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elections

A former high ranking partner

October 5, 2003

BY ABDON M. PALLASCH Legal Affairs Reporter

When Gery Chico launched his campaign for U.S. Senate last year, he boasted to reporters of his business experience as chairman of the prestigious Chicago law firm Altheimer & Gray.

He doesn't make that boast anymore.

While Chico was running for office, Altheimer & Gray collapsed this summer, closing its doors abruptly after 88 years. Hundreds of employees were left without jobs. Some partners saw their retirement and investment plans go up in smoke. And the finger-pointing -- just who exactly was to blame -- began immediately.

Polls show scant support a year into race
Polls show scant support a year into race

BY ABDON M. PALLASCH Legal Affairs Reporter

Gery Chico was the first Democrat to declare his candidacy for U.S. Senate from Illinois. That was a full year ago.

He was the first to put his ads on television in Chicago. That was just last week.

But he's still polling in the single digits.

On June 27 -- the day Chico and his partners announced they were dissolving the 88-year-old Altheimer & Gray firm -- his press spokesman promised, "This issue will have no impact on the campaign," and so far, none of his rivals have brought it up.

But they privately admit they will -- if Chico ever busts out of the single digits. He's behind state Comptroller Dan Hynes, Cook County Treasurer Maria Pappas and state Sen. Barrack Obama. Most polls have him at 3 percent to 4 percent, along with investor Blair Hull. One recent poll put Chico as high as 7 percent.

"I don't believe in kicking a man when he's down," one rival said.

"I can't believe he's still running," his former law partner Don Reuben said.

Some of Chico's rivals predict he'll pull out in the next few months. But he insists he's in the race to win.

Few deny Chico won the first candidates' debate, held in July. A powerful speaker, well-versed on the issues, his supporters say he'd be a great senator.

California Lt. Gov. Cruz Bustamante endorsed him, as has nearly every local Hispanic elected official.

Chico's mother is Greek, and he'll compete with Pappas for the Greek vote. He already has one big Greek endorsement: Paul Vallas, former Chicago Public Schools CEO.

At the center of the blame game is Chico. As chairman of the firm, he was first among equals -- seven top partners -- who were supposed to handle the firm's finances. And while it's true the firm was hit hard by the weak economy -- the official explanation for the firm's collapse -- critics say Chico and other top partners completely mishandled the emerging financial crisis.

Even as the firm's debt climbed to $24 million, critics say, top partners took $100,000 "advances," kept attorneys on board when there was little work for them, and paid unrealistically high salaries to themselves and favored attorneys.

"The firm ended up where it was because of a combination of mismanagement and malfeasance, a lack of character and team effort," one former partner said. "There was a self-serving club of leadership at the top."

"Chico pretty much abandoned his post," said another. "He was supposed to be chairman of the firm. He stopped. His department fell apart. His business went way down."

Chico's defenders point out that he took a $500,000 pay cut and trimmed the number of lawyers in his department from 15 to nine.

But if the leadership was working to solve the firm's financial woes, others ask, why was there no warning the firm could close?

Gabriel Wujek, head of the firm's profitable 36-lawyer Warsaw office, sat on the executive committee and said he was assured a week before the break-up that the firm was solving its financial problems.

"There was no indication that something like this was coming," Wujek said. "So either it also came as a surprise to the managing partners, or the information was not fully revealed to certain members of the executive committee."

A partner at the London office said, "To give you 24 hours' notice of dissolution for an equity partner, that's outrageous."

Did Chico and others know the firm was dying and conceal it? Or did they believe to the end it could all work out?

"Are they that stupid, or are they totally crooked?" one former high-ranking partner asked. "The answer might be that they're that stupid. Was [Chico] greedy? Yes. Was he a bad leader? Yes. But he had so much help from these other guys. Chico doesn't take the whole fall for this. To have the greed and stupidity to destroy a place in just two years, it's unthinkable."

Said another partner: "I just don't understand how they couldn't have known. These are smart people. If they didn't know, they should have known."

Interviews with Chico's former partners at home and abroad paint a picture of an earnest whiz kid in over his head trying to run a law firm at the same time he was running for the Senate.

"It's very distracting to simultaneously chair a law firm and run for nomination to the U.S. Senate," said Joel Henning, a consultant Chico hired to grow the firm. "But ... he was willing to have his own compensation cut."

Distracted as he may have been, Chico was the most successful rainmaker at the firm, bringing in millions of dollars in business while on the campaign trail and, before that, running the Chicago Public Schools. His defenders note he was not the managing partner responsible for day-to-day operations.

Gery Chico's rise

Through charisma and deal-making ability, Chico became chairman of Altheimer at 44, just four years after he came there in 1996 from Sidley & Austin, a more prestigious firm.

"Nobody leaves Sidley & Austin to go to Altheimer & Gray," a former partner said. "That should have set off the warning bells. He wanted a seat at the table at Sidley. He had a growing business. The graybeards at Sidley patted him on the head and said, 'Someday,' so he came here."

Chico made his name as Mayor Daley's chief of staff in the early 1990s, then as School Board president in the late '90s.

It was a Daley pal, Oscar D'Angelo -- a former Altheimer partner disbarred for giving judges free rental cars from a client, Avis -- who suggested to the firm's managing partner Norman Gold that he hire Chico.

"We were told he was a young Hispanic, politically connected, he's got $2 [million]-$3 million worth of business [a year], a go-getter," a former partner said. "At his high point, he was bringing in $13 [million]-$14 million. Every year, his practice got bigger. He hired more and more people. He was riding high at the School Board. He was getting small pieces of work from great big Chicago companies represented by blue-chip firms. I think they were saying, 'This guy's a comer, so let's develop a relationship with him.' He was handing out contracts at the School Board, and they were being nice to him for that reason. I don't think anything illegal was occurring. He was a comer who could do them some good, could do them some more good later."

Two years after joining Altheimer & Gray, Chico teamed up with three other rising stars at the firm to vote out the decades-old leadership of Gold and Myron Lieberman.

Louis Goldman built the firm's European practice.

"Goldman created a world for us where we had no franchise in Chicago, but we were the best name in Eastern and Central Europe," a former partner said. The firm had offices in London, Warsaw, Prague, Kiev, Bucharest, Bratislava, Istanbul and Shanghai.

Phillip Gordon headed the "hospitality law" division, representing hotel investors. Sy Peck handled mergers and acquisitions.

"At every law firm, the next generation kicks out the old generation," a former partner said. "In the '70s, Gold kicked out [Milton] Gray. Gold and Lieberman ruled together starting in 1980. They were benevolent despots, sometimes more benevolent, sometimes more despotic. The next generation grew up chafing under these guys. They couldn't wait to throw off the yoke of their oppressors. These guys' practices became bigger and bigger. When Chico ascended, that gave them the balls to oust Gold and Lieberman. We had a big party, gave them gold watches."

Goldman and Chico fought over the chairmanship, so all four became co-chairs. Eventually, they gave Chico alone the title and named an executive committee that included them, Wujek, Jeremy Margolis -- a friend of Gov. George Ryan who headed up the litigation section -- and Jeffrey Smith, another whiz kid whom they named managing partner.

Downward spiral

Hit by the bad economy, the mergers and acquisitions business dried up. So did hotel investment. The London office lost $3 million. Political business slowed for Margolis and Chico.

"Once Daley let him know he didn't want him to be head of the School Board anymore, his business went to hell," a former partner said. "He was no longer somebody to be courted. He couldn't do you any good on the School Board contracts anymore. He was no longer even the leading Hispanic. Victor Reyes had become that."

"Hell" is relative: The $6 million Chico brought in in 2002 was more than anybody else brought in.

"Between 1996 and 2003, he brought in $50 million -- he carried the firm," said former partner Bob Markin, former School Board general counsel. Without Chico, he said, the firm might have folded earlier.

Altheimer's lawyers were billing only 1,300 hours a year instead of 2,200. But Chico did not want to order firmwide layoffs.

"I did not want to simply fire people, many of whom would have no place to go." Chico said.

Chico thinned his own ranks. His friend Rolando Acosta left. But other top partners did not cut their departments.

"If they started working on their problem in 2002, getting rid of ... lawyers who had nothing to do but twiddle their thumbs and go to movies in the afternoon and still make $400,000 a year, [the collapse] would never have happened," a former partner said.

The debt

Since 1992, the firm "borrowed from the future," holding the books open after the end of the fiscal year until $2 million more came in, a former partner said. In 2002, he said, "they essentially borrowed $9 million from 2003."

Chico says it was only $6 million.

The firm redecorated and gave hundreds of thousands of dollars to the campaigns of Gov. Blagojevich and Attorney General Lisa Madigan, which may have helped Chico's own campaign. Some top partners took $100,000 "advances."

"These weren't 'advances,'" a former partner said. "If the firm hadn't gone under, they probably never would have been repaid. They would have been treated as bonuses."

Chico said all advances were paid back. And the last advance he took was in 2002, he said.

Two partners said they may file suits alleging the managing partners improperly went years without depositing money withheld from partners' paychecks into retirement and investment accounts. The bank even declared a $1.4 million default because the firm failed to deposit the money into the investment account, a former partner said.

Chico said he does not believe that is true: "Altheimer met its final pension, health and payroll obligations," he said.

The firm's bank is LaSalle Bank, whose CEO, Norm Bobbins, is a top Chico campaign finance coordinator and who also served on the School Board with Chico.

Henning said he could never get detailed balance sheets on the European offices. He and leaders of other Chicago firms say the overseas expansion and the new office in San Francisco drained the firm. Goldman left the firm after other partners complained about the London office's losses.

The firm canceled job offers to eight law school graduates and 10 summer associates. But the managing partners sent out a memo denying news accounts of the firm's ills.

Seven of its real estate lawyers jumped to Greenberg Taurig.

"They got a lot of bad press, and it makes partners nervous," Henning said. "There's a tipping point where some partners start to put their resumes out on the street, then a few partners start to leave, then all of a sudden there's a hemorrhaging, and it's very hard to stop that."

Altheimer's principals met with the firm of Sonnenschein, Nath and Rosenthal to discuss merging. Sonnenschein agreed to take a few lawyers but did not want to merge and inherit Altheimer's debt.

Chico and the others decided to pull the plug immediately. Chico said that gave the best chance for everyone down to the secretaries to get final paychecks and health benefits before the firm went any deeper in debt. Prolonging the end would just make it worse, he said.

"Sometimes management is doing the best you can under the most trying circumstances," Chico said.

THE FIRM THAT FAILED

While running for the U.S. Senate, GERY CHICO suffered a major embarrassment: The prestigious Chicago law firm he headed collapsed. Chico blamed the bad economy. But some angry partners say Chico and his team mismanaged the firm into the ground.

"Are they that stupid or are they totally crooked? The answer might be that they're that stupid. Was [Chico] greedy? Yes. Was he a bad leader? Yes. But he had so much help from these other guys. Chico doesn't take the whole fall for this. To have the greed and stupidity to destroy a place in just two years, it's unthinkable."





 
 












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