Locke Lord Brings in New London Management After 'Law Firm's Nightmare' of Record SDT Fine

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James Channo.[/caption] Locke Lord has appointed London corporate partner James Channo to take over as managing partner of the US firm’s City base, with the move coming after the firm received a record £500,000 Solicitors’ Disciplinary Tribunal (SDT) fine last week. Current London chief Michael Collins, who has led the London office since mid-2015 and was not at the helm of the firm during the events that incurred the SDT fine, will step down at the end of the year and move to Locke Lord’s Dallas office. Channo is currently co-chair of the firm’s international transactions practice for Europe, Africa and the Middle East and a member of the firm’s executive committee. He joined Locke Lord in late 2012 from the London firm Fox Williams, after Locke Lord formally opened its London office earlier that year with the hire of a team from Salans. The London management change comes after Locke Lord was fined £500,000—double the previous SDT record—after admitting a number of failings relating to its supervision of former London partner Jonathan Denton. Denton left the firm in 2015 after running what the SDT described as a “dubious” £21 million ($27.83 million) investment scheme through the firm's client account for more than two years. The London office was led from its 2012 launch until June 2015 by former Salans global managing partner Roger Abrahams, who has since left the firm. Finance partner Denton, who joined the London office shortly after its launch, operated the scheme through a company named Ikaya, which was incorporated in 2012 with Denton as sole director and his wife as company secretary. He also served as client partner for Ikaya—an issue the firm later admitted had created “a certain mixing” of his roles. While approximately £21 million was paid into the firm’s client account by investors, the SDT stated that “there did not appear to be any verifiable returns.” Following a series of investor complaints and inquiries by the FBI, the Metropolitan Police and the North Yorkshire Police—some of which were fielded by Denton himself—he was fired by the firm in July 2015 and arrested at Birmingham Airport that October. Disputes partner Collins relocated from the United States in the summer of 2015 to assume leadership of the London office. The SDT fine has been described by DAC Beachcroft professional indemnity partner Philip Murrin as a “law firm’s nightmare.” “There are potential criminal issues," said Murrin, who is not playing any role in the case. "If the police and Crown Prosecution Service pursue matters, one would imagine that the potential severity of the issue might warrant a custodial sentence if guilt were to be established.” One former Locke Lord London partner described the office as “shambolic,” highlighting a lack of clarity around the procedure for dealing with such concerns. “There didn’t seem to be any systems in place to deal with issues like this or, if there were, they were not policed and monitored,” the former partner said. “If the FBI and police tell you that you have got an issue and the partner potentially causing issues is put in charge of resolving them, you are not being run properly.” Another former Locke Lord partner said that the management in the London office was “out of its depth.” “There was an effort to shield these problems from view. I knew there were issues, but whenever I tried to find out what was going on, nobody would speak about it. I learned more about what had happened from reading the SDT judgment than from internal communication.” Multiple GCs and professional negligence partners said that they would expect Locke Lord to conduct an internal inquiry into the running of the office, and highlighted the damage done to the firm’s reputation. “With any risk management, the key word is management—it is a question of confining the risk through a proper system and potentially, personnel changes, because you cannot eradicate it," said Jarret Brown, Mishcon de Reya General Counsel and compliance officer. "To do that you would have to shut the office down and pull every phone and every computer and then you quickly don't have a business.” A general counsel at an international law firm said a regulatory failing this severe should prompt a root cause analysis. "Something like this coming out makes us all look at our own firms,” the GC said. One former Locke Lord partners said widespread personnel changes at the firm are unlikely as “the Texan headquarters does not want to lose face.” “This has hit people in the office hard, and from what I have heard it is a demotivated setup in London,” the ex-partner added. “Everybody is asking what was going on in that office because they have lost a lot of people and are seen as being a diseased ship.” According to Companies House, four partners have left the firm this year. The firm's website lists 28 lawyers in London, including 13 partners. Locke Lord merged with Edwards Wildman Palmer in 2015, but the bulk of Edwards Wildman's London partners did not join and instead left to join Cooley's new London office. A Locke Lord spokesperson said the matters investigated by the SRA concern the actions of Jonathan Denton and relate only to clients for whom he worked. "None of the firm’s other clients were affected by Denton’s actions," the spokesperson said. "We regret what has happened, but we are pleased to note that the SRA accepted our position that the firm and its senior officers did not act dishonestly or with conscious impropriety, or turn a blind eye to Denton’s conduct. The spokesperson added that after Denton’s departure from the firm in October of 2015, steps were taken to review existing practices and procedure. "A number of changes and improvements were made, the spokesperson said. "We remain committed to ensuring that we are at the forefront of best practice, that we uphold the legal profession’s high standards, and that this situation does not arise again.”