Here’s some terrible news sure to send you into a downward spiral ending on cold tiles of the Bear Stearns’s fourteenth floor men’s room, pants around your ankles and shotgun in hand (which, for some people—non-senior BSC executives—would be considered a bad thing): Jeffrey Epstein accuser, Maximilian Cordero, has broken it off with boyfriend/lawyer/blogger William Unroch. Cordero, for those who might have unconscionably forgotten, is the aspiring model who claims billionaire massage enthusiast Jeffrey Epstein lured her underage self into his den of iniquity on the promise that he and his friends would help her with her career, and maybe even get her into the Victoria’s Secret catalog if Cordero would only “be nice to him,” which, in Epstein-speak, translates to standing around awkwardly while he jerked off into a towel. Cordero’s also the one (alleged) victim, that we know of, who has the distinction of being born a man (having pulled a fast one on Epstein by taking hormone pills since she was sixteen, displaying a rack that impressed many a DealBreaker reader, and using the nickname Max, which could really go either way). No one knows what goes on behind closed doors, but hazarding a guess, we’re thinking it’s a distinct possibility that things started to go south for the couple when it was revealed that Cordero might’ve been over 18 at the time of her run in with Epstein, a fact that slightly undermines the case and the millions of dollars the couple was hoping to gain. That sort of disappointment would put a strain on any relationship, even those not involving trannies, purple vibrators and old men and their toupees. Cordero’s new lawyer is Jonathan Lenoir.

Major Twist In 'Minor' Sex Suit [NYP]

Wall Street abounds with speculation that Greg Fleming, who has managed to hold on to his position as sole president of Merrill Lynch through a whirlwind of management changes, might finally be facing a challenge that could shake him out of his elevated position.

Fleming’s presidency has endured the worst losses in the history of Merrill, internal criticism, and alleged pressure from newly minted chief executive John Thain. Although the Justice Department’s investigation is in its earliest stage, rumors are already spreading, both within and outside of Merrill, that the threat of a criminal investigation might bring Fleming down.

Anyone who has worked on a deal of any size must have wondered at some point what all those lawyers could possibly be doing. The bankers put together the deal. The principals negotiate the gritty details and the final economics. So what are the lawyers doing, other than writing all this stuff down.

It turns out that lawyers like to imagine they are actually adding value to the deal, in part by reducing transaction costs. Now the natural reaction to that kind of statement is: wait, aren't lawyers a transaction cost in themselves? According to the lawyers, however, they are more than a cost center. They are helping make sure both parties have legally enforceable documentation that reflects their business understanding, which in turn reduces transaction costs arising from fears of misunderstandings, renegging and cheating.

But they would say that. Over at our little brother AboveTheLaw there is a slightly less benign view of what happens when the lawyers start carving up the pie. In this case, the pizza pie.

You and a friend go out to eat, and you decide to share a pizza. Each of you hires a corporate lawyer to negotiate its division.

The piping hot pizza is brought out to your table. Before you can eat it, the corporate lawyers tell you and your friend that they must do their "due diligence."

You sit at the table, watching the pizza cool, while the lawyers muck around in the kitchen. You hear the clanging of pots and pans.

After an eternity, the lawyers emerge. Your lawyer informs you that, based upon his comprehensive review, he has concluded that this pizza is made of dough, tomato sauce, and cheese.

Your lawyer then warns you about the pitfalls of pizza consumption. You might get heartburn or indigestion. If you're lactose-intolerant, the cheese might upset your stomach. The pizza may contain trans fats.

Your lawyer adds that, if you eat the pizza too soon after it emerges from the oven, you could burn your tongue. Of course, there's no danger of that now, since the pizza grew cold a long time ago.

Then your lawyer turns to the lawyer for your friend. It's time to negotiate. They step outside the pizza parlor and argue, in animated fashion, for half an hour.

The oil on the surface of the pizza is starting to congeal. Your stomach is grumbling audibly.

Finally, the lawyers return. They have concluded that you and your friend should divide the eight-slice pie evenly, fifty-fifty. After each lawyer takes out his one-slice fee, that leaves you and your friend with three cold, soggy slices apiece.

"First, Kill All the Transactional Lawyers?" [AboveTheLaw]

The recent disclosures about backdating at Apple and the receipt by Steve Jobs of backdated options grants seems to have created an entirely new line of legal defense: if Steve Jobs did it, it can't be so bad. And, as we've discussed at length, it's probably not a bad thing if Jobs role in backdating helps the public understand move away from the impression that backdating is akin the embezzling. Yesterday's Wall Street Journal editorial page ran a story by two Skadden Arps lawyers representing the former CEO and chairman of Brocade Communications attempting to piggyback on Jobs popularity to exonerate their client.

Steve Jobs recently became the latest chief executive thrown into the options-timing imbroglio. Apple disclosed that its CEO was "aware or recommended" favorable grant dates on option grants to employees, but that he did not "receive or benefit" from any of the grants or "appreciate the accounting implications." Apple's board concluded that Mr. Jobs had done nothing wrong, and emphasized its "complete confidence" in its CEO. The markets followed suit. Rather than fret, investors actually bid up Apple's stock by more than $5 per share.

Given the stock bump, the board's exoneration and Mr. Jobs's lack of accounting experience, could this possibly be a case of criminal securities fraud? Believe it or not, in the minds of some prosecutors applying a far-reaching and unproven theory of fraud, it is. Just last summer, the government indicted Gregory Reyes, the former CEO of Brocade Communications, despite the fact that Mr. Reyes, like Mr. Jobs, was a non-accountant who didn't personally benefit one cent from the option grants at issue.

The problem with the government's theory is that it conflates books-and-records violations with criminal securities fraud. In the process, the government untethers securities fraud from the legal elements that help safeguard executives from conviction for inadvertent accounting violations resulting in little or no harm to companies or to investors.

One irony of this line of reasoning is that it might work the other way around. It may increase pressure on the SEC to bring charges against Jobs in order to demonstrate that "Jobs did it" is not a workable defense.

[Disclosure note: John Carney formerly worked for Skadden.]

Should Steve Jobs Go To Jail [Wall Street Journal]

Lawyers representing two sets of Amaranth investors have said they may not sue the failed hedge fund, Investment Dealers’ Digest writer Dan Freed reports.

Scott Berman, an attorney with Friedman Kaplan Seiler & Adelman who represents investors in Amaranth, sees a possibility that no one will sue the hedge fund over its loss of more than $6 billion in about a week in September. (The fund took the hit after it lost a massive trading gamble on natural gas prices.)

"If we found there was fraud or that they deviated dramatically from what they promised in the offering memorandum, we could make a case, but we haven't found that yet," he says.

Another attorney, Sean Coffey of Bernstein Litowitz Berger & Grossman, who represents the San Diego County Employees Retirement Association, also holds out the possibility that his client will not sue. "SDCERA continues to evaluate its various options," he says, "but no decision has been made yet whether there will be litigation and, if so, who will be sued."

Hold on a minute. Where are people finding these so-called lawyers who cannot come up with a cause of action after a fund loses $6 billion? Isn't that what lawyers do? Or is that just people who get to call themselves Attorney General?

Perhaps even more importantly, IDD also reports that on Monday Amaranth sent letters telling investors that their long awaited distributions were on the way.

Investors have some reason for cheer, however. On Monday, Amaranth sent them letters indicating that they would receive their first distributions since the blowup, according to executives close to two investors. The executives gave differing accounts of the size of the distribution - one says it is about 15% of remaining accounts, and the other says it is around 21% - but both say further distributions are planned for next month.

Amaranth Fallout Could Hold Surprises [Investment Dealers' Digest subscription only]

Remember that video of two Bank of America employees singing a bastardized version of U2's "One" to celebrate the merger of BofA and MBNA? The one that kind of made you cringe and hope you never have to go to another one of these corporate homecoming rallies again?

Yeah, well, it made Universal Music Publish Group cringe too. Last week a lawyer for Universal, which is the catalog owner and administrator for the song, posted a cease and desist letter in the comments section of the music blog Stereogum. But far from ceasing and desisting, the BofA song has found new life in the comedy of David Cross. The video above shows Cross performing the song at the Comix comedy club a couple of weeks ago. And this morning Stereogum posted another video of Cross performing the song along with Modest Mouse's Johnny Marr at the Bowery Ballroom.

After the jump, we bring you the c&d from Universal's lawyer.

Lyrics Celebrating Bank Merger Impress Only Copyright Lawyer [New York Times]

Johnny Marr & David Cross Cover Bank Of America's "One" [Stereogum]

The San Diego Country Employees Retirement Association, which lost more than $100 million in the Amaranth collapse, is considering bringing a lawsuit over the loss, Josh Gerstein at the New York Sun reports. Uh-oh. This may prompt a series of lawsuits, as Amaranth’s investors may find themselves in a race to the courthouse to grab whatever dollars might be left over—either at Amaranth itself or with its money managers. There’s a limited pool of money out there, and an almost unlimited number of plaintiffs lawyers who will be all too eager to carve legal fees out of the carcass of Amaranth.

The big looming threat—fraudulent transfer lawsuits. What happens if a court decides that Amaranth shouldn’t have liquidated its assets on the way out? The picture of our courts second guessing Amaranth’s investment and divestment decisions, and also deciding on the legality of Amaranth’s end days redemptions and spending is not a pretty one.

Lawyers Circle After Failure Of Hedge Fund
[New York Sun]

As expected, a federal judge voided Ken Lay’s conviction yesterday. The founder of failed energy trading outfit Enron had been convicted by a Texas jury of conspiracy and fraud for his role in the 2001 collapse of the company six weeks before his death. The judge in the case ruled yesterday that because Lay died before having a chance to file for appeal, the conviction had to be set aside.

Of course the real deal here isn’t about freeing Ken Lay’s ghost from the calumny of criminal conviction. The public perception of his role as a villain in one of the biggest corporate scandals ever will likely survive any legal technicalities. Like so much else, this is really about money. You see, the decision will make it far more difficult for the government to order the forfeiture of the $43.5 that prosecutors say he pilfered from Enron.

Which isn’t the say that Ken Lay’s heirs can rest assured that Lay’s fortune will be theirs to keep. Civil suits will proceed apace, and often these do not require the presence of a defendant in the way a criminal trial does. Yes. You read that right. You and your estate can be sued even once you’ve taken shelter in the grave. We’ll leave the legal technicalities to the specialists over at AboveTheLaw, though.

Later today we’ll check in with the various Ken Lay Lives factions to see how the “living Ken Lay” is reacting to news that his alleged alleged death has vacated his conviction.

Judge vacates Ken Lay's Enron conviction [Houston Chronicle]

The Hewlett-Packard mess is rapidly turning into a bloodbath. Board members who leaked to the press have been accused of breaching confidentiality. The non-executive chair Patty Dunn may be ousted when the board resumes its conference call this afternoon. We’ve even heard a few shots at the journalists covering the story—mostly, that journalists will do anything to defend leakers, attack those who seek to plug leaks and are really just interested in this because a few journalists had their phone records purloined.

But if anyone is getting heat for the mess more than Patty Dunn, it seems to be Silicon Valley super-lawyer Larry Sonsini. In passing conversation over the weekend we were told by more than one person that between his firm’s involvement with backdating companies and the H-P scandal, Sonsini may be becoming an issue, a liability, a toxic lawyer.

Rich Karlgaard uses his Digital Rules column on Forbes.com today to label Sonsini “The Bad Guy in the H-P Mess.” He goes on to call for Sonsini’s head.

Sonsini is a disaster. HP should can him. In the most public way.

Come to think of it, Apple, which finds itself distracted by an options backdating scandal, should fire Sonsini, too.

We’re a bit skeptical about all this because, well, we’ve seen how corporate boards play “blame the lawyers” before and it’s not pretty. In fact, catching the flak is arguably one of the things lawyers get paid to do. But letting corporate managers and board members off the hook simply because their conduct was given the green light by a hand-picked lawyer is not exactly a way to blaze a path toward the land of better corporate governance.

On the other hand, there is something vaguely creepy about Sonsini’s email in response to Tom Perkins inquiry about H-P minions spying on the board. Rather than deal with it substantively, Sonsini warns Perkins that he may be breaching his duty of confidentiality by asking a Georgetown law professor about the practice. Now, we don't know what sort of relationship Sonsini has with Perkins. This could be just friendly advise between two friends. But looked at another way, this could be taken as an attempt to intimidate Perkins into backing off the issue. Which would be a very “bad guy” thing to do.

The Bad Guy In The HP Mess [Forbes.com]

A group called the Center for Science in the Public Interest has filed a lawsuit against the operator of the KFC fried chicken chain, claiming that the use of trans fat from the partially hydrogenated oils used for frying makes eating KFC's friend chicken more dangerous than eating other foods.

Apparently, the Center doesn't believe "delicious" is in the public interest.

US group sues KFC to stop use of unhealthy fat [Reuters on MSNMoney]

Smith Barney has agreed to pay $98 million to settle claims made by class action lawyers, including one who is almost freakishly devoted to Star Wars, on behalf of thousands of current and former brokers that they are owed overtime pay and other reimbursements.

The proposed settlement is the latest and largest by securities firms that contend brokers are exempt from state and federal overtime laws because they are salaried, administrative employees. The brokers' draw on commissions, a monthly loan most receive, qualifies as a salary, they [the class action lawyers] argued...

In February, the UBS Wealth Management unit of UBS AG agreed to pay $89 million in a nationwide settlement to financial advisers who sued for overtime pay and to recover charges assessed by the firm for sales assistants, computers, and trading errors.

Last year, Morgan Stanley agreed to pay $42.5 million, and Merrill Lynch & Co. Inc. acceded to pay $37 million, to settle claims involving only California brokers. Additional claims against the firms are pending in Connecticut, New York and New Jersey.

More settlements are expected. Too bad the story has no direct quotes from Mark "Obi Wan" Thierman. We're sure that at some point Thierman must have greeted news of the settlement by saying "You were right, Master. The negotiations were short."

Smith Barney to pay $98 million [Philadelphia Inquirer]

Everyone hates when lawyers make money. Fortunately, they don't really make that much money at all. At least when compared to the fees of investment banks setting up the deals.

"New York transactional lawyers are extremely busy," [American Lawyer editor in cheif Aric] Press said. "For you and me, what they are charging is a king's ransom, but compared to what the bankers are earning and the size of the deal, the lawyers' fees could often be regarded as a rounding error."

M&A boom provides a bonanza for lawyers [Reuters]

Muffie Benson-Perella (muffie AT dealbreaker.com) is an Associate in the Investment Banking Division of a "Bulge Bracket" bank. She holds a B.A. in French and Art from Vassar College and an M.B.A. from Harvard Business School. Her regular column "Heard in the Suite" is a probing (and, ahem, fictional) weekly look into the secret lives and behind the velvet curtains of the investment banking world.

I saw today on DealBook that first year lawyers are getting bigger and bigger salaries. Chicago firms apparently have raised first year associate salaries to $135,000. In New York it is supposed to be $145,000 or something.

First of all, this isn't a lot of money so I don't see what everyone is upset about.

Second of all, it is too much money to be paying a first year lawyer.