Managing the Legal Department of the World’s Most Profitable Hedge Fund Trasncript

Episode transcript:

JOHN QUINN: This is John Quinn, and this is Law, disrupted. Today, we’re talking to a lawyer who has a very important job, at least one very important company, and a non-title but also important role at another super important company in the American, really, the global finance industry. And we’re talking with Shawn Fagan.

He is the chief legal officer of Citadel LLC, the hedge fund, and also has an informal role, but an important role as well, at Citadel Securities, which is the largest U.S. retail equity stock market-making fund or a platform in the world, something like 35per cent, I understand of the U.S. liquid equities of those trades trade on Citadel securities. Is that about right Shawn? 

SHAWN FAGAN: Yes, thank you, John. Thanks for having me here. In preparation for the call, I got some specific statistics today… 

JOHN QUINN: Thank you.  

SHAWN FAGAN: …about Citadel Securities. So, I’m told half a trillion dollars in trades every day. One-third of the US options volume, approximately 30per cent, 23 per cent of the U. S. equity volume every day, and a fifth of the U.S. ETF volume all go through Citadel Securities. 

JOHN QUINN: Incredible. And then Citadel LLC, what I saw on the internet, the latest number quoted was $65 billion under management, the most profitable hedge fund in the world right now.

SHAWN FAGAN: I think that’s exactly right. $65 billion under management, multi-strategy fund. And, we’re pretty proud of the track record of being able to deliver for our investors over, you know, the 30 years that Ken’s been running the firm. 

JOHN QUINN: Yeah, so, I mean, these incredibly important financial institutions, Citadel Securities, I know, some might raise the question, is it too big to fail? How important is it? I mean, it’s become such an important institution. I assume Shawn, there is no legal risk whatsoever associated with being the chief legal officer at Citadel LLC and having the role you have at Citadel Securities—no reason to lose any sleep. 

SHAWN FAGAN: I sort of think of myself as having 4 clients.

There’s obviously Citadel, the hedge fund. There’s Citadel Securities, the market maker. But then also just by virtue of having worked with Ken Griffin, the founder of both for so long, there’s a decent amount of my time that is also spent doing legal work either for Ken personally or Ken’s family office.

And, you know, Ken’s legal work involves both sorts of personal things. He’s famous recently for purchasing the Stegosaurus and loaning it to the Natural History Museum in New York and his philanthropic and political activities. So I ended up with sort of the four clients and yes, I wouldn’t say I stay awake at night worried about the risk, but I’m certainly kept very busy.

JOHN QUINN: I have no doubt. Let’s take a step back and find out a little bit about you. Are you married? 

SHAWN FAGAN: I am married, celebrating my 25th anniversary, and heading off on a trip next week with my wife, Laura. 

JOHN QUINN: Congratulations. And children? 

SHAWN FAGAN: Twin girls, 22 years old, Hadley and Morgan. And they actually listen to podcasts a lot. So I’m going to try to get them to listen to this one. 

JOHN QUINN: Well, maybe I’ll pick up two more listeners here. You live in Miami. I assume you moved down with a lot of other people in the recent past with the move of Citadel’s headquarters from Chicago to Miami. 

SHAWN FAGAN: I will be happy to report to the tax authorities that I live in Miami, but I still have a house in Chicago. We purchased a condo in Miami. I look forward to sort of getting there and being able to move in, but that’s probably a couple of weeks away or a couple of months away. 

JOHN QUINN: You know, our colleague, he is of counsel at our firm, Francis Suarez is the mayor of Miami. And of course, he takes credit for this. According to him. He’s created this environment where Citadel, Goldman Private Wealth, Toma Bravo and so many other financial companies have moved to Miami. I won’t comment on that. I do think it’s a great city. It’s become a better city and it’s an exciting place to go.

By the way, I will say to you and say to listeners. I just recently had Mohs surgery on my lips. So, if it sounds like I’m slurring words a little bit, it’s because I am and it’s something I’m recovering from. It’s not serious, but it’s fortunate that this is not a video because you’d see some really ugly stitches on my lip.

SHAWN FAGAN: John, you look great and you sound great. 

JOHN QUINN: Thank you, Shawn. So let’s talk a little bit about your career. Tell us a little bit, how did you get to this point? You have this incredible job, an important job, but at some point, you were just a lowly undergraduate somewhere with maybe the idea that you wanted to become a lawyer or you weren’t sure. How did that all come about? 

SHAWN FAGAN: Yeah, so, you know, I’m 55 now and I’ve sort of hit the point where more and more young law school students or whatever will be introduced to me and ask that sort of question. I had no plan and no design. I hate to say, and that’s sort of a consistent thing. I sort of tell people I never really planned to be a lawyer.

When I was an undergraduate, as a motivational tool, I chose the target of getting into Harvard Law School as something to drive me to do well in classes. And, at the end of my undergraduate at the University of Michigan, didn’t really find any great job opportunities, ended up going to Harvard Law School.

It seemed insane to turn that down as an opportunity. And, I always thought I’d be a professor or go into business. But, the truth is, I really enjoyed the study of law. I loved law school and I spent the first year terrified that I was going to fail out. I am a public school kid from Detroit. My dad was a schoolteacher.

Mom stayed at home and I was all of a sudden thrown into the law school class with all these kids who went to Princeton and Harvard and all these fancy schools. 

JOHN QUINN: You know, I had this exact same experience. I’m from a small town in Utah. I went to a small college in L.A. that nobody’s ever heard of.

I got into the Harvard Law School, and my feeling was in the first year, I don’t belong here. All these kids had gone to these elite boarding schools, like our mutual friend, Bill Burke, you know, there were a lot of people like Bill there. And I thought this is not going to end well. I thought I would flunk out. 

SHAWN FAGAN: Even Bill’s very down to earth relative to a lot of people there. During my first year there, I filled out the application to transfer back to the University of Michigan for law school, in part, because of that reason. Jack Smith, you know, President Trump’s nemesis lived down the hall from me and I remember he was part of the betting pool, that I would be the worst performing student in the law school class. And, I ended up doing well and then figuring it out.

JOHN QUINN: Not just doing well. I understand you actually got some of the top grades in your class, you know, you actually flourished at Harvard Law School.

SHAWN FAGAN: I did—particularly early on. I think when I was, probably like you were when you were there, focused and nervous and trying to do the best I could. Not because I thought I was gonna end up on top, but because I was afraid I was gonna be left behind. And I think that same sort of fear motivates you through your whole career. Even if intellectually you can abandon it, emotionally, it’s always still there. 

JOHN QUINN: Yeah. Well, I mean, I was very fearful my first year. Then I got some good feedback on my grades. I did well in my second year. I got on the law review. In my third year, I went down to work at Cravath, I was their first winter associate, and came back just to take, just to take tests. So I got very comfortable that I could do okay at law school. And I assume that happened with you too. And then afterwards, I know you clerked, for now, Douglas H. Ginsburg and on the Supreme Court.

SHAWN FAGAN: Yes, I clerked for Judge D. H. Ginsburg on the DC circuit and then, was lucky enough to clerk for Chief Justice Rehnquist for a year on the U.S.Supreme Court. So two phenomenal experiences and, I think, you know, coming off the back of that, I sort of decided I didn’t want to be an appellate lawyer and I didn’t want to teach or be a professor.

And so I was a little bit lost as to what I was going to do next. I also knew I didn’t want to go to a giant law firm having spent my summers there. They were great for some people, but it just wasn’t my kind of environment. So, I ended up getting sat on a jury in DC, which is amazing when you come in and you say, I’ve just finished clerking for the most conservative man in America, who’s basically written most of the anti-Criminal defendant decisions out there.

They still put me on the jury and that was my first exposure to trying cases with trial lawyers. I came away from that thinking it was a place where good lawyering really mattered and could have a huge impact. And also realizing that I had gotten zero exposure and had no knowledge of it at all in law school.

So in a pretty significant change of direction, I joined a small trial-only brand new litigation firm based in Chicago called Bartlit Beck.

JOHN QUINN: Bartlit Beck, founded by Fred Bartlit, Phil Beck, and some other people who left Kirkland & Ellis to start that firm, it’s been very successful. I don’t know if it’s still called a boutique firm, but a very fine litigation firm. And how long were you there? And what kind of experience did you get there? 

SHAWN FAGAN: I was there for 10 years. I was lucky, or unlucky, I think it actually drove a little bit of both ways, but I spent almost half of my time out on trial. Bartlit Beck was famous, particularly at the time for getting pulled into massive commercial litigation that had been going on for a long time, where nobody anticipated that it was actually going to end up getting tried. But for one reason or another, it’s going to trial. And they realized that the two mega firms that have been battling away for the last five or six years don’t necessarily have the trial experience. 

And so, more often than not, Bartlit Beck would get the phone call three months before trial or whatever and we’d ship off and it truly was a national practice. Portland, Oregon, rural Connecticut, Texas. We were all over the place and it was great. Great experience. Great exposure. The thing I loved most and I miss most about it is just the sense of camaraderie. Being part of a trial team. There’s nothing like that. I know you’ve done it too, but it’s one of the greatest experiences in the world.

It’s just a small team of people. You’re working almost 24 hours a day and you’re dedicated to a pretty binary outcome. It’s either going to be a win or a loss and that part of it was absolutely phenomenal. 

The best case I got to work on there was Bush v. Gore. Of course, we were the trial team that got pulled in just before, I think it was actually Thanksgiving day. I flew down with Phil Beck and we were not a political firm. 

JOHN QUINN: You were in Florida. 

SHAWN FAGAN: Yes, the Florida case. And Phil and three people in my class, Shawn Gallagher, Glenn Summers, and I, were the trial team, along with Fred that tried the case that ultimately went up. We won the case. We won the trial and went up on appeal to the Supreme Court.

JOHN QUINN: Yeah, so,  that sounds like a great experience at Bartlit Beck, a very intense experience going from trial to trial. What did you learn about yourself as part of that experience? What did you learn about what you wanted to do in your career? Because I mean, we now know you decided to leave private practice.

SHAWN FAGAN: That’s a great question. Maybe the most significant thing in terms of my next step is I sort of just learned that I didn’t love trying cases. 

JOHN QUINN: Interesting. 

SHAWN FAGAN: I found the whole process pretty boring.  In terms of litigation, I love the beginning of the case when you mapped out the strategy and nobody really loves the discovery in the middle part of litigation.

So, I certainly didn’t love that, but then everybody would get super excited to go off on trial. And I think in those 10 years, I probably got more trial experience than virtually anybody else in my class. You know, early on, it was often just part of the broader team, but by the end it was, you know, up talking to the jury, doing all the work.

And, I just found that in a three-month trial or two-month trial or whatever, there are only a few inflection points that really make a difference. And there’s a lot of other times when you’re just making sure nothing goes horribly wrong. You have to enter the evidence. You have to make the record. And I found all of that to be kind of tedious. And it’s at that point, you know, talking to some of my colleagues there, I kind of realized, Hey, I probably shouldn’t spend my life as a trial lawyer. 

JOHN QUINN: You know, people who try cases, you tend to remember the high points. You tend to remember the openings. You tend to remember the great voir dire you think you did. You remember the closing, the great cross. 

But you forget about, there is a lot of tedium in any trial where you have to put evidence in, that you have to put on a direct of a witness that isn’t that important or cross witnesses that aren’t that important that you have to do some kind of, you know very predictable things like the other guy gets up and he starts, you know exactly what he’s gonna do.

SHAWN FAGAN: Yes, 

JOHN QUINN: You could switch roles. You know what he’s gonna do, he knows what you’re gonna do. I gotta do my thing, you gotta do your thing. I mean after you tried enough cases there’s a routine aspect to it. And, the part that I find personally challenging is that there’s somebody there who’s telling you that you need to be at this place in this courtroom from this hour until I tell you, you can leave. And that’s going to happen day after day after day. And I get tired of that life. 

SHAWN FAGAN: One hundred per cent And my girls had just been born, not long before that, they were premature. It was kind of a tough thing. And I spent most of the time, right after they were born, off on trial in Connecticut. So, at the same time, I had met Ken Griffin, and represented him in a couple of things for a couple of years.

JOHN QUINN: So, did you meet him as a client? 

SHAWN FAGAN: As a client. This is a moderately funny story, but I remember Phil Beck calling me into his office one day, and I was lucky, Phil gave me great opportunities, and Fred did as well, but Phil called me in and he said, Some rich guy called Ken Griffin. And it’s not the baseball player, and he’s got some kind of financial firm, it’s called Castle or something. And he’s got a legal problem. Fagan, you like dealing with these kinds of guys. Why don’t you go talk to him? So I ended up going over and, you know, it was a pretty routine sort of legal question, but In that meeting and then in the little bit of time working, afterwards, hit it off with Ken and just more than anything else came away, incredibly impressed.

We had worked for a variety of very successful business people, and other incredibly bright people. I’d never encountered somebody quite like Ken prior to that. So, even though at that time, I think he was, you know, not as much of a household name as he is today. I sort of came away from that very interested to continue to work with him 

JOHN QUINN: And at some point, he offered you a job?

SHAWN FAGAN: He did. Yeah. And, it took a couple of years of sort of discussions around that primarily because the idea of becoming an in-house lawyer wasn’t all that exciting to me, but, I think the way kind of Ken phrased it at the end was, listen, come on in here, spend a year here. You can follow some people around.

You can see what we do and we’ll figure out something to do with you. And that sounded to me like an incredibly interesting opportunity, particularly since I didn’t have anything else that was exactly screaming for me and that was 20 years ago this month. I’m on my 20-year anniversary this month and I joined Citadel and, you know, I’ve never really looked back. 

JOHN QUINN: I mean, how, how large was it at the time? What was the AUM at the time when you joined? 

SHAWN FAGAN: No, I thank you for asking that. I got that today too. It was just under $12 billion and Citadel Securities barely existed. If it existed at all at that time, it certainly wasn’t called Citadel Securities. Our headcount was only about a thousand people and heavily Chicago-based. So fast forward today, over the last 20 years, that $12 billion turned into $65 billion, that 1,000 people turned into 4,900 people split across Citadel and an entirely new business that we talked about earlier, Citadel Securities.

JOHN QUINN: It’s pretty amazing. And a lot more algorithms too, I’m sure. 

SHAWN FAGAN: A lot more algorithms and the transformation of finance,  over that time period so that it is much more based on algorithms. I mean, certainly, we became more involved in that ecosystem, but I think that ecosystems also grow. 

JOHN QUINN: Yeah, we definitely want to talk about that.

You clearly had a front-row seat on major incredible changes, which are still ongoing and which I think if anything are accelerating now, what was your title when you first joined? 

SHAWN FAGAN: I have no idea. 

JOHN QUINN: Did they have a general counsel? Were you the general counsel?

SHAWN FAGAN: I was not the general counsel. There was a general counsel, Adam Cooper. I probably was a deputy general counsel or something along those lines. I guess another thing I’d say is I’ve never really been terribly focused on titles. At some organizations, they matter tremendously. At Citadel, I’m happy to say, I think it’s a pretty flat organization, very meritocratic organization.

And, I listened to one of your earlier podcasts and somebody said something that I thought was pretty good, which is, “You’re not a leader by virtue of the fact that you’re told you’re a leader. You’re a leader by virtue of the fact that people will follow you up the hill.” Anyway, I’ve always tried to behave in a way that’ll get people to follow me up the hill.

JOHN QUINN: Well, I mean, we do know your title now at Citadel LLC as, Chief Legal Officer and you’ve told me maybe before we started that at Citadel Securities, although you don’t have a formal title, if there’s some significant issue there, you’re likely to be consulted and have some involvement. 

Tell us about your, about your department now. How many lawyers do you have in the legal function? And how are they organized and how does it function? 

SHAWN FAGAN: So that’s a great question. These days I think if you count up the entire… just to make it a more interesting answer in some ways, I’m going to include the Citadel legal and compliance team and the Citadel Securities legal and compliance team as well and in addition to sort of your straightforward Legal compliance, I’m also responsible for sort of regulatory affairs, regulatory engagement, regulatory policy, which the contrast between the Biden administration and then what we’re seeing today with the Trump administration is keeping those folks awfully busy.

It’s probably in total about 160 people across those different groups. One of the things I would say that I’ve learned, and I try to keep it organized, in a way where a colleague recently used this term, distributed leadership. So I’ve really tried, and I think our department’s working exceptionally well these days. I found exceptional people with real subject matter expertise in particular areas, and then let them run a function. 

JOHN QUINN: What would be some of those subject matter areas? 

SHAWN FAGAN: So, and I’ll give a shout-out to some of the folks I’ve got to, but Brooke Cucinella is a woman who joined my team maybe two years ago from, she was a partner at a law firm and she runs, she’s a former Assistant U.S. Attorney. She runs litigation and regulatory inquiries, and at a lot of firms, I think that involves reviewing the bills that come in and making sure that you’re not getting overcharged, not much more. 

JOHN QUINN: Or undercharged? 

 

SHAWN FAGAN: We rarely worry about that, but, you know, here the job is leaning in aggressively to make sure we’ve got the right strategy. She’s involved in making sure we win the cases. And it takes a long time to interview and find people who want that job, right? But she’s writing the theory of the case. She’s pushing the lawyers. She’s making sure we’ve got the right people staffed on the right cases. She’s going to the hearings. She’s closely and aggressively involved, almost like part of the trial team. And she’s got a team underneath her that’s engaged in different things. You know, she’s a good example. 

Daniel Lee runs our transactions and deals and, and corporate function. He’s got a long background in private equity. 

David Rusoff is the chief legal officer for Citadel Securities, a long career at a major financial firm before joining here, with strong broker-dealer experience.

But, one of the things I’ve realized recently is I don’t have the bandwidth to dive into every problem. And so you end up really having to build an exceptional team and then vesting them with a lot of responsibility and making sure you calibrate it correctly so that they’re bringing the right things to you. And also that they’ve got a steer from you about what’s important, what your expectations are, how to respond to things. 

JOHN QUINN: Before we had this podcast, you gave me some notes, some reflections on some of the topics that we’re discussing. One of the things that you said in your notes, which I found interesting, is that you’ve actually found it in your present position to be a little bit isolating, that you don’t have as much interaction with the leaders of the different departments.

You’ve told us you’re a guy who really relished being on trial teams at Bartlit Beck, and you love that comradery. And I’m getting an impression maybe a little bit now of a guy who’s super successful and has made it in so many ways to the top of the profession and the in-house world.

But maybe you’re feeling a little isolated. I mean, can you share a little bit of self-reflection on that?

SHAWN FAGAN: Yeah, I didn’t realize this was going to be so emotionally compelling. No, I think there’s some truth to that. And, I did read, I remember reading something, I’ll call it 15 to 20 years ago, just as I was starting off here, that sort of said, general counsel or the chief legal officer is in some ways, one of the most isolated positions because you have because you’re not involved in revenue generation.

You don’t really have the, you shouldn’t be, swinging up and down in the way that the business does. And, you’re also meant to be the guy with integrity and the guy who’s going to make sure all the rules are followed. And so you have to create a little bit of distance, I think, from some of the other organizations in order to do that effectively.

That’s one thing. And then, you know, when I was on a trial team at Bartlit  Beck, Sean Gallagher was a clerk I clerked with and Glenn Summers, and there was a sense of camaraderie there. And it can be, it can be hard to sort of replicate that a bit. And it’s a little bit inconsistent with the job because you do need to keep a sort of a distance and you need to keep a clear eye on things. So I do think it is true. There’s a little bit of isolation that comes with it. 

JOHN QUINN: What are some of the biggest legal challenges that you face today in your job? 

SHAWN FAGAN: Three things sort of immediately come to mind. One is internationally, and that’s sort of front of mind, I think, particularly with a lot of the Trump administration’s activity. But we operate in markets all around the world, and in particular, I’d say over the last year or two, we have to be very cognizant of the broader geopolitical context as we operate in different countries. U. S. China relationship is obviously one of the important ones that we need to keep an eye on, but also just the relationship with Europe. We participate in the European markets, and so I’d say competing in a lot of different markets in different places and making sure that we’ve got the right teams in each of those is incredibly important.

JOHN QUINN: Maybe the Middle East too. I mean, I saw Ken at FII in Riyadh last fall, and I’m not sure I’d ever seen him there before. 

SHAWN FAGAN: Exactly, and one of the things you have to just keep an eye on is sort of, where is the growth internationally? What markets are developing? And it’s not necessarily even just the markets, but what places are becoming more important if you’re going to participate in international finance? And they can be important for a wide variety of reasons. 

JOHN QUINN: Right. Well, I interrupted you. You were telling us, there were three things that you saw as challenges. The international aspect is one. 

SHAWN FAGAN: So that’s one. A second thing is the importance of technology and engineering to satisfying legal compliance obligations.

JOHN QUINN: That’s a fascinating subject. And because you think about, alright, you’re doing trillions of trades a day, this high speed algorithmic trading. How is it even possible to think about compliance issues, conflicts issues and things like that when it’s all happening in cyberspace? 

SHAWN FAGAN: It’s a world where I’ve got access to the world’s greatest lawyers.

I can get the world’s greatest legal advice, but if I can’t operationalize that against the trading activity with a technology suite that actually works in that context, then the advice is useless. Bridging that gap is something that I think a lot of firms are working on and struggling with within different contexts, but I kind of feel like we’re on the bleeding edge of that at Citadel and Citadel Securities, just by virtue of the volumes.

We talked about the trades we made earlier, the speeds we trade at, the regulatory expectations, and the need to sort of get things. The other thing is that I do this presentation for people on my team every year, but we have unreasonable expectations. We expect, you know, if we’re going to do a trillion trades that every single one of those trillion trades is going to be perfectly marked, recorded, and executed. And, there’s no tolerance there. And it’s a continual effort to sort of ramp that down. 

But man, that’s a huge amount of what we do. And, you know, I’m a lawyer by background. I’m not an engineer. So I end up having to depend on good engineers, and good operational people on my team in order to engage and make sure that stuff gets done. 

JOHN QUINN: I assume that the technology is used not only to execute but the technology is used to ensure compliance and as a check, on these activities and these trades, you know, you’re probably using technology and AI to check on technology and AI.

SHAWN FAGAN: 100 per cent trade surveillance, electronic activity surveillance, right? Which is broader. It used to be. You just reviewed emails. Now there are 1,000 other electronic things. You need to keep an eye on to make sure you don’t have problems with trade secrets, leaving the firm or other problematic activities.

So, I do think going forward, it’s not a terribly exciting field necessarily, but legal operations or the technology and supportive of legal operations is,  absolutely essential and there are a ton of products out there, but there’s a ton of snake oil and vaporware as well. And, quite often you need to build things internally anyway, that’s probably the second of the three things that keep me super busy.

And the third one I would say is sort of along our growth chart, going from a thousand-person firm to a five thousand-person firm. A huge part of that trajectory is how do we scale? 

One of the things that I loved about Citadel early on when I first joined here was the entrepreneurial spirit. The fact that I’d gone to Harvard Law School, Supreme Court, and worked at Bartlit Beck, all these people were smart. I encountered a different level of intellect, drive, ambition, focus, cooperation, and everything when I came to Citadel. And it was this raw energy that was dynamic and quick and could move from one place to the next. And I think that’s part of what has made Citadel so successful was just the ability to pivot quickly and engage and take opportunities and execute on them. And the fact that I used to say my team was a collection of volunteer firemen. So I had a bunch of generalists with high IQ, high integrity and great work ethic. And as problems came up, we’d throw ourselves at that. That doesn’t scale. 

JOHN QUINN: Yeah. 

SHAWN FAGAN: And so now it’s, how do I continue to execute in that same way without losing that entrepreneurial spirit? 

JOHN QUINN: You know, that’s a really interesting problem. I mean, it’s one that I think we face at Quinn Emanuel as well.

We’ve gone from four lawyers to 1,200 lawyers, four lawyers in one location to 1,200 lawyers at 36 in 12 countries. How do we grow and keep that edge? How do we keep, I say, how do we keep the revolution alive? How do we not become flabby, bureaucratic, reactive, and more like just everybody else? And I think that’s a battle that has to be fought every day. 

SHAWN FAGAN: Absolutely. And that old culture, the volunteer fire department, that doesn’t work. We’re in the fire prevention business—is something I’ll say sometimes, for another cheesy line. But it also requires you to sort of build a structure, but it has to be a soft structure.

There’s a great line Fred Bartlit used to say, which was, “if you want to be a good lawyer, you better learn how to use PowerPoint. You better learn how to type. You better learn how to make graphics.” He would take drawing classes so that he could draw better when he was up there. And I think there’s a little bit of that that is necessary as you build out an organization that works is that if I go to Brooke and I say, Hey Brooke, I need you to lean in and help out on this other thing. It’s not exactly in your job title. I need people on my team who say, absolutely. That sounds great. I’m excited. So it needs a structure, but you also need flexibility and a willingness to lean in and sort of solve and do things. 

JOHN QUINN: How important is AI today at Citadel? And how is it being used? 

SHAWN FAGAN: I will profess not to be a precise expert on this, but I think it’s probably worth looking at Ken’s comments on this. AI has a tremendous amount of promise. I think these ideas that we’re going to have just massive trading engines using only AI to sort of drive investment decisions.

I think those are either complete fantasy or at least way off in the future. These days, I think AI is being used here primarily for much more straightforward and routine things. So a fairly basic and straightforward piece of code, might take somebody or a team of people, three weeks to write, and instead, you can get a rough draft out of an AI code writing thing. That’s pretty quick and it’ll be buggy, and it’ll have all kinds of problems, but you’re able to cut that time down by 60 to 70 per cent, maybe even more than that. 

In the legal department it’s very useful for sort of summarizing voluminous things. Yeah, again, with hallucination inaccuracies and so on, there’s still a huge amount of human effort necessary to make sure it’s not junk, but I got a team of folks building a tool using AI that I’m optimistic is going to be very helpful for us. We have a tremendous number of agreements and trading agreements and sort of summarizing those and organizing those in a way far beyond what we had with Westlaw.

JOHN QUINN: That’s our experience as well. We think that we haven’t seen the revolution that a lot of people talk about in terms of legal applications. Yes. There are a lot of things that will save time searching, you know, large data sets of documents and the like, the speed with which that can be done is really remarkable. There are a lot of time savings and efficiency savings, but I don’t yet see associates becoming obsolete in law firms. You hear stories about how the law firms are going to completely be reshaped. That may ultimately happen, but I don’t see the evidence yet. 

Let me ask you about your typical day. For me, I get up in the morning and I think I have a list of maybe six to ten things that I think I’m going to do that day, certain calls, maybe a podcast with Shawn Fagan or whatever. I’ll have a certain list of things that I think I’m going to do that day. Invariably, I don’t, there’s things that I end up spending a material portion of that day on, which weren’t on that list that I didn’t know I was going to get to. Is it like that for you?

SHAWN FAGAN: One hundred fifty per cent. I’m also a list guy.

I keep a couple of different lists, right? So I’ve got like sort of a, these are the things I want to get done this quarter list. There’s a, these are the things I want to get done this week list. And then there’s every day. I’m an overly optimistic person because the frequency with which I find myself copying over my lists is pretty enormous.

It’s also the case that, you know, just things pop up all day. There’s a number of people, you have regular catch-ups with, but there’s also the issues and, oh my gosh, things that sort of pop up each day, or conversations you get drawn into that disrupt your ability to sort of just purely execute against the list you have.

This just brings another thought to mind, which is, you know, we’ve been a back in the office firm since, you know, late 2020. I think one of the first firms back and we’re pretty aggressive, pretty rigorous about making sure people come back and that tends to sort of bump you off of your prescribed list of things, but it’s also invaluable, the amount of information exchanged and the amount of things that sort of get done with those interactions is absolutely enormous. 

JOHN QUINN: That’s interesting. I mean, the serendipity, the people you walk to you run into at the water cooler, walking into somebody’s office. Yes, there is that, but I found during the pandemic, I had more meetings and spoke to more people now who are on the screen. It’s not the same as being in person, but I had more human contact. It’s just so much easier on the screen to get ten people together or six or whatever the number is, which you couldn’t do physically. 

SHAWN FAGAN: I have to say my experience was probably the opposite. 

JOHN QUINN: Really? 

SHAWN FAGAN: For me in particular, I ended up being sort of—my team will make fun of me quite a bit, but I’m all about a marker standing in front of a whiteboard, and getting ten people around the table or six people around the table and working through something.

I think there’s no substitute for that. I think virtually every good thing that’s coming out of our department has its genesis in some or has some significant, productivity contribution that comes from that meeting. And Zoom and Teams and all that are just not a good substitute in my experience.

JOHN QUINN: They’re certainly not the same. They’re not a substitute. I just think there’s another dimension. 

You sued the government. You sued, the SEC, I think? Tell us about that. 

SHAWN FAGAN: Well, we sued the SEC about a reporting regime, CAT. That case is pending. But, we’ve also sued the IRS 

JOHN QUINN: Let’s tell people what CAT is. That’s a consolidated… 

SHAWN FAGAN: Consolidated Audit Trail

JOHN QUINN: So it’s They wanted you to pay for it. They wanted the industry to pay for it too?

SHAWN FAGAN: Exactly. They wanted the industry to pay for it. I think, when it was first proposed, it seemed like an excellent idea. It was going to keep track of trading activity and give the SEC more visibility. Like a lot of things with the government over the last ten years, the costs associated with it ballooned insanely, and they just kept bolting on new data fields and new bits of data that they wanted to collect.

So you actually have this thing now that is incredibly expensive, running hundreds of millions of dollars per year. There’s no congressional appropriation for it. So the SEC went off on its own and invented a way of effectively taxing the industry and investors to pay for it. And at the end of the day, there’s going to be this massive database with all kinds of problematic information in it.

And there’s only so much anonymization that can be done. And the government is not terribly good about protecting huge databases like that. So, we always try to cooperate with the SEC as much as we possibly can. We think it’s a great institution. It’s done great things. It’s responsible for making the capital markets here as strong and vibrant as they are, but CATs were a fundamental problem, particularly the way they were going to pass on the costs. And so we ended up filing a lawsuit on that. And like I said, it’s still pending with that tough decision to make. I think it was, it was, it was not lightly made. I should say, frankly, with the last administration, there were a lot of rule proposals that came out that seemed like solutions looking for problems.

JOHN QUINN: Yeah, private investment world rules that were, I think, abandoned. 

SHAWN FAGAN: We ended up with a lawsuit filed by an industry group, including private equity and venture capital to sort of invalidate those. And a lot of the rules were sort of hastily pushed out, poorly thought out. They were going to cause real damage across the financial markets.

And like I said, they just didn’t really seem to be solving a problem. They almost seem to be ideologically pre generated. So our name wasn’t on those. I think we were proud of the fact that we’re one of the people in the industry. You know, we filed our comment letters. We engaged with the SEC to make sure that our perspective on these rules and the problems associated with them were very clear.

But when the SEC still sort of went forward with them, we were supportive of efforts to bring lawsuits or otherwise, you know, challenge the fact that they didn’t make sense and they were poorly promulgated. The world’s changed now though, maybe. I think everybody’s sort of shocked to see how much it’s changed, how quickly it’s a little hard right now to sort of comment on all the change because there’s such a flurry of activity.

And every day there’s a new development, many of which are unanticipated. Right? And so we’re still trying to figure all that out. Maybe your CAT’s case will be mooted. That’s a possibility. I know, yeah. I know the SEC recently came out with a couple, you know, some modifications to it. It’s really hard to know and there’s an acting chair for the SEC but, I think until they’re up and running with a newly confirmed chair it’ll be a little bit hard to see what’s going on there. 

JOHN QUINN: Right. I mean, certainly, for those of us in private practice it’s clear we’re going to see less enforcement activity. We represent Eric Adams, for example, there’s a lot of cases that are not going to be brought in cases that will be abandoned.

I could mention a couple of cases, but I won’t mention a couple of other very prominent cases that were kind of waiting for the other shoe to drop, but they’re clearly going to be more cases against the government. They’ll just be different kinds of cases. If you look at the list of new filings now, especially in Washington, D.C., it’s one after another of declaratory judgment actions, seeking rulings from the court. That the administration can’t do this. They can’t do that. They can’t do this. Of course, that’s not necessarily our practice area. 

SHAWN FAGAN: It’s going to be fascinating with a bunch of the folks that I clerked with. A lot of people leave the Supreme Court and end up going into appellate law or continue to follow the activity of the court. I didn’t do so much, but I’ve reengaged with some of those people and it’s really fascinating to see some of the legal issues that are going to come up by virtue of this administration and its activity. 

JOHN QUINN: I’m troubled by our Vice President, a graduate of the Yale Law School, making speeches where he says, the judicial branch shouldn’t be telling the executive branch what it can do. I think it doesn’t matter what your politics are, that should be concerning. 

SHAWN FAGAN: So, without commenting on that specific thing. Somebody mentioned that to me this morning. I haven’t seen them, but generally speaking, I do hate it when politicians are out there bashing judges. I also hate the recent. , trend of putting, the name of the appointing president in front of, like, oh, this guy’s an Obama judge. This guy’s a Biden judge. This guy’s a Reagan judge or whatever. I hate that.

JOHN QUINN: Let’s remember Earl Warren was an Eisenhower judge. 

SHAWN FAGAN: A hundred per cent. I think it’s a little bit of a fiction to sort of say that all judges just call balls and strikes, but it’s an important fiction in part because you want judges to aspire to that. One of the things I always hated about legal realism, not to wander into this, but at its ultimate conclusion, it sort of gives judges free rein to impose their policy preferences without any obligation to try to stick with the law.

So I hate that. I hated the talk of court packing toward the tail end of the Biden administration. It’s going to be rough going here for a little bit as the courts are ultimately going to have to figure out the line between executive authority and legislative authority. Can the president fire all these people or is there some obligation to keep them in place?

Do things like impoundment theory, which I’d never heard of before, but can the president impound money that Congress says you need to spend?  It’ll be fascinating. 

JOHN QUINN: Yeah, no, I agree. Any thoughts on what you look for an outside counsel, that people might not have heard before? I’m sure you have some definite ideas about what you’re looking for. 

SHAWN FAGAN: Yeah, a hundred per cent. So I would say particularly these days, again, going back to my sort of delegated authority model, I really try to let my, the heads of my different groups pick the counsel that they’re going to work with.

Brooke, I know we ended up working with your firm a good bit and, in particular Bill Burke on your team. And what am I looking for? I am looking for somebody really committed to winning, somebody who, you know, one of the things I learned at Bartlit Beck, and I think you would say, I’m sure this is true for good folks at Quinn too, is when you get the case, a bad lawyer thinks about the next step and thinks about, Oh, I’m going to write this letter. I’m going to do this. I’m going to do that. I think it’s really important to think, what’s my end game? Where’s this all going to end up? How do I realistically get there? And how do I drive the whole thing there? And you know, it’s a plan that ends up getting changed a thousand times and it’s often got assumptions and other things baked into it that proved to be wrong as you go along the way.

But I’d say one of, one of the most important things for me is a legal team that has that strategic vision, figuring out I’ve been hired, not just to sort of like kick the can down the road and do dribs and drabs of stuff, but rather where does the client try to get to and how am I going to get them there?

JOHN QUINN: Shawn, thank you very much. This has been a fascinating conversation. I appreciate your joining us. Thank you. 

SHAWN FAGAN: Thanks a lot for having me. I enjoyed it. 

Shawn Fagan, chief legal officer of Citadel, the largest hedge fund in the world, also plays an important role at Citadel Securities, the largest market maker in the world.

JOHN QUINN: This is John Quinn, and this has been Law, disrupted.

Thank you for listening to Law, disrupted with me, John Quinn. If you enjoyed the show, please subscribe and leave a rating and review on your chosen podcast app to stay up to date with the latest episodes. You can sign up for email alerts at our website, www.law-disrupted.fm, or follow me on X @JBQlaw or @quinnemanuel. Thank you for tuning in.

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Published: Mar 7 2025