When a Legal Assistant Stole $92 Million
Though SanDisk did not respond to a request for comment for this story, the company highly praised the Lee and Li when it announced the deal on Nov. 15, 2003. “We do not believe that the acts of a single rogue employee should alter the 40-plus-year solid reputation of one of the region's premier law firms,” then–general counsel Charles Van Orden said in a statement at the time. “In the past several weeks, we have come to know several of the firm's fine partners. As we pursue extensive new opportunities in Taiwan and mainland China, we look forward to continuing our relationship with the firm.”
The agreement required major sacrifices at Lee and Li. All of the partners contributed to make the initial $20 million payment to SanDisk, and none drew a profit share in 2004. Hsu retired from the firm soon after the incident, and Chen and Li, the two remaining senior partners, agreed not to take a profit share from the firm for the next four years, until the second phase of the repayment was complete.
During this time, though, all the firm’s associates and administrative staff were paid all the compensation they were due, including year-end bonuses. New partners promoted or recruited after the incident were also not required to contribute to the SanDisk payments. Such steps helped keep lawyers from leaving and made it possible for the firm to continue to recruit top talent.
In that way, Lee and Li managed to avoid the downward spiral of many Western firms facing massive liability. The largest public settlement paid by a U.S. law firm appears to be the $81.6 million that Dallas’ now-defunct Jenkens & Gilchrist agreed to pay investors suing the firm over illegal tax shelters it had blessed. That firm also agreed to pay the Internal Revenue Service another $76 million. The legal troubles hanging over Jenkens & Gilchrist led to an exodus of lawyers, with the firm’s head count falling more than from 611 in 2001 to 285 in 2006. It closed in 2007.
Lee and Li spent all of 2004 reviewing the firm’s internal controls. Partner Nigel Li led a group of partners and consultants that, after over 30 meetings and discussions, determined that Liu was able carry out his scheme because the firm’s management was overly centralized. More junior partners weren’t empowered to supervise staffers like Liu, and senior partners were too overstretched to monitor their activities. They decided to open up both the firm and its management, drafting a new partnership agreement that broadened firm equity, decision making, profit-sharing, and accountability. The number of practice groups was also increased from five to over 20 to give more partners management responsibilities.
An 11-member executive committee was established to take over the management role previously exclusively held by three senior partners. Chen was elected managing partner and chief executive officer of this committee, with Nigel Li named as his deputy. Kwan-Tao Li retired in 2009 but remains a chief counselor.
Though the firm still doesn’t have insurance, Chen says partners have pooled some of their own money as “self-insurance.”
“It’s more of a symbolic gesture, but in case something happens, at least we’ll have something,” he says.