Arkansas Teacher Retirement System halts referral fees after discovery of $4.1M paid to Texas lawyer

The Arkansas Teacher Retirement System has directed its law firms not to pay any referral fees, after a special master's investigation discovered a $4.1 million referral fee paid to a Texas lawyer as part of a $300 million lawsuit settlement involving the system, Executive Director George Hopkins told lawmakers on Tuesday.

Any fee that is shared by a law firm with another firm in cases for the system has to relate to work done, be reasonably proportionate and "just can't be just what they call a blanket referral fee," he told the Joint Committee on Public Retirement and Social Security Programs and Joint Performance Review Committee. The committees held a joint three-hour public hearing on the system's involvement as lead representative in class-action lawsuits. The special master's report was critical of the referral fee paid.

Hopkins repeatedly said that until a special master raised questions about the referral fee, he didn't know it had been paid to Texas attorney Damon Chargois as part of $75 million in attorneys' fees awarded in the settlement with Boston-based State Street Corp.

In addition, he said his understanding is that Chargois also was paid a total of "somewhere around $1 million" in referral fees in six other cases in which the Labaton Sucharow law firm filed a lawsuit on the behalf of the retirement system.

The teacher retirement system is state government's largest such agency, with about $17 billion in investments and more than 100,000 working and retired members.

The Labaton Sucharow law firm filed the lawsuit on behalf of the teacher retirement system in 2011, and U.S. District Judge Mark Wolf approved the settlement in 2016. Wolf later appointed retired federal Judge Gerald Rosen as special master to investigate the attorneys' fees after the Boston Globe newspaper raised questions about some of them.

Rosen has recommended that the three law firms involved disgorge more than $10 million in attorneys' fees, including the $4.1 million referral fee paid to Chargois. The law firms are Labaton Sucharow, Thornton Law Firm LLP and Lieff Cabraser Heimann & Bernstein.

Labaton Sucharow has contended that Rosen wasn't satisfied with only finding a self-reported inadvertent billing error. The firm said Rosen suggested that the lawyers engaged in questionable conduct by paying a referral fee, although the payment was permissible under Massachusetts law.

State Rep. Doug House, R-North Little Rock, said, "You can't share lawyer fees with people that don't do any work on the case, and Chargois and [Tim] Herron did no work on the case, yet they collected $4.1 million."

Chargois and Herron were once law partners.

Hopkins said the special master's report is clear that the $4.1 million referral fee was not paid to "this Herron guy."

"You also have to understand a large part of this [special master's report] record has remained under seal and there are things in the record that I know that I can't tell you," Hopkins said. "I know what the money was spent on by Mr. Chargois. I can't tell you because I am not under court order to do so. But I can tell you this, that when it comes out, I think you will not be unhappy about the things that Rep. House tried to connect the dots on.

"I think you'll see the dots don't connect," Hopkins said.

Afterward, Labaton Sucharow said in a written statement: "Mr. Chargois informed Labaton that he was no longer in partnership with Mr. Herron and that Mr. Herron did not receive any portion of the referral payment. ... There is no evidence that any of this payment was used to influence any public official."

Labaton Sucharow became one of the teacher system's securities monitoring firms in 2008 after the system issued a request for qualifications under then-Executive Director Paul Doane. Hopkins started work for the system in December 2008, he said. Hopkins said he later approached the system's then-four security monitoring firms about filing suit against State Street Corp. and only Labaton Sucharow was interested. The system's board of trustees approved the lawsuit.

Last month, Hopkins told the system's trustees that he told the federal judge that then-state Sen. Steve Faris, D-Malvern, introduced the Labaton law firm to Doane in 2007, based on documents that he has reviewed.

Faris, who serves on the board of trustees for the Arkansas Public Employees Retirement System, said last week that he called Doane at the suggestion of a friend, Herron, on behalf of Labaton Sucharow. Faris said he indicated the law firm's interest in becoming a securities monitoring firm and told Doane that "what you decide is your business."

Faris said Herron is the nephew of Gordon Powell, who formerly worked for the state House during sessions and was board president at Central Arkansas Telephone Cooperative, where Faris served as the manager and which Hopkins formerly represented as attorney.

Hopkins said he told the special master that he had never met Chargois. He said he later learned that Chargohas contended that he introduced himself to Hopkins one time in the back of a courtroom in California.

"I still have no memory of that," Hopkins said.

"As to Mr. Herron, if he walked into this room I wouldn't know him," he said in response to question from Sen. Jason Rapert, R-Conway.

He said he has never used Faris to provide information to Herron.

Hopkins said he didn't know that Powell, a former Hot Spring County justice of the peace, was Herron's uncle until he read that in the newspaper.

Rapert asked if Herron is the same attorney who provided an apartment to then-state Treasurer Martha Shoffner for a few years and later rented a separate apartment to her before she resigned from office in 2013.

Hopkins said he read about that in the Arkansas Democrat-Gazette in 2013, "but I don't have any personal knowledge of that."

Rapert questioned whether Labaton Sucharow hosted a fundraiser for Shoffner in New York City and gave her several thousand dollars in campaign contributions when she was serving on the Arkansas Teacher Retirement System's board of trustees.

"I don't know that," said Hopkins.

Labaton Sucharow said it never held any fundraisers for Shoffner, although its employees may have contributed to her campaign.

Lowery asked Hopkins about the law firm providing several thousand dollars in campaign contributions to Malvern Democrat David Kizzia when he ran for the state House of Representatives several years ago. Hopkins said he had nothing to do with the contributions.

Labaton Sucharow said in a written statement that some attorneys in the firm chose to support Kizzia, "whose opponent was Loy Mauch, a neo-Confederate who wrote that Jesus condoned slavery and that Abraham Lincoln was a Nazi and a Marxist.

"This election garnered national attention," the firm added. "However, George Hopkins has never once asked us to make any campaign contributions."

A Section on 07/18/2018

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