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Private Defender

Marty Lipton, legendary M&A lawyer and inventor of the poison pill, is back wearing a different hat -- as a troubleshooter for embattled CEOs like Citigroup's Sandy Weill.

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There comes a time in every CEO's or Wall Street banker's life when he needs the counsel of the best lawyer in town. Not at the end of the line, when the stock is cratering, the Feds are banging at the door, and the masses are braying for blood -- by then it's too late. The time to make the call is well before, when the storm clouds start looming heavy and gray and a hotshot prosecutor starts asking sweat-inducing questions. For Citigroup chairman and CEO Sandy Weill, that time has come. New York attorney general Eliot Spitzer is tightening the screws on his investigation into what, if anything, Weill said or did to get his star telecom analyst, Jack Grubman, to switch to a buy rating on AT&T in advance of the massive IPO of its wireless arm. Weill was an AT&T board member, and AT&T CEO Mike Armstrong was a Citigroup director -- Sandy wanted the fees; Mike was after the Grubman imprimatur. Grubman changed his rating -- it's how business once was done on the Street. Now, in today's harsh Puritan light, the act seems criminal.

So when Spitzer informed Weill that he himself, not just Citigroup, might be liable for Grubman's indiscretions, Weill got Marty Lipton on the line. And in so doing, he joined an exclusive club of Wall Street power brokers that for more than 30 years now has been calling on Lipton for soothing words of advice in troubled times.

"Marty has been my personal lawyer for a long time -- I talk to him most weekends," says Felix Rohatyn. "He is in every sense of the word an adviser. He follows what you do, who you are, and how you feel. I've been in these types of situations, and he is the person I've called."

At first blush, Lipton seems an odd choice to take on Spitzer. A frumpy little man with Coke-bottle glasses, frizzy white hair, and worse-for-wear suits, Lipton is no one's idea of Perry Mason. Indeed, as a founding partner of the Wall Street power firm Wachtell, Lipton, Rosen & Katz, Lipton earned his fame by offering inside-the-boardroom counsel as opposed to courtroom theatrics. Specifically, he supplied tailor-made defensive advice to target companies in hostile-takeover fights. He was a key player during the eighties takeover boom, counseling under-attack CEOs in the face of predations from corporate raiders such as Ron Perelman and Sir James Goldsmith. Part academic (he has taught securities law at New York University, where he is chairman of the board), part moralist, Lipton came up with the poison pill -- a seminal anti-takeover maneuver that has become a potent weapon for target companies -- while railing against the raider-enabling junk-bond excesses of Perelman and Michael Milken.

Weill and Lipton have known each other from the beginning: When Lipton and a bunch of classmates from NYU's law school hung out the Wachtell, Lipton shingle in 1965, Weill had recently incorporated his very first brokerage shop -- Carter, Berlind & Weill. Lipton is, in short, an insider's insider.

Lipton is in effect selling a comfort level to panicky executives who see their world in danger of collapsing before their eyes. It's the kind of advice best offered on a weekend, outside of the office. Discreet, no-holds-barred counsel given to a man in his country home. And it is a fine commodity to be peddling these days, because it is priceless: When a CEO is about to lose his company in a takeover battle, or when the prosecutors come knocking, he will pay anything to see if Marty Lipton might be able to bail him out.

"He's not just an M&A lawyer," says veteran takeover lawyer and Fried, Frank senior partner Arthur Fleischer Jr. "You might not call him to do your will, but these days I'm not surprised when people call Marty. He is a man of extraordinary judgment and inimitable legal skills."

Says Eric Gleacher, an eighties-vintage M&A star at Morgan Stanley who now runs his own boutique: "I know all the lawyers in town, and there are very few like Marty who combine high-level business judgment with the highest-level legal ability."

So what is Marty advising Sandy these days? No one knows for sure. Aside from a two-sentence statement ("The notion that there could be any charge against Sandy Weill is inconceivable. There is no divergence between the interest of Sandy and Citigroup"), Lipton has been silent on the matter.

But the crux of the issue is this: Did Weill lean on Grubman at the behest of his pal Mike Armstrong? There are a number of hypothetical versions of how the matter might have played out. Weill could have spoken directly to Grubman, or, more likely, he could have had one of his underlings pass on the message. Then again, "Sandy didn't need to say anything," observes one senior telecom banker. "Jack knew that Sandy was his boss and that he was on the AT&T board and that there was a huge equity offering coming up. Forty to $50 million in fees were at stake -- for Jack, it was an easy decision. That's how the game was played."

While Weill has said publicly that he never pressured Grubman and has made a similar case to his board, the fact that he has reached out to Lipton suggests that what may have been an innocuous act two years ago is potentially criminal behavior today under the aegis of the Martin Act. An 81-year-old statute, the act allows for criminal charges to be levied in cases of securities fraud. "Sandy will be telling Mr. Lipton things he may not want to get back to his board," says ex–SEC lawyer Howard Meyers. "Spitzer is using the Martin Act as a powerful club: If there was securities fraud and investors were hurt enough, it will provide civil and legal recourse."

One heavyweight lawyer Weill might have called upon for legal advice is Skadden, Arps partner Kenneth Bialkin, an M&A veteran of many years' standing and a man who has been advising Weill on his takeovers and mergers since the sixties. Tall and smooth, Bialkin cuts a glossier figure than the rumpled Lipton. He is also a charter member of the Sandy Weill inner circle: He and his wife are occasional dining-out partners with Weill and his wife, Joan, and they both are Carnegie Hall trustees. But Bialkin is a former Citigroup director, and for Weill, that may be too close for comfort; now would be a time for legal gravitas, not M&A advice and evening banter.

Not that Bialkin begrudges his friend for turning to a competitor for counsel -- he, too, has reached out to Marty. "There have been times in my life, personally and professionally, when I would call Marty up to kick a problem around. One Saturday morning, I even dropped by while he was having a haircut," says Bialkin. "One of the ways I solve problems is that I ask myself: How would Marty deal with this? What would he say?"

Which is not to say that Lipton hasn't had his own slipups. At times, his insiderness can be a negative. During the epic takeover battle between Texaco and Pennzoil over Getty Oil in 1985, Lipton's slick, lawyerly testimony for Texaco in a Houston courtroom was instrumental in getting a jury to award Pennzoil $11 billion in its suit against Texaco. In 1986, a star Wachtell partner was arrested for feeding takeover tips to inside trader Dennis Levine. And in 1991, Lipton was hired by longtime friend John Gutfreund, then the CEO of Salomon Brothers, to investigate the Treasury-bond-trading scandal plaguing Salomon at the time. Within months, both Gutfreund and Lipton had resigned their positions in a confusion of misleading press releases and less-than-complete disclosures.

Like a good heavyweight, Lipton can take his punches and keep standing tall in the ring. To a large extent, that is the secret to his success: At the age of 71, Marty Lipton is one of the last super-senior Wall Street lawyers still taking calls from clients. There is, in effect, no one else for a Sandy Weill to call. Arthur Liman has died, and Skadden, Arps name partner Joe Flom isn't in the fray, making Lipton's advice and presence all the more potent. As corporate law firms have bureaucratized, new-generation lawyers seem diminished and lightweight. "There are very few senior advisers left within the legal community," says Simpson, Thatcher executive-committee chairman Dick Beattie. "I think the world of Marty. He is very, very good. But if you look around, he is one of the last great ones standing. There are just not that many of them around anymore."

Lipton gets paid for his troubles, too -- and not by the hour; the big money for Wachtell, Lipton comes from getting its slice of the Wall Street deals. The firm made headlines in 1988 for charging its client Kraft $20 million for two weeks' worth of work. In 2001, Forbes estimated Lipton's take-home salary as $4.5 million, making him the second-highest-paid lawyer (tied with his partner Herbert Wachtell) in the country. We will probably never know what Weill will end up paying Lipton for services rendered. Maybe $1,000 an hour, maybe nothing at all -- Wachtell is a corporate client of Citigroup, and there are many ways it can get paid.

Interestingly, since the Lipton hiring, Weill has scored a big regulatory and PR coup in hiring the 37-year-old Sallie Krawcheck, a former star bank analyst and CEO of the research shop Sanford Bernstein, to become the CEO of Smith Barney's research and brokerage business. In one fell swoop, he jumped a few steps ahead of Spitzer by focusing attention on the Citigroup reform efforts as opposed to the Grubman drama. Getting defensive by going on the offensive -- a Marty Lipton strategy if ever there was one.


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