05 April 2007

FT: Litigation puts Wall Street's world status at 'tipping point'

The risk of litigation is seriously undermining New York's competitiveness as an international financial centre compared with London and it could reach a 'tipping point', says one of the top corporate lawyers in the US. Rodgin Cohen, chairman of Sullivan & Cromwell, one of the leading mergers-and-acquistions law firms, said the UK government had done 'a splendid job' making sure London was first the financial centre of Europe 'and now looking towards becoming the financial centre of the world'.

'[New York] is still the premier centre but if you look at the enormous strides that London has made and you look at the two lines . . . sooner or later they are likely to cross,' Mr Cohen said in a video interview for FT.com's weekly View from the Top series.

Mr Cohen said it wasthe 'litigation atmosphere' rather than legislation that was the biggest threat to New York. 'You could reach a tipping point.' His comments reinforce the warnings aboutNew York's competitiveness issued by other leading Wall Street figures, New York politicians and Hank Paulson, the US Treasury secretary.

John Thain, chief executive of the newly merged NYSE Euronext, said in an interview with the Financial Times this week that advocates of regulatory reform were making some progress. He pointed to the proposed changes to the implementation of Sarbanes-Oxley, the controversial corporate governance legislation.

But he said the high risk of litigation compared with other jurisdictions remained a disincentive for companies to list in the US. 'I still worry about the competitive position [of New York].'

Mr Cohen said part of the problem lay in the quality of US federal judges. 'A very radical idea would be to take the federal judiciary and double the salaries so you would be able to keep your best judges instead of them being forced to go into private practice.' He said 'something is wrong' when judges are making less than a first-year associate at a law firm.

Mr Cohen said the USregulatory system was discouraging some M&A transactions. 'For a European company to be faced with . . . having to register its securities as a condition of doing large deals in the United States that price may be too high. Whereas five years it clearly was not.'

The length of time US regulatory investigations take was also a deterrent because of the unpredictability of the outcome. 'It would be a happy day if investigations could be resolved more quickly and more decisively. Sometimes investigations by various agencies go on for years and years withoutresolution.'

Mr Cohen said the chances of substantive tort reform were low, partly because the trial lawyers were such big political contributors.

© Graham Bishop