2013, under MikeCorbat, a new chief executive whowanted to get the bank’s pastproblems out of the way as quickly aspossible, Citi’s lawyers settled, paying$250m. Then the dominoes started tofall. UBS of Switzerland settled andthen came JPMorgan, whose chiefexecutive, Jamie Dimon, is arguablythe most famous banker in the world.This time, after five years of beingslammed for its failure to hold banksaccountable, the US Department ofJustice wanted in on the action. Ithosted a showdown with Dimon inWashington. TV crews had beentipped off and showed him and hislawyers traipsing in for the settlementtalks.In November, the justice departmentannounced it had extracted a $13bnpayment from JPMorgan (“along withfederal and state partners”) to resolvethe allegations of mortgage mis-selling. The press release stated thatthis was the “largest settlement witha single entity in American history”.You had to read much further downto see any specific acknowledgment ofthe FHFA, the real instigator of thesettlement, which took $4bn from thedeal, the largest portion of cash.

Banks around the world, supportedin some cases by politicians, havecomplained of bully-boy tactics fromthe justice department, which appearsto have been mounting a grab forbillions of dollars – and somefavourable headlines – for the pasttwo years. But they were built on theFHFA’s settlements, which, asSelendy points out, were won afterpainstaking court battles. “This is nota threatening use of governmentauthority to exact quick results,” hesays.After the circus of the JPMorgansettlement, others paid up much morequietly. This year, Deutsche Bankpaid $1.9bn. BofA, which had alsoprotested its innocence and vowed tofight, paid $9.3bn – the biggestpayment yet to the FHFA and more

‘Trillions of dollarsf lowing into the verysector that led usinto the crisis. I f indthat galling’

than twice the penalty paid by BP forthe Gulf of Mexico oil disaster. Lastweek Goldman became the 14thcompany to settle, paying $1.2bn andleaving only Nomura, HSBC andRoyal Bank of Scotland battling in thehearings. If they don’t fold too, thefirst full trial will start next month.But the recoveries are already thebiggest to emerge from the financialcrisis. Compared with the $20bnFHFA tally, which flows back toFannie Mae and Freddie Mac but theninto the coffers of the US Treasury,the Securities and ExchangeCommission has recovered only $3bnin fines, improper profits and interest.Although the banks that settledavoided a court verdict, it is clear thaton their own terms they lost – and lostbadly. The strange bedfellows of thestrait-laced government officials andthe lawyer with the radical agendabeat the most expensive legal talentWall Street could assemble.

From his office on Madison Avenue,behind a desk constructed out ofreclaimed wood, Selendy views hisrole as that of a fighter against themachine. He hates the way the Obamaadministration bailed out the banks,even though it is widely judged asuccess (and even though thegovernment is his client).“Trillions of dollars, massiveliquidity flowing into the very sectorthat led us into the crisis. I find thatgalling,” he says. “I don’t regard thatas a triumph. We’re going to allocatea huge portion of the nation’s wealthto that sector and hope it tricklesdown. All kinds of wastedopportunity. It drives me crazy.”He is looking to get hired by othergovernment agencies on futurescandals. They might be in differentsectors – he would love to find a wayto get paid for fighting polluters – buthe feels sure that finance will providemore work, despite the clean-up

efforts of the last few years.“The problems that led to thesecases are, at the end of the day, theresult of structural problems withinthe banks,” he says. “No matter whatthey do for their compliance, nomatter what the regulators do and theincreased burdens of recentlegislation, you have a situationwhere compensation is typically basedaround performance and performanceis measured by marks to market oryearly returns. That createsincentives for traders and structurersand sales people to push the envelope.And I have every expectation that,just as they always have, they willcontinue to do it.”

Tom Braithwaite is the FT’s USbanking editor. Kara Scannell is theFT’s US regulatory correspondent

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