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(This story, in slightly different form, originally appeared in the Legal Times.)

WASHINGTON, DC-In the weeks leading up to the federal government’s takeover of Fannie Mae and Freddie Mac, dozens of top lawyers worked to figure out the best way to save the two Washington-area mortgage giants.

The in-house teams at the US Department of Treasury and the Federal Housing Finance Agency, which is now the conservator for the two companies, were dealing with lawyers from at least nine private firms: Cleary Gottlieb Steen & Hamilton; Wachtell, Lipton, Rosen & Katz; Covington & Burling; Cadwalader Wickersham & Taft; Arnold & Porter; Davis Polk & Wardwell; and Cravath, Swaine & Moore; and McGuireWoods. Representing Fannie Mae at the table was Sullivan & Cromwell chairman H. Rodgin Cohen.

Harold Novikoff, one of the partners who led a 17-lawyer team from Wachtell–working with the Treasury Department–says his group has devoted the past two-and-a-half weeks to “just going flat out at this.” The group helped Treasury decide whether to go ahead with a conservatorship, a receivership or some other option, and Novikoff says the lawyers were working with little to guide them. “This kind of conservatorship action has really no close analogous precedent,” he says. After Treasury decided how to proceed, his team worked on the structure of the deal, though Novikoff will not give details about the deliberations.

The legal shock waves of the Fannie and Freddie bailout will reverberate for some time. Some key members of Congress, including Senate Finance Chairman Max Baucus (D-Mont.) and House Financial Services Committee Chairman Barney Frank (D-Mass.) say they still have questions about the details.

The markets reacted well to news of the deal on Monday, but shareholders, who have lost much of their value, are far less happy. Pension funds, some of the biggest investors in Fannie and Freddie stock, are some of the biggest losers in the deal. Richard Ferlauto–director of corporate governance and investment for the American Federation of State, County and Municipal Employees–says AFSCME hasn’t ruled out lawsuits against the companies’ outgoing boards and management.

Such suits may not be easy: a provision included in the rescue of Fannie and Freddie passed as part of the Housing and Economic Recovery Act in July says the companies’ directors are not liable for consenting to the conservatorship.

THE PLAYERS Some of the attorneys have been involved in bailouts before. Cohen, Sullivan’s chairman since 2000, has long been regarded as the banking industry’s “go to” lawyer. A key player in almost every major bank merger over the past three decades, Cohen has also advised a number of distressed financial institutions, most notably during the Savings & Loan crisis of the late 1980s.

Cohen was a key player in the 1984 rescue of Continental Illinois Corp., a $41-billion bailout that was one of the largest in history. More recently, he advised the board of directors of embattled Bear Stearns Cos. on its bargain-basement sale to JP Morgan Chase in March.

Michael Bradfield, now counsel at Jones Day, was general counsel of the Federal Reserve during the Continental Illinois bailout. He says there are parallels, though the two bailouts aren’t the same. “It’s effectively the same precedent in that the shareholders bore the losses and that seems like way these matters should work,” Bradfield says.

Wachtell partner Edward Herlihy helped Novikoff lead the Continental group, which also included partners Eric Roth, Steven Rosenblum, Philip Mindlin, Richard Kim, Lawrence Makow, Eric Rosof, and Joshua Holmes, of counsel Elliott Stein, and seven associates.

Cleary Gottlieb Steen & Hamilton was counsel to Morgan Stanley, which advised the Treasury Department on the bailout. Washington partner Ken Bachman led that team, which also included DC partners Linda Soldo, Michael Mazzuchi, and Derek Bush, and New York partners Alan Beller and Seth Grosshandler.

Freddie Mac, which declined to comment for this story, has about 90 lawyers in its legal department, including general counsel Robert Bostrom. The company relied on outside help from Covington team led by partner Stuart Stock and including partners David Martin, D. Jean Veta, Scott Smith, J.D. Weinberg, and William Skinner.

Martin says the Covington team was charged with evaluating the bailout legislation authorized by Congress earlier this summer, and advising Freddie’s management on the different possible scenarios. A half-dozen Davis Polk partners also worked on the deal, including John Brandow, Phillip Mills, Nicholas Kronfeld, Luigi De Ghenghi, Randall Guynn, and Jeffrey Small. Cadwalder partner Charles Bryan, the longtime outside counsel to Freddie Mac, confirmed he, too, worked on the matter for the company, but declined to comment. Cahill partner Bart Friedman, outside counsel to Freddie’s independent board of directors, did not return a call for comment.

Fannie Mae, which has 130 lawyers in-house, declined to comment. General counsel Beth Wilkinson had help from Cohen and other lawyers at Sullivan & Cromwell. Fannie’s independent board members turned to Cravath: Litigation partner Robert Joffe has been outside counsel to the board for years, and is taking the lead.

Treasury Department lawyers, including General Counsel Robert Hoyt, Counselor to the General Counsel Stephen Albrecht, and Assistant General Counsel for Banking and Finance Laurie Schaffer “were integral” to the deal, spokeswoman Brookly McLaughlin says, though the lawyers declined to be interviewed. Hoyt, who took over the Treasury GC job in 2006, is a former partner at Wilmer Cutler Pickering Hale and Dorr. He now heads a team of about 2,000 lawyers, including attorneys at the Internal Revenue Service, the Financial Management Service, and the Bureau of Public Debt.

FHFA general counsel Alfred Pollard leads a far smaller department of roughly 40 lawyers and paralegals, but also relied on lawyers from Arnold & Porter. FHFA Spokeswoman Corinne Russell said she could not comment on how many lawyers were involved in the takeover.

NEXT STEPEven battalions of lawyers may not be able to ward of lawsuits in the wake of the takeover. AFSCME’s Ferlauto says that “there is activity going into holding those people responsible for not appropriately providing guidance.” He expects some pension funds to look for ways to sue the outgoing boards and management, and says lack of transparency, inaccurate guidance, fraud, and market manipulation could all be grounds.

Marisa McQuilken can be contacted at [email protected]. Brian Katkin can be contacted at [email protected]. Reporters Joe Palazzolo and Mike Scarcella contributed to this report.

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