Photo by Laura Barisonzi.
In the era of vastly complex financial litigation, it’s good to be one of the most trusted advisors to PricewaterhouseCoopers and Deloitte & Touche, among many others. But Cravath’s Antony Ryan did not achieve that role through rigorous accounting training or a background in business.
Instead, he learned the niche working alongside Evan Chesler, Tom Rafferty and others as they dissected claims against their clients – in part, by thinking as their clients do. Ryan brings an honest empathy to that work as well as his significant public interest contributions, which include winning freedom for a man wrongfully convicted of murder.
His civil litigation practice defines cutting edge. He argued in the 2nd U.S. Circuit Court of Appeals Bear Stearns opt-out litigation on behalf of Deloitte, which is facing claims of facilitating a fraud against a Monaco-based hedge fund. He argued there should be no private right of action under Section 10(b) of the Securities Exchange Act of 1934 and under SEC rule 10b-5 for someone who has entered into a total return swap.
He’s also working on an SEC enforcement action for a corporate client that began as an accounting investigation, and has morphed into a Foreign Corrupt Practices Act case about business in China. And he’s working to resuscitate the languishing common-law defense of in pari delicto. State courts are split on whether auditors should be able to defend claims against them by saying it’s the client’s fault, barring their claims because of unclean hands. He won a ruling in 2010 allowing the defense in New York.
Lawdragon: How does one become an expert in accounting litigation?
Antony Ryan: I didn’t have any particular accounting background, that overlay happened by serendipity. I knew I wanted to be a lawyer because I liked debating and was interested in the adversarial process. The only other career I considered was as a history professor.
Since I came from an academic family I was interested in something practical where I could make a real world difference. The law has intellectual aspects, but it is a practical endeavor. I thought going to law school was like learning the rules of life. It was amazing to me how everything in the world is governed by law. Being able to experience that and have the key handed to you to appreciate that fully was eye-opening.
LD: While at Harvard Law School, you spent your second-year summer at Cravath. Can you talk about that?
AR: I was very drawn to how immersed, sink or swim, the work was even as a summer associate. I liked being immediately made a member of the team here and that I had responsibility even as a summer associate. I remember I helped Bob Baron get ready for a client meeting and went with him – it was nice of him to bring me along. And the client asked more and more detailed questions about the nature of the legal analysis I’d undertaken. At some point during the meeting, Bob turned to me.
The CEO was himself a former lawyer and he had more ability to interrogate his lawyers. That was a new experience for me, and because I had investigated what he asked about and had formed a view, I felt comfortable in the process.
LD: Once you joined Cravath, what was your first exposure to accounting issues?
AR: I started out as a litigator and was assigned to a team for 18 months. At Cravath, our system allows for outstanding training by having us work directly with a partner then rotate to another partner. My first partner was Evan Chesler, and I obviously learned a tremendous amount from him. He was handling a case involving Mid-American Waste Systems in Columbus, Ohio. Evan’s always involved in lots of different kinds of cases, so I was exposed to different types of matters and that case provided an introduction to accounting issues.
But I really started to focus on accounting liability as a fifth- or sixth-year associate. I rotated to work with Frank Barron, who was working for PricewaterhouseCoopers on Allegheny Health, which was an SEC investigation and enforcement matter, and also a large private civil litigation. What was so interesting about that case is we were a defendant and subject of an investigation, but this involved a financial fraud the former client had perpetrated on its auditors.
That gave us the opportunity to go on the offensive – to ask who had been involved, how they had successfully concealed the fraud from the auditors, how they lied to the auditors. Though we were the defendant, the onus was on us to uncover all these facts and to show why the audit had not found this fraud.
LD: That sounds like the hallmark Cravath strategy, of taking a step back and looking at things differently.
AR: Exactly. We switched the whole lens. In discovery, we took the initiative to depose people to find out the facts. It was a case where the plaintiffs’ case was ‘look, a fraud occurred, the company is bankrupt, you were the auditors, ipso facto, you are at fault’. The whole burden shifted onto us to explain why the company failed and how the fraud had gone on for some time.
For me, there was a very human aspect to the case and helping the auditors. They were auditors who had been running this engagement, whose professional careers were obviously now at stake. They were being impugned as having been a part of this fraud.
LD: Accountants are people too?
AR: That’s how I feel. Audits are very complex endeavors and involve a lot of judgment. Any time an issue is missed somehow, there’s this immense hindsight bias to say that it must have been obvious, and it’s apparent something wasn’t accounted for properly. But there can be lots of reasons – financial fraud, yes, but there are also differences in accounting judgment.
Few accounting issues are black and white, cut and dried, there really is a lot of judgment and common sense involved. Auditors are professionals trying to do the right thing, trying to make judgments in real time.
I remember distinctly defending the three main auditors in that case, the engagement partner and two managers. Being a professional caught up in a malpractice case is a very frustrating experience. You have lawyers saying ‘don’t tell anybody about the case except when you’re under oath’. So you feel kind of helpless, that you don’t have any ability to defend yourself. Having a lawyer who’s a voice for you is very important. So while I had exposure to accounting issues in cases before Allegheny Health, the additional auditor overlay – how they go about conducting an audit – I learned on that case. We ended up settling the case with the SEC and the civil action; the SEC never brought a claim against PwC.
While accounting cases have a veneer of complexity and quantitative issues, at bottom accounting cases are great storytelling cases. There’s an underlying clear story about what happened at the company, what happened to that company’s business that led to an accounting issue and how that accounting issue was handled. Fundamentally what appeals to me is that these are stories.
LD: You have significant experience for PwC and others in international litigation. What are some of the challenges there?
AR: Earlier this year, I had a 2nd Circuit argument involving financial fraud in Saudi Arabia, Certain Funds, Accounts and/or Investment Vehicles Managed by Affiliates of Fortress Investment Group L.L.C. v. KPMG L.L.P. It involves a petition for discovery under Section 1782 of the U.S. Code, that allows a litigant in matters outside the U.S. to apply to a U.S. Court to obtain discovery for use in the non-U.S. proceeding.
The case was brought by a hedge fund that lost money on debt instruments, such as Sharia-compliant bonds, issued by two Saudi Arabian entities. The hedge fund brought the action in New York, saying they should be able to obtain the work papers of the KPMG and PwC firms that audited the underlying companies in various Arabian countries. My client is PwC International Ltd., which coordinates certain activities of firms in the PwC network. We argue that they are not entitled to the papers.
The 1782 area has been on the books for a long time, but used very little over the years. It attracted attention recently in the Ecuadorian oil litigation where it was used to great effect by Chevron and Gibson Dunn to obtain lots of documents. That led people to realize a statute is on the books that can get you U.S.-style discovery even when the underlying case is in a country that wouldn’t otherwise provide for it.
Forum non conveniens claims are also significant in this practice. We try to help our clients figure out where they would be best off to have cases located. In the Madoff fund cases, for example, we have had cases in Florida and New York dismissed on forum non conveniens grounds in favor of Ireland and are advising on related cases in various European countries. When you, in particular, have foreign clients, they generally have a strong aversion to being a defendant in any U.S. litigation. They have a view that discovery has run amok. And our greater use of jury trials in civil cases is unusual, it makes foreign companies very nervous. Being able to help demystify the process for them, explain to them what avenues are available to them, is a very important part of a lot of cases we have.
LD: Do you find a bias against auditors and accountants, more specifically?
AR: We certainly thought about that when Enron and Arthur Andersen were in the news, and there was broader awareness in the public about auditors and the blame they fairly or unfairly took there. We did jury testing about it in a number of cases and thought about it quite a lot. That issue seems to have died down. I don’t think there’s a lot of broad public awareness now about auditors’ roles. It is not something widely understood. There is a view that accountants wear green eyeshades and that it’s a very mechanical exercise and if it’s “wrong” then the accountant must have made a mistake.
It gets back to the idea of auditor judgment. That’s what we try to work on when we argue a motion to a judge, to remind courts that what auditors are doing is bringing judgment to bear on a matter of opinion, and they are rendering an opinion on their client’s financial statements. That can be very important in how to frame a legal motion and essential in trying a case.
LD: Do you foresee another wave of financial litigation, like that from the 2008 financial meltdown
AR: Financial frauds tend to be revealed in waves. There was a whole wave with Enron and WorldCom where attention was being paid to financial fraud. Now, hopefully some of the reforms of Sarbanes-Oxley are making a difference in improving internal controls at companies and reducing the likelihood of fraud.
But I have to believe there are still frauds out there. Another interesting thing is how the SEC is approaching this area, and there obviously are a number of people who have said they’re not being proactive enough. That they wait for news of financial fraud to hit the press. And the SEC, meanwhile, says they are involved in a program to try to more proactively discover financial frauds by using advanced analytical tools on financial statements and to proactively go and investigate frauds.
It will be interesting to see if that works. I am unfortunately realistic enough to think there will always be financial frauds. As long as accrual accounting exists there will be people who will be motivated to take advantage of that. When the tide goes down you can see who’s swimming naked. That’s what led to Bernie Madoff being uncovered. As long as the economy was going well, he could bring in people all around the world. What led to that being uncovered was the underlying financial crisis.
LD: While those are deeply meaningful cases for your clients, I understand you also do quite a bit of public interest work. Can we talk first about your work for children’s hospitals?
AR: We’ve been helping them for about 15 years and have a project with two children’s hospitals: Morgan Stanley at Columbia and Montefiore in the Bronx. When any issues arise where a doctor, nurse or social worker thinks there might be a legal issue that is an impediment to the child’s recovery, they contact Cravath. It could be an immigration issue where it’s unclear if the mother or father can stay in the country while the child receives treatment.
It could also be a housing issue. We recently helped a child with severe asthma who was in the intensive care unit after he was exposed to mold in the apartment where he and his family lived. Getting them moved to another city housing apartment was significantly more difficult than it should have been.
We might also help a child who needs an individual education plan. These are issues that are usually fairly discrete. Sometimes it involves representing parents in court or at an administrative hearing, and sometimes it just is being a lawyer and writing a letter, advocating in a way that our clients can’t do as effectively. These are great ways to get our associates manageable pro bono matters, giving them that early litigation experience. A few other partners and I supervise, managing the case to make sure it’s being handled appropriately. It’s nice to have a relationship with hospitals where they know us and we know them. We do this with Volunteers of Legal Services, of which I’m on the board.
LD: Tell me about your representation of Kareem Bellamy.
AR: The most meaningful case I did, with my Cravath partner Darin McAtee, was for a man named Kareem Bellamy who was wrongfully convicted of murder. He spent 14 years in prison for a crime he didn’t commit based on a mistaken eyewitness identification. Darin took the case, he filed the initial petition and got a judge to set an evidentiary hearing. We were going to have dozens of witnesses, so he asked me to get involved.
It was eye-opening to see how the criminal justice system really works. I’m so used to these large commercial cases where you get discovery, millions of pages of documents. We had what we obviously thought was a strong state court habeas corpus action – and it was almost impossible for us to get any documents about the police investigation of this murder. It was very difficult to obtain discovery – the whole mindset of the DA’s office there was they really want to keep everything close to the vest. They are not used to turning over their files.
LD: Where did you first meet Kareem?
AR: I first met him in prison, in upstate New York, though we would usually meet him at the courthouse in Queens. He was determined to clear his name. What was most interesting is we got offered a deal well into this hearing. We called many witnesses and the DA offered us a deal where if our client made an Alford plea – where he doesn’t actually admit he committed the crime, but admits there is evidence from which it could be inferred he committed the crime – he could walk out of prison. Our client refused. I remember talking with him in the holding cell in the courthouse and telling him this may be your only chance to get out of prison. We could lose. And he said, ‘this sounds like I’d be admitting to something I didn’t do’.
When we first won – the day the judge issued his favorable opinion – we all showed up in court and the judge handed out a thick opinion, saying he was not going to tell us how he ruled. And we’re all tearing through the pages while Kareem was taken back to a holding cell.
What was even more memorable was the day two weeks later when we made a bail application. The DA opposed it as they were intending to appeal, but the judge ordered our client released on bail. We were standing outside the Queens courthouse in heavy rain and Kareem came out of the courthouse and did cartwheels in the rain. That was the first time for him it felt real. He’s now fully free.