…Yuba Superior Court Judge Stephen Berrier has tossed out the vast majority of damages against New Jersey-based loan servicer PHH Mortgage Services. Homeowner Phillip Linza is entitled to only $159,000 in damages, the judge said.”, Dale Kasler, Sacramento Bee

$16.2 million Yuba County mortgage modification verdict mostly tossed out by judge

BY DALE KASLER

DKASLER@SACBEE.COM

10/28/2014

The case was something of a shocker: A Yuba County jury awarded $16.2million in damages to a Plumas Lake homeowner who nearly lost his home to foreclosure after his loan servicer mishandled his mortgage modification.

But the presiding judge has decided the jury got it mostly wrong.

Yuba Superior Court Judge Stephen Berrier has tossed out the vast majority of damages against New Jersey-based loan servicer PHH Mortgage Services. Homeowner Phillip Linza is entitled to only $159,000 in damages, the judge said.

The original verdict, in July, had represented a huge victory for Linza and his lawyers at the United Law Center in Roseville. The attorneys said it was one of the biggest jury awards they’d seen representing homeowners in mortgage-related cases.

The case stemmed from Linza’s personal financial troubles after he bought a home in Plumas Lake in 2006 for $280,000. The salesman filed for bankruptcy protection in 2009, and a year later he got a loan modification from PHH that was supposed to reduce his monthly payments to $1,543 from $2,100. But before long, he was receiving letters claiming he wasn’t paying enough, and within a few months he got a letter demanding $7,056, according to court records.

After months of phone calls and letters back and forth, Linza was unable to resolve the problem and stopped making payments altogether, his laywers said. PHH initiated foreclosure proceedings but stopped after Linza filed suit. He still lives in his home.

The jury awarded $514,000 in compensatory damages and $15.7million in punitive damages. The judge decided the award was vastly overblown. In a written opinion, Berrier said, “There was no evidence that the errors made were intentional or made in reckless disregard of causing emotional distress.”

PHH released a statement saying it was pleased with the judge’s decision. “We take our responsibilities to borrowers seriously and remain committed to meeting all of our obligations as a servicer,” the company said.

Linza’s lawyer, Stephen Foondos, said he was still pleased with the decision, even if most of the monetary damages were thrown out. “The decision was … a great victory for California homeowners who have had difficulty with their bank or loan servicer,” he said. “You now have rights to sue your bank for being mistreated during the modification procress.”

ECONOMY

More Renters, Less Risk for Wall St.

OCT. 28, 2014

Eduardo Porter

ECONOMIC SCENE 

Is it time to temper the American dream of homeownership?

If you want to curb the power of Wall Street and reduce the risk that the financial system will bring the rest of the economy tumbling down again, there may be no other choice.

Consider what happened last week, when regulators pretty much threw in the towel on new rules requiring mortgage bankers to keep on their books a minimum share of all but the safest loans.

The idea was perfectly reasonable — a way to keep bankers’ “skin in the game” to encourage prudence. In the end, however, officials decided that just about all mortgages were supersafe. No need for banks to keep a chunk.

“The loophole has eaten the rule,” Barney Frank, the former chairman of the House Financial Services Committee and co-author of the Dodd-Frank financial overhaul, told my fellow columnist Floyd Norris last week. “There is no residential mortgage risk retention.”

Phillip L. Swagel, an economist at the University of Maryland who was an assistant secretary of the Treasury under George W. Bush, called the decision simply “perplexing.”

The reason for the about-face, though, is not exclusively, or even mainly, the formidable power of the Wall Street lobby. The ability of the financial industry to fend off attempts to hem it in also relies on an argument that is difficult for outsiders to refute: We cannot live without it.

Unable to determine the risk that finance imposes on the broader economy, voters — and the politicians they put in office — have a strong incentive to give the industry a pass.

“What is the cost of a crisis I don’t prevent against what is the cost to tame finance?” asked Alan M. Taylor, an economist at the University of California, Davis. “We’ve only been thinking about this for a short time.”

Mortgage lenders dodged the proposed rule by joining homebuilders and advocates of low-income homeownership to convince hundreds of lawmakers that defining supersafe mortgages as those with significant down payments would curtail mortgage lending to the struggling middle class and poor.

That argument, while only partly related to the notion of requiring lenders to have skin in the game, pretty much stopped a central tenet of financial reform.

The breakneck growth of our modern banking system closely tracks the rise of the long-term home mortgage. A recent study by Professor Taylor, Òscar Jordà of the Federal Reserve Bank of San Francisco and Moritz Schularick of the University of Bonn found that mortgage lending across the industrialized world rose from the equivalent of 20 percent of annual economic activity at the start of the 20th century to about 69 percent in 2010.

In 1928, mortgages accounted for 39 percent of American banks’ lending to nonfinancial private companies. By 2007, on the eve of the financial crisis, the share was 68 percent.

“The changing nature of financial intermediation has shifted the locus of crisis risk towards mortgage lending booms,” the authors wrote. Financial reform that gives mortgages a pass is not going to cut it.

Most Americans have an interest in being able to obtain a reasonably priced mortgage. But there is a fundamental tension between Wall Street’s interests and those of the rest of us.

Financial institutions will naturally prefer to take more risks. After all, for them risk-taking has historically carried a lot of upside and, with taxpayer funds as the ultimate backstop, only a limited downside. Ordinary people have a very different experience.

“Financial deregulation is similar to relaxing rules on nuclear power plants,” argue Anton Korinek of Johns Hopkins University and Jonathan Kreamer of the University of Maryland in a working paper for the Bank for International Settlements. It makes it easier and more profitable for the utilities, their shareholders and executives. It might also help ordinary Americans get cheaper electricity. “However, it comes at a heightened risk of nuclear meltdowns that impose massive negative externalities on the rest of society.”

Tightening mortgage rules would no doubt make it more difficult to buy and sell homes. It would lead to more renters and fewer homeowners.

That might be worth it, though. Germany is doing fine with a homeownership rate of 45 percent, compared with about 65 percent in the United States, which is actually down from a peak of near 70 percent in 2004.

The Explosion of Mortgage Finance

Mortgage lending has led the growth of the financial system since World War II, according to a new study of 17 industrialized nations, including the United States and most of Western Europe.

Source: Òscar Jordà, Moritz Schularick and Alan M. Taylor, National Bureau of Economic Research working paper 20501

Sheila C. Bair, who ran the Federal Deposit Insurance Corporation throughout the buildup of the mortgage bubble and its implosion, argues that a policy of pushing mortgages for every American family is hardly ideal.

“There is this religion about homeownership being the primary path to wealth accumulation — notwithstanding the bad experience we’ve had with it,” she said.

Indeed, in an uncertain economy with so little job security, it makes less sense for policy to encourage workers to lock themselves into mortgages. Even when homeownership is the right call, “I don’t think low-income people should be in private-label subprime mortgages,” she added. That is what the Federal Housing Administration is for.

Yet this is a Rubicon that our elected officials are afraid to cross. “On the margin, regulation does increase the cost of credit in the good times,” Ms. Bair said. “Regulators are battling a political system that wants to let the good times roll.”

Still, many experts say Washington is at least moving in the right direction. “Regulations are putting the system in much better shape than it was,” said Douglas J. Elliott, a former banker at J. P. Morgan who is now at the Brookings Institution in Washington.

This is not merely a self-serving, American view. Across the Atlantic, John Vickers, a professor at Oxford and the former head of Britain’s Independent Commission on Banking, agrees. “I wish there had been greater steps,” he said. “But major steps have been made toward a less fragile system.”

Is this enough to close the gap between Wall Street’s unbridled appetite for risk and the broader public interest?

Recent research suggests the growth of credit increases the odds of a financial crisis. Researchers have also found little evidence that more finance brings faster growth to industrialized nations.

The problem is, as long as we can’t precisely measure the cost of financial excess, we will be prone to believe that the financial industry is simply too fragile to be meddled with.

And with growth disappointing in just about every developed country, many people may be willing, even eager, to roll the dice again.

Despite all the new efforts at regulation, Ariell Reshef of the University of Virginia noted, “there’s maybe a slowdown in the growth of finance, but not a reversal.”

In a study published last year, Professor Reshef and Thomas Philippon of New York University concluded, “If finding more growth opportunities becomes ever harder with development, then a larger financial output and a larger share of income may be needed to sustain growth.”

Professor Vickers cited another paradox. “Ironically, the macroeconomic damage done by the crisis shows how important a well-functioning banking sector is,” he said.

The question is whether our banking sector is well functioning.

Email: eporter@nytimes.com; Twitter: @portereduardo

A version of this article appears in print on October 29, 2014, on page B1 of the New York edition with the headline: More Renters, Less Risk for Wall St..

Markets

Fast Traders Are Getting Data From SEC Seconds Early

Studies Show Lag in Posting to Website

By Ryan Tracy and Scott Patterson

WASHINGTON—Hedge funds and other rapid-fire investors can get access to market-moving documents ahead of other users of the Securities and Exchange Commission’s system for distributing company filings, giving them a potential edge on the rest of the market.

Two separate groups of academic researchers have documented a lag time between the moment paying subscribers, including trading firms, newswires and others, receive the filings via a direct feed from an SEC contractor and when the documents are publicly available on the agency’s website.

The studies found a wide variation in the lag time, from no delay to one lasting more than a minute—a considerable advantage for computer-driven traders. The ability to get the information before it is on the SEC site can give traders precious seconds to act on the news.

When documents carrying good or bad news reach the subscribers early, trading volume often surges in the relevant stocks and prices move, the researchers found. The findings suggest the regulator’s own system is giving professional traders an edge over mom-and-pop investors, the studies’ authors say. “These results raise questions about whether the SEC dissemination process is really a level playing field for all investors,” wrote Jonathan Rogers of the University of Colorado, who co-authored an Oct. 22 study that analyzed the SEC’s distribution system.

The studies are the latest indication that some superfast, sophisticated trading firms are enjoying an advantage over other investors, echoing previous cases in which high-frequency traders received corporate news releases or key data on the U.S. economy milliseconds before competitors.

The findings could be a headache for the SEC, whose mission is to protect all investors. Regulators are trying to ensure high-frequency traders, who use computers to analyze company filings and execute trades in milliseconds, don’t receive an unfair timing advantage over other investors. In February, The Wall Street Journal reported that such traders were getting early delivery of corporate news releases from Business Wire, which distributes corporate news. Following the article, the New York attorney general’s office pressured the wire service to stop the practice, the Journal reported. A Business Wire executive later said in a statement that the company would “no longer allow high-frequency trading firms to license direct feeds.”

“We have reviewed the working paper and are taking the issues raised by it seriously,” an SEC spokeswoman said, referring to the study by Mr. Rogers, who partnered with two University of Chicago professors on it. “We are conducting a thorough assessment of the dissemination process, including timing increments, and will make any systems modifications that may be necessary to optimize the dissemination of information to investors and the markets.”

The timing discrepancy can be seen in trading in Balchem Corp. , a New Hampton, N.Y.-based chemicals company. On Nov. 9, 2012, a corporate insider filed a form disclosing the purchase of 6,000 shares of the company’s stock. Some direct-feed subscribers received the filing at about 1:45:25 p.m. Eastern time, several seconds before at least two newswire services, including Dow Jones & Co., distributed the filing, according to people familiar with the data.

At about the same time as the direct feed was delivered, trading volume in the company jumped and the price of the stock rose from about $31.90 a share to $32.13 a share. The same information was posted to the SEC’s website at 1:45:48 p.m., according to the people familiar with the data. That was after the price jumped.

Two sets of researchers have been examining when paying subscribers receive SEC filings compared with when they become available on the agency’s website. The study from the researchers at the Universities of Colorado and Chicago examined Form 4 filings—which detail stock sales or purchases by corporate insiders—and found that, when subscribers got those documents first, trading volumes and stock prices would react. Another forthcoming study from Columbia University looks at filings more broadly and documents a similar phenomenon, according to those researchers, who say it will be published soon.

The studies focus on the SEC’s Electronic Data Gathering, Analysis and Retrieval system, or Edgar, which was launched in the 1990s to disseminate earnings reports and other documents filed to the agency. Investors know Edgar as the name on the website they visit to retrieve public filings.

‘There has not been a day in financial markets when a minute didn’t matter.’

—Prof. Robert Jackson of Columbia Law School

Less widely known is the fact filings also are transmitted to a group of roughly 40 paying subscribers, including newswire services such as the one owned by Dow Jones, publisher of The Wall Street Journal, according to people familiar with the matter. Subscribers currently pay about $1,500 a month to an SEC contractor—hired to run the Edgar system—in order to receive all Edgar filings, according to one subscriber and public documents.

When a company submits a document, the contractor forwards it to the Edgar subscribers and to the SEC website “at the same time,” according to the SEC. But the studies suggest that the SEC website can take anywhere from 10 seconds to more than a minute to post the documents, giving an advantage to the Edgar subscribers or their customers, who are often professional investors. Mom-and-pop investors can download the documents from the SEC website, but the information may already be known to others in the market, the studies indicate.

Mr. Jackson subscribed to the SEC’s data feed and found that, over a two-month period, the median delay between when he received filings and when they were posted on the SEC website was 10 seconds.

Mr. Jackson says a forthcoming paper will document that investors could make about several cents a share, on average, on market-moving filings by receiving it in advance of those who rely on grabbing the document from the SEC website. When he told friends on Wall Street, they said he should execute the strategy and retire. “Why would you write a paper? Buy a house in the Hamptons,” he says they told him.

The paper co-written by Mr. Rogers sampled 4,782 disclosures about a corporate insider buying stock in his own company—typically a bullish event for a stock. The researchers obtained data from a subscriber who voluntarily provided information about when it received the documents and when they were available on the SEC site. In 57% of those cases, the subscriber received the information before it was publicly available.

Mr. Rogers’s paper, which looked at corporate-insider trades from March 2012 through December 2013, found that, when subscribers got the information early, stock prices and volumes moved as well.

The findings are likely to increase pressure on the SEC to change the way it distributes information. “It is extremely distressing that a select few insiders have been getting an early look at public filings for so long,” Rep. Carolyn Maloney (D., N.Y.) said. She reviewed Mr. Rogers’s paper and is the ranking Democrat on the House Financial Services Committee’s panel that has jurisdiction over capital markets. “It violates the basic principles of fairness that underpin our markets, and I urge the SEC to put a stop to this as soon as possible.”

There are no limits on who can sign up for the Edgar feed. The SEC declined to provide a list of subscribers to the direct feed, but they include data providers such as Morningstar Inc. and Edgar-online, a unit of R.R. Donnelly & Sons Co.

A representative of Morningstar said, “we subscribe to the feed because we need an automated source to populate the information in our products” and added that the company “isn’t involved in high-frequency trading.” Attain LLC, the SEC contractor currently running the Edgar dissemination service, and NTT Data, the contractor for the service during the time of Mr. Rogers’s study, declined to comment.

One subscriber to the SEC feed, the Washington Service, has a website touting its ability to filter the information quickly. The site describes customers including a banker, a mutual-fund manager and a hedge fund “using quantitative models to drive trading strategies.” The firm also provides reports on corporate insider trades that are republished by Dow Jones.

—Bradley Hope and Andrew Ackerman contributed to this article.

…especially since many experts now believe the increase in carbohydrates that authorities recommended has contributed to our obesity and diabetes epidemics.”, Nina Teicholz, “The Last Anti-Fat Crusaders: The low fat regimen is turning out to be based on bad science, but the USDA has been slow to catch on.”, Wall Street Journal

Opinion

The Last Anti-Fat Crusaders

The low-fat-diet regimen is turning out to be based on bad science, but the USDA has been slow to catch on.

Getty Images/iStockphoto

By Nina Teicholz

The top scientist guiding the U.S. government’s nutrition recommendations made an admission last month that would surprise most Americans. Low-fat diets, Alice Lichtenstein said, are “probably not a good idea.” It was a rare public acknowledgment conceding the failure of the basic principle behind 35 years of official American nutrition advice.

Yet the experts now designing the next set of dietary recommendations remain mired in the same anti-fat bias and soft science that brought us the low-fat diet in the first place. This is causing them to ignore a large body of rigorous scientific evidence that represents our best hope in fighting the epidemics of obesity, diabetes and heart disease.

The Dietary Guidelines for Americans—jointly published by the U.S. Department of Agriculture (USDA) and the Department of Health and Human Services (HHS) every five years—have had a profound influence on the foods Americans produce and consume. Since 1980, they have urged us to cut back on fat, especially the saturated kind found mainly in animal foods such as red meat, butter and cheese. Instead, Americans were told that 60% of their calories should come from carbohydrate-rich foods like pasta, bread, fruit and potatoes. And on the whole, we have dutifully complied.

By the turn of the millennium, however, clinical trials funded by the National Institutes of Health (NIH) were showing that a low-fat regime neither improved our health nor slimmed our waistlines. Consequently, in 2000 the Dietary Guidelines committee started to tiptoe away from the low-fat diet, and by 2010 its members had backed off any mention of limits on total fat.

Yet most Americans are still actively trying to avoid fat, according to a recent Gallup poll. They are not aware of the USDA’s crucial about-face because the agency hasn’t publicized the changes. Perhaps it did not want to be held responsible for the consequences of a quarter-century of misguided advice, especially since many experts now believe the increase in carbohydrates that authorities recommended has contributed to our obesity and diabetes epidemics.

Such a humbling reversal should have led the expert committee preparing the 2015 Dietary Guidelines, which holds its next-to-last public meeting Nov. 6-7, to fundamentally rethink the anti-fat dogma. But instead it has focused its anti-fat ire exclusively on saturated fats. Recent guidelines have steadily ratcheted down the allowable amount of these fats in the diet to 7% of calories “or less,” which is the lowest level the government has ever advised—and one that has rarely, if ever, been documented in healthy human populations.

The most current and rigorous science on saturated fat is moving in the opposite direction from the USDA committee. A landmark meta-analysis of all the available evidence, conducted this year by scientists at Cambridge and Harvard, among others, and published in the Annals of Internal Medicine, concluded that saturated fats could not, after all, be said to cause heart disease. While saturated fats moderately raise “bad” LDL-cholesterol, this does not apparently lead to adverse health outcomes such as heart attacks and death. Another meta-analysis, published in the respected American Journal of Clinical Nutrition in 2010, came to the same conclusion. The USDA committee has ignored these findings.

No doubt, accepting them would be another embarrassing reversal for nutrition experts. The USDA, the NIH and the American Heart Association have spent billions trying to prove and promote the idea that saturated fats cause heart disease.

In place of saturated fats, these agencies have counseled Americans to consume ever-larger quantities of unsaturated fats, which are found mainly in soybean and other vegetable oils. Yet a diet high in these oils has been found in clinical trials to lead to worrisome health effects, including higher rates of cancer. And the USDA, which espouses a commitment to finding healthy “dietary patterns” based in history, is now in the paradoxical position of telling Americans to derive most of their fats from these highly processed vegetable oils with virtually no record of consumption in the human diet before 1900.

The most hopeful path lies in a different direction: An enormous trove of research over the past decade has shown that a low-carbohydrate regime consistently outperforms any other diet in improving health. Diabetics, for instance, can most effectively stabilize their blood glucose on a low-carb diet; heart-disease victims are able to raise their “good” HDL cholesterol while lowering their triglycerides. And at least two-dozen well-controlled diet trials, involving thousands of subjects, have shown that limiting carbohydrates leads to greater weight loss than does cutting fat.

The USDA committee’s mandate is to “review the scientific and medical knowledge current at the time.” But despite nine full days of meetings this year, it has yet to meaningfully reckon with any of these studies—which arguably constitute the most promising body of scientific literature on diet and disease in 50 years. Instead, the committee is focusing on new reasons to condemn red meat, such as how its production damages the environment. However, this is a separate scientific question that is outside the USDA’s mandate on health.

Rates of obesity in the U.S. started climbing dramatically right around 1980, the very year in which the Dietary Guidelines were first introduced. More than three decades later, more of the same advice can only be expected to produce similarly dismal health outcomes. And the cost, in human and dollar terms, will continue to be catastrophic.

These are compelling reasons for Congress to ask the USDA and HHS to reconstitute the Dietary Guidelines committee so that its members represent the full range of expert opinion. The committee should then be mandated to fundamentally reassess the Guidelines’ basic assumptions, based on the best and most current science. These measures would give millions of Americans a fighting chance in their battle against obesity, diabetes and heart disease—and at last start to reverse the ill effects of our misguided Dietary Guidelines.

Ms. Teicholz is the author of “The Big Fat Surprise: Why Butter, Meat, and Cheese Belong in a Healthy Diet” (Simon & Schuster, 2014).

…The widening scope of their investigations led companies to significantly bolster efforts to influence their actions. John W. Suthers, who has served as Colorado’s attorney general for a decade, said he was not surprised by this campaign. “I don’t fault for one second that corporate America is pushing back on what has happened,” Mr. Suthers said. “Attorneys general can do more damage in a heartbeat than legislative bodies can. I think it is a matter of self-defense, and I understand it pretty well, although I have got to admit as an old-time prosecutor, it makes me a little queasy.””, Eric Lipton, “Lobbyists, Bearing Gifts, Pursue Attorneys General”, New York Times

“It’s terrible (and scary) to think that our government’s legal system is being overtaken by crass politics and crony capitalism. Members of our government’s legal system, whether they are public prosecutors, defenders, or judges should be beyond reproach/politics and ALWAYS and everywhere decide each matter based on The Rule of Law and nothing else.”, Mike Perry

Politics | Courting Favor: ‘The People’s Lawyers’

Lobbyists, Bearing Gifts, Pursue Attorneys General

By ERIC LIPTON

Emails detail interactions between the office of Attorney General Pam Bondi of Florida and a law firm trying to sway her. Credit Alex Wong/Getty Images

When the executives who distribute 5-Hour Energy, the popular caffeinated drinks, learned that attorneys general in more than 30 states were investigating allegations of deceptive advertising — a serious financial threat to the company — they moved quickly to shut the investigations down, one state at a time.

But success did not come in court or at a negotiating table.

Instead, it came at the opulent Loews Santa Monica Beach Hotel in California, with its panoramic ocean views, where more than a dozen state attorneys general had gathered last year for cocktails, dinners and fund-raisers organized by the Democratic Attorneys General Association. A lawyer for 5-Hour Energy roamed the event, setting her sights on Attorney General Chris Koster of Missouri, whose office was one of those investigating the company.

“My client just received notification that Missouri is on this,” the lawyer, Lori Kalani, told him.

Ms. Kalani’s firm, Dickstein Shapiro, had courted the attorney general at dinners and conferences and with thousands of dollars in campaign contributions. Mr. Koster told Ms. Kalani that he was unaware of the investigation, and he reached for his phone and called his office. By the end of the weekend, he had ordered his staff to pull out of the inquiry, a clear victory for 5-Hour Energy.

The quick reversal, confirmed by Mr. Koster and Ms. Kalani, was part of a pattern of successful lobbying of Mr. Koster by the law firm on behalf of clients like Pfizer and AT&T — and evidence of a largely hidden dynamic at work in state attorneys general offices across the country.

Attorneys general are now the object of aggressive pursuit by lobbyists and lawyers who use campaign contributions, personal appeals at lavish corporate-sponsored conferences and other means to push them to drop investigations, change policies, negotiate favorable settlements or pressure federal regulators, an investigation by The New York Times has found.

A robust industry of lobbyists and lawyers has blossomed as attorneys general have joined to conduct multistate investigations and pushed into areas as diverse as securities fraud and Internet crimes.

But unlike the lobbying rules covering other elected officials, there are few revolving-door restrictions or disclosure requirements governing state attorneys general, who serve as “the people’s lawyers” by protecting consumers and individual citizens.

A result is that the routine lobbying and deal-making occur largely out of view. But the extent of the cause and effect is laid bare in The Times’s review of more than 6,000 emails obtained through open records laws in more than two dozen states, interviews with dozens of participants in cases and attendance at several conferences where corporate representatives had easy access to attorneys general.

Often, the corporate representative is a former colleague. Four months after leaving office as chief deputy attorney general in Washington State, Brian T. Moran wrote to his replacement on behalf of a client, T-Mobile, which was pressing federal officials to prevent competitors from grabbing too much of the available wireless spectrum.

“As promised when we met the A.G. last week, I am attaching a draft letter for Bob to consider circulating to the other states,” he wrote late last year, referring to the attorney general, Bob Ferguson.

A short while later, Mr. Moran wrote again to his replacement, David Horn. “Dave: Anything you can tell me about that letter?” he said.

“Working on it sir,” came the answer. “Stay tuned.” By January, the letter was issued by the attorney general largely as drafted by the industry lawyers.

The exchange was not unusual. Emails obtained from more than 20 states reveal a level of lobbying by representatives of private interests that had been more typical with lawmakers than with attorneys general.

“The current and increasing level of the lobbying of attorneys general creates, at the minimum, the appearance of undue influence, and is therefore unseemly,” said James E. Tierney, a former attorney general of Maine, who now runs a program at Columbia University that studies state attorneys general. “It is undermining the credibility of the office of attorney general.”

Private lawyers also have written drafts of legal filings that attorneys general have used almost verbatim. In some cases, they have become an adjunct to the office by providing much of the legal work, including bearing the cost of litigation, in exchange for up to 20 percent of any settlement.

Money gathered through events like the one in February 2013 at the Loews hotel is flooding the political campaigns of attorneys general and flowing to party organizations that can take unlimited corporate contributions and then funnel money to individual candidates. The Republican Attorneys General Association alone has pulled in $11.7 million since January.

It is a self-perpetuating network that includes a group of former attorneys general called SAGE, or the Society of Attorneys General Emeritus, most of whom are now on retainer to corporate clients.

Giant energy producers and service companies like Devon Energy of Oklahoma, the Southern Company of Georgia and TransCanada have retained their own teams of attorney general specialists, including Andrew P. Miller, a former attorney general of Virginia.

For some companies, the reward seems apparent, according to the documents obtained by The Times. In Georgia, the attorney general, after receiving a request from a former attorney general who had become a lobbyist, disregarded written advice from the state’s environmental regulators, the emails show. In Utah, the attorney general dismissed a case pending against Bank of America over the objections of his staff after secretly meeting with a former attorney general working as a Bank of America lobbyist.

That Bank of America case was cited in July when the two most recent former attorneys general in Utah were charged with granting official favors to donors in exchange for golf getaways, rides on private planes and a luxury houseboat.

While the Utah case is extreme, some participants say even the daily lobbying can corrode public trust.

“An attorney general is entrusted with the power to decide which lawsuits to file and how to settle them, and they have great discretion in their work,” said Anthony Johnstone, a former assistant attorney general in Montana. “It’s vitally important that people can trust that those judgments are not subject to undue influence because of outside forces. And from what I have seen in recent years, I am concerned and troubled that those forces have intensified.”

Several current and former attorneys general say that while they are disappointed by the increased lobbying, they reject the notion that the outside representatives are powerful enough to manipulate the system.

“There is no Mr. Fix-It out there you can hire and get the job done no matter what the merits are,” said Attorney General Tom Miller of Iowa, the longest-serving state attorney general in the country, at 19 years.

Mr. Koster said he regretted the prominence of groups like DAGA and RAGA — as the Democratic and Republican attorneys general associations are known — saying the partisanship and increased emphasis on money had been damaging.

“I wish those two organizations did not exist,” Mr. Koster said during an interview at his office in Kansas City, even though the Democratic group has contributed at least $1.4 million to his election campaigns, more than any other source.

But he rejected any suggestion that his office had taken actions as a result of the lobbying, instead blaming mistakes made by his staff for moves that ended up benefiting Dickstein’s clients.

Some companies have come grudgingly to the influence game.

Executives from the company that distributes 5-Hour Energy, for example, have contributed more than $280,000 through related corporate entities in the last two years to political funds of attorneys general.

Company executives wrote those checks after the investigation into false claims and deceptive marketing, which initially involved 33 states, opened in January 2013. Requests started to come in for contributions, including a phone call this year directly from Mr. Ferguson of Washington State, whose staff was involved in the inquiry.

In a statement after the company was sued by three states in July, the company strongly denied the allegations and compared being solicited for contributions to being pressured to pay “ransom.” It asked, “Is it appropriate for an attorney general to ask for money from a company they plan to sue?”

A spokesman for Mr. Ferguson first called the allegation baseless. But after being shown a copy of an invitation to a fund-raising event that Mr. Ferguson held in May during a DAGA conference — where 5-Hour Energy was listed as a sponsor — his spokesman confirmed that Mr. Ferguson had made a personal appeal to the company.

Secluded Access

Breakfast was served on a patio overlooking the Pacific Ocean — a buffet of fresh baked goods, made-to-order eggs, lox and fruit — as the Republican attorneys general, in T-shirts and shorts, assembled at Beach Village at the Del, in Coronado, Calif.

These top law enforcement officials from Alabama, South Carolina, Nebraska, Wisconsin, Indiana and other states were joined by Ms. Kalani, of Dickstein Shapiro, and representatives from the U.S. Chamber of Commerce, Pfizer, Comcast and Altria, among other corporate giants.

The group had gathered at the exclusive Beach Village at the Del — where rooms go for as much as $4,500 a night and a special key card is required to enter the private compound — for the most elite event for Republican attorneys general, a gathering of the Edmund Randolph Club (named for the first United States attorney general).

PAM BONDI Corporate sponsors or state taxpayers generally cover airfare, hotels and meals at conferences for the Florida attorney general and her counterparts. Credit Steve Cannon/Associated Press

The club, created by the Republican Attorneys General Association, has a $125,000 entry fee — money used to fund the campaigns of attorney general candidates with as much as $1 million, and to pay for the hotel bills, airfare and meals for the attorneys general who attend the events.

As at the Democrats’ event, the agenda included panels to discuss emerging legal issues. But at least as important was the opportunity for the lobbyists, corporate executives and lawyers to nurture relationships with the attorneys general — and to lobby them in this casual and secluded setting. (A reporter from The Times attended this event uninvited and, once spotted, was asked to leave.)

The appeals began the moment the law enforcement officials arrived, as gift bags were handed out, including boxes of 5-Hour Energy, wine from a liquor wholesalers group and music CDs (Roy Orbison for the adults, the heartthrob Hunter Hayes for their children) from the recording industry.

Andy Abboud, a lobbyist for Las Vegas Sands, which donated $500,000 through its chief executive to the Republican group this year, has been urging attorneys general to join an effort to ban online poker. At breakfast, he approached Attorney General Pam Bondi of Florida.

“What are you going to be doing today?” he asked.

“Sailing,” Ms. Bondi replied.

“Great, I want to go sailing, too,” Mr. Abboud said, and they agreed to connect later that day.

The increased focus on state attorneys general by corporate interests has a simple explanation: to guard against legal exposure, potentially in the billions of dollars, for corporations that become targets of the state investigations.

It can be traced back two decades, when more than 40 state attorneys general joined to challenge the tobacco industry, an inquiry that resulted in a historic $206 billion settlement.

Microsoft became the target of a similar multistate attack, accused of engaging in an anticompetitive scheme by bundling its Internet Explorer with the Windows operating system. Then came the pharmaceutical industry, accused of improperly marketing drugs, and, more recently, the financial services industry, in a case that resulted in a $25 billion settlement in 2012 with the nation’s five largest mortgage servicing companies.

The trend accelerated as attorneys general — particularly Democrats — began hiring outside law firms to conduct investigations and sue corporations on a contingency basis.

CHRIS KOSTER The office of the Missouri attorney general pulled out of an inquiry into 5-Hour Energy after he spoke with a lawyer from the law firm Dickstein Shapiro. Credit Whitney Curtis for The New York

The widening scope of their investigations led companies to significantly bolster efforts to influence their actions. John W. Suthers, who has served as Colorado’s attorney general for a decade, said he was not surprised by this campaign.

“I don’t fault for one second that corporate America is pushing back on what has happened,” Mr. Suthers said. “Attorneys general can do more damage in a heartbeat than legislative bodies can. I think it is a matter of self-defense, and I understand it pretty well, although I have got to admit as an old-time prosecutor, it makes me a little queasy.”

Republican attorneys general were the first to create a party-based fund-raising group, 14 years ago. An initial appeal for contributions to corporate lobbyists and lawyers said that public policy was being shaped “via the courthouse rather than the statehouse.” It urged corporate lawyers “to round up your clients and come see what RAGA is all about.” The U.S. Chamber of Commerce alone has contributed $2.2 million this year to the group, making it the association’s biggest donor.

The Democrats at first fought the idea, but two years later formed a counterpart.

Dickstein, and a handful of other law firms, moved to capitalize by offering lobbying as well as legal assistance to deal with attorneys general, whom Dickstein called “the new sheriffs in town.”

In an effort to make allies rather than adversaries, Bernard Nash, the head of the attorney general practice at Dickstein and the self-proclaimed “godfather” of the field, tells clients that it is essential to build a personal relationship with important attorneys general, part of what his firm boasts as “connections that count.”

“Through their interaction with A.G.s, these individuals will become the ‘face’ of the company to A.G.s, who are less likely to demagogue companies they know and respect,” said a confidential memo that Dickstein sent late last year to one prospective client, Caesars Entertainment.

Executing this strategy means targeting the attorneys general “front office,” a reference to the handful of important decision makers.

“Front office interest or lack of interest in an issue can come from an assessment of media reports and potential media scrutiny; advocacy group requests; political benefit or detriment; legislative inquiries; and ‘pitches’ made by law firms or other professionals in whom the front office has confidence,” Dickstein said in the memo pitching business to executives at Caesars that asked the company to pay $35,000 a month, plus expenses, for lobbying and strategic advice, not including any legal work.

Mr. Nash and his team build relationships through dinners at exclusive spots like the Flagler Steakhouse in Palm Beach, Fla., and Brown’s Beach House Restaurant in Waimea, Hawaii, during attorneys general conferences, as well as with a constant stream of campaign contributions, totaling at least $730,000 in the last five years.

Dickstein is hardly alone.

BERNARD NASH The head of Dickstein’s attorney general practice and the field’s self-proclaimed “godfather.” Credit Gabriella Demczuk/The New York Times

Other dinner invitations have come from former Attorney General Thurbert E. Baker of Georgia, whose clients have included AT&T and the debt buyers industry; former Attorney General Patrick C. Lynch of Rhode Island, who represents payday lenders, Comcast and makers of online video games; and former Attorney General Rob McKenna of Washington State, who has been retained by Microsoft and T-Mobile.

In several cases, these former officials are clearly acting as lobbyists. Mr. Lynch, who declined several requests for comment, tells prospective clients that he can guide them “through the national network of attorneys general associations and work with them to build relationships,” yet The Times could find no record that he had registered as a lobbyist in more than two dozen states where he has worked.

State lobbying laws generally require registration when corporations hire someone to influence legislation, but appeals targeting attorneys general are not explicitly covered, even if a company is pushing its agenda.

The documents obtained by The Times include dozens of emails that Mr. Lynch has sent to attorneys general on behalf of clients. He is also a regular at the attorney general conferences, which include social events like trap shooting, fitness training and all-terrain-vehicle rides, in addition to cocktail parties and meals.

These conferences also include panels on topics like regulation of oil and natural gas pipelines.

Yet often a seat on these panels is, in effect, for sale. A large donation can secure the right to join a panel or provide an opportunity for a handpicked executive to make a solo presentation to a room full of attorneys general. That is what a top executive from TransCanada, the company behind the Keystone XL pipeline, did at two recent attorneys general meetings in Utah and Colorado.

For the attorneys general, there is a personal benefit, too: Their airfare, meals and hotel bills at these elite resorts are generally covered, either by the corporate sponsors or state taxpayers.

Ms. Bondi, the Florida attorney general, for example, received nearly $25,000 worth of airfare, hotels and meals in the past two years just from events sponsored by the Republican Attorneys General Association, state disclosure reports show. That money came indirectly from corporate donors.

She has charged Florida taxpayers nearly $14,000 since 2011 to take additional trips to meetings of the National Association of Attorneys General and the Conference of Western Attorneys General, including travel to Hawaii. Those events were also attended by dozens of lobbyists. Ms. Bondi, in a statement, said the support she had received — directly or through the Republican Attorneys General Association — had not had an impact on any of her actions as attorney general.

But Matthew L. Myers, the president of the nonprofit Campaign for Tobacco-Free Kids, who was on a panel about e-cigarettes at an event in Park City, Utah, was startled by what he saw: lobbyists from regulated industries — financial, energy, alcohol, tobacco and pharmaceutical companies — socializing with top state law enforcement officers.

“You play golf with somebody, you are much less likely to see them as a piranha that is trying to devour consumers, even if that is just what they are,” said Mr. Myers.

“My client just received notification that Missouri is on this.” LORI KALANI, a Dickstein partner, discussing the 5-Hour Energy case with the state’s attorney general. Credit Gabriella Demczuk/The New York Times

Mr. Tierney, the former Maine attorney general, said that lobbyists were entitled to set up a meeting with the attorneys general in their offices. But to write a check, for as much as $125,000, to gain days’ worth of private time with the attorneys general is another matter, he said.

“When you start to connect the actual access to money, and the access involves law enforcement officials, you have clearly crossed a line,” he said. “What is going on is shocking, terrible.”

An Ear in Missouri

In Missouri, as in other states, the attorney general’s office has provided a springboard to higher office, either to the governor’s mansion or the Senate. So even before Mr. Koster was sworn in for his second term, he was being mentioned as a candidate for higher office. And that made him an ideal target for the team at Dickstein.

The Dickstein lawyers have donated to his campaigns, invited him and his chief deputy to be featured speakers at law firm events and hosted Mr. Koster at dinners, and stayed in close contact with his office in emails that suggest unusual familiarity.

The relationship seems to have benefited some Dickstein clients.

Pfizer, the New York-based pharmaceutical giant, had hired Dickstein to help settle a case brought by at least 20 states, which accused the company of illegally marketing two of its drugs — Zyvox and Lyrica — for unapproved uses, or making exaggerated claims about their effectiveness.

Instead of participating in the unified investigation with other states — which gives attorneys general greater negotiating power — Mr. Koster’s office worked directly with Mr. Nash and Pfizer’s assistant general counsel, Markus Green.

Mr. Nash negotiated with Deputy Attorney General Joseph P. Dandurand through a series of emails, followed by a visit to Missouri in April 2013.

But both Pfizer and Dickstein had already built a relationship with Mr. Koster. Dickstein had participated in at least four fund-raising events for Mr. Koster, with its lawyers and the firm donating $13,500 to his campaigns, records show.

Several of those contributions came after Mr. Nash had invited Mr. Koster to participate in an “executive briefing” at the Park Hyatt for Dickstein’s clients. That same day, Mr. Koster held a fund-raising event, taking in contributions from Mr. Nash and other lawyers involved in matters that Mr. Koster would soon be, or already was, investigating, the records show.

“The folks at Pfizer are very appreciative and excited to hear from the General.” J. B. KELLY, a Dickstein partner, writing to a Missouri official about an appearance by the attorney general at an event sponsored by Pfizer. Credit Gabriella Demczuk/The New York Times

Pfizer had directly donated at least $20,000 to Mr. Koster since 2009 — more than it gave to any other state attorney general, according to company records. That does not include the $320,000 that Pfizer donated during the same period to the Democratic Attorneys General Association, which in turn has donated to Mr. Koster’s campaigns.

Mr. Koster said his office was forced to negotiate directly with Mr. Nash and Pfizer because a staff lawyer missed a deadline to participate in the multistate investigation.

“This was an accident,” Mr. Koster said, adding that since he became attorney general in 2009, his office has participated in six cases against Pfizer that brought a total of $26 million to Missouri.

But the emails show that just as the negotiations on the 2013 case were intensifying, Mr. Koster’s chief deputy received an unusual invitation: Would the attorney general be interested in flying to Chicago to be the keynote speaker at a breakfast that Pfizer was sponsoring for its political action committee?

The topic was “the importance of corporations’ building productive relationships with A.G.s,” according to an email in March from Dickstein to Mr. Dandurand.

“As you know, these relationships are important to allow A.G.s and corporations to work together to address important public policy issues of concern to both the A.G. and the corporation,” the invitation said. “The conference participants also would like to hear how these relationships can help to efficiently address A.G.s’ questions or concerns before they escalate into major problems (like multistate investigations or litigation), as well as how they can carry over when A.G.s are elected to higher offices.”

Mr. Dandurand worked to accommodate the request.

“Trying now to clear his calendar,” Mr. Dandurand wrote back to the Dickstein lawyer, before confirming that Mr. Koster would accept the invitation.

“The folks at Pfizer are very appreciative and excited to hear from the General,” J. B. Kelly, a partner at Dickstein, replied.

Five days later — and just before Mr. Koster was scheduled to give the speech — Mr. Dandurand and Mr. Nash met to discuss a settlement in the fraud investigation. They agreed that Pfizer would pay Missouri $750,000 — at least $350,000 less than it would have collected if it had been part of the multistate investigation.

“Thank you for the meeting,” Mr. Nash wrote to Mr. Dandurand, after the settlement meeting in Missouri. “Pfizer is pleased.”

Rob McKenna of Washington State. Credit Greg Gilbert/The Seattle Times, via Associated Press

Mr. Koster said Missouri received a smaller payment from Pfizer because the state had less leverage after missing the multistate deadline. Oregon, the other state to negotiate directly with Pfizer on the Zyvox matter, secured a settlement worth $3.4 million — four times what Missouri received — even though Oregon’s population is far smaller.

Pfizer was not the only Dickstein client pleased with the firm’s representation before Mr. Koster’s office.

AT&T was also subject to an investigation by Mr. Koster’s office, something that Mr. Nash learned at the conference held at the Loews hotel. And like Ms. Kalani, Mr. Nash pleaded his case directly with Mr. Koster.

Three weeks after the conversation with Mr. Nash, Mr. Koster’s office took a step that questioned the legal strategy of a multistate investigation of AT&T’s billing practices, email records show. Mr. Koster did not officially back out of the inquiry, and Missouri ultimately benefited from a national settlement announced this month.

But frustrating leaders of the multistate investigation, Mr. Koster decided to join a small group of attorneys general who, to the industry’s pleasure, wanted to resolve the matter without subpoenas or the threat of a lawsuit, the emails show.

AT&T has been a major campaign contributor to Mr. Koster’s political causes, donating more than $27,000 in just the last two years, half before and half after his actions regarding the investigation.

Mr. Koster said the donations had no effect on his actions, adding that he was determined to investigate the company for its deceptive billing practices. With 5-Hour Energy, he added, he pulled out of the investigation because he did not believe it was merited — adding that he personally uses the energy drink.

Yet he said he was angry that his staff had not notified him before joining investigations into these two major companies.

“Its stock price would move at the mere mention of our involvement,” Mr. Koster said, referring to AT&T.

Mr. Nash’s appeals were not finished.

A month after returning from the Santa Monica meeting, Mr. Koster adopted a new office policy requiring lawyers and managers in his consumer affairs division to get approval from his top aides before opening any investigations involving a publicly traded company or any company with more than 10 employees.

Patrick C. Lynch of Rhode Island. Credit Stew Milne/Associated Press

Mr. Nash and Lisa A. Rickard, a senior executive from the U.S. Chamber of Commerce, were so pleased with the change that they asked Mr. Koster to give a talk about his new office policy at a meeting of attorneys general in Washington.

“This is going to be titled my Lisa Rickard memorial presentation,” Mr. Koster said at the February 2014 meeting. “She was the one who initiated this idea.”

The email records also reveal the personal nature of the relationship between Mr. Koster’s office and the lawyers at Dickstein.

In an August 2013 exchange, in which the attorney general’s office assured Mr. Nash that it would not share potentially damaging information on a Dickstein client with another state attorney general who was investigating the company — saying the documents were considered confidential — the conversation took a sudden turn away from business.

“Let’s go bowling sometime,” Mr. Dandurand wrote.

“Thanks,” Mr. Nash wrote back. “I’d rather eat and drink with you any time, any place.”

And an Ear in Florida

The email records show a similarly detailed interaction with the office of Ms. Bondi, the Florida attorney general and a fast-rising star in the Republican Party.

Mr. Nash and his partners worked to help Ms. Bondi further her political ambitions at the same time they were lobbying her office on behalf of companies under investigation by it.

Accretive Health, a Chicago-based hospital bill collection company, whose operations in Minnesota had been shut down by the attorney general’s office there for abusive collection practices, had turned to Dickstein Shapiro to try to make sure that other states did not follow Minnesota’s lead. Mr. Nash contacted Ms. Bondi’s chief deputy and urged the office to take no action.

“We persuaded A.G.s not to sue Accretive Health following the filing of a lawsuit by the Minnesota A.G.,” Dickstein wrote in a recent marketing brochure.

Thurbert E. Baker of Georgia. Credit Associated Press

Bridgepoint Education, a for-profit online school that has been under scrutiny for what Mr. Miller, the Iowa attorney general, called “unconscionable sales practices,” turned to Dickstein to set up meetings with Ms. Bondi’s staff, to urge her not to join in the inquiries underway in several states. Again, her office decided not to take up the matter, citing the small number of complaints about Bridgepoint it has received.

Dickstein set up a similar meeting for Herbalife, which has been investigated by federal and state authorities for sales practices related to its nutritional shakes and other products. No investigation was opened; again, Ms. Bondi’s staff said her office had received few complaints.

Perhaps the greatest victory in Florida for Dickstein relates to a lawsuit filed by Ms. Bondi’s predecessor against online reservation companies, including Travelocity and Priceline, which Dickstein then represented, based on allegations that they were conspiring to improperly withhold taxes on hotel rooms booked in the state.

Local officials in Florida were confounded by the fact that the case, which was filed before Ms. Bondi was sworn in, suddenly seemed to come to a halt.

“As our state’s highest-ranking law enforcement official, and as the people’s attorney, you have the authority to pursue action on behalf of the citizens of Florida,” Mayor Rick Kriseman of St. Petersburg, a Democrat, wrote to Ms. Bondi in 2011, while he was a state legislator, estimating that Florida was losing $100 million a year.

Behind the scenes, Dickstein had been working to get the case dropped.

“Thank you so much for chatting with me last week about the online travel site suit,” said a January 2012 email to Deputy Attorney General Patricia A. Conners from Christopher M. Tampio, a former lobbyist for the convenience store industry who was hired to work in Dickstein’s attorney general practice, even though he is not a lawyer or a registered lobbyist in Florida.

A year later, a second round of emails arrived in Ms. Bondi’s office: first, one inviting Ms. Bondi or her top aide to dinner at Ristorante Tosca in Washington, and then one from a Dickstein lawyer pointing out that similar online travel cases had recently been dismissed by Florida judges.

The email records provided to The Times show no response to Dickstein, other than a terse “thanks.” But two months later, Ms. Bondi’s office moved to do what the firm had sought.

“Dismissed before hearing,” the state court docket shows, as the case was closed in April 2013 even before it was officially taken up by the court.

A spokesman for Ms. Bondi said her office had dropped the matter after concluding, as Dickstein had argued, that state tax law was ambiguous. The office urged the State Legislature to clarify the matter. But several Florida counties have continued to pursue the matter, taking it to the State Supreme Court.

HOTEL DEL CORONADO A conference of the Republican Attorneys General Association was held in June in Coronado, Calif. Representatives from the U.S. Chamber of Commerce, Pfizer, Comcast and Altria, as well as a Dickstein Shapiro lawyer, attended the event. Credit Sandy Huffaker for The New York Times

Dickstein also took unusual steps to promote Ms. Bondi’s political career.

The firm’s lawyers helped arrange a cover article for Ms. Bondi in a magazine called InsideCounsel, which is distributed to corporate lawyers, and invited her, as it did Mr. Koster, to appear at an event in Washington that included the firm’s clients.

And as with Mr. Koster, the assistance included direct political contributions. Mr. Nash was a sponsor of an elaborate fund-raising event this year in Ms. Bondi’s honor at the Mar-a-Lago Club in Palm Beach, owned by Donald J. Trump, which is considered one of the most opulent mansions in the United States.

Ms. Bondi, in a statement, said none of these efforts had affected her decisions.

“My office aggressively protects Floridians from unfair and deceptive business practices, and absolutely no access to me or my staff is going to have any bearing on my efforts to protect Floridians,” she said.

The Revolving Door

In at least 31 states and in Congress, elected officials are banned from lobbying their former colleagues during a cooling-off period, which is intended to limit their ability to cash in on their contacts. Once they do start to lobby, they are required to register to disclose the work.

But even in states like Georgia, where the law prohibits state officials from registering as lobbyists or engaging in lobbying for one year after leaving office, a former attorney general made appeals almost immediately to his former office.

Mr. Baker, who left his post as the state’s attorney general in January 2011, wrote repeatedly that year to the office of his successor, Sam Olens, and to Mr. Olens’s chief deputy, who had served in the same role during Mr. Baker’s tenure, to ask them to take actions that would benefit AT&T, which he had been hired to represent.

“Hi Thurbert,” Jeff Milsteen, Georgia’s chief deputy attorney general, replied to one of the emails that Mr. Baker sent to him in 2011, as Mr. Baker sought his successor’s public support for the proposed merger between T-Mobile and AT&T. “I’ll let you know as soon as I can.”

The next day, Mr. Milsteen wrote back. “I’ve talked to Sam,” he said, “and he is fine with you adding him to the letter.”

A spokesman for Mr. Olens said that he saw nothing wrong with the exchanges because Mr. Baker was acting as a lawyer, not as a lobbyist, and therefore was exempt from the one-year ban — which covers only lobbying of the legislature or the governor, not the attorney general.

But Mr. Baker declined, when asked by The Times, to identify a single legal filing concerning AT&T that he had been involved with. He wrote back to say that this definition of “lawyer” was too narrow.

“Lawyers are advocates,” he said.

In Washington State, both Mr. McKenna, the former attorney general, and Mr. Moran, who had been his top deputy, were pressing their former colleagues within months of leaving their jobs last year, on behalf of clients including Microsoft and T-Mobile, emails show.

For Mr. McKenna, it was quite a turnaround. He had sued T-Mobile in September 2011 to block its proposed merger with AT&T. Now, as a corporate lawyer, Mr. McKenna was setting up meetings with his successor, Mr. Ferguson, to ask him to intervene with federal officials on T-Mobile’s behalf in the inquiry over whether the company was seeking to prevent its competitors from acquiring what it thought was too large a share of the available federal wireless spectrum.

“I write today on behalf of the millions of consumers of wireless and mobile computing services,” said a letter, drafted initially by T-Mobile, but sent out by Mr. Ferguson in January, although it made no mention of the role played by the company or the former attorney general.

Email records show a similar intervention by Mr. McKenna on behalf of Washington State-based Microsoft, with outcomes that brought praise from the corporate executives. “I know that Microsoft was very pleased that you made yourself available,” Mr. McKenna wrote to Mr. Ferguson last October. “Thank you again.”

Mr. Baker and Mr. McKenna are both regulars at the attorneys general retreats. As former attorneys general, they are also special guests at events of the Society of Attorneys General Emeritus.

They have good company in the SAGE club: More than a dozen of the members are now lawyers and lobbyists for corporations, or work at plaintiff’s law firms that are seeking to secure commission-based contracts and then sue corporations on a state’s behalf.

The schedule of attorney general conferences for the coming year is laid out — after a pause for the elections — with events set for the Fontainebleau resort in Miami Beach, the Four Seasons Hotel at Mandalay Bay in Las Vegas and the Grand Wailea resort on Maui, among many others. The invitations for corporate sponsorships are already being sent.

Stacey Solie contributed reporting from Seattle. Griff Palmer and Kitty Bennett contributed research.

A version of this article appears in print on October 29, 2014, on page A1 of the New York edition with the headline: Lobbyists, Bearing Gifts, Pursue Attorneys General

“A big part of any pension actuary’s job is to forecast a plan’s future benefit costs, then devise a contribution schedule that will fully fund the benefits over time. There are many ways to do this, and Gabriel Roeder’s method relies on assumed steady payroll growth. It calculates an employer’s required annual contribution as a level percentage of its payroll. This “backloads” the contributions so that they may not cover the plan’s true costs in the early years, but will rise automatically later as the payroll grows. If the payroll shrinks, however, the required contributions will skyrocket as a percent of payroll, placing an extraordinary burden on the city and its tax base. The federal pension law that bars companies from using this method is not binding on states or cities, however, and virtually all of them use it…. Mr. Antonio of G.A.S.B. was so perturbed by this practice that he included a long statement of opposition to it in the pension accounting standard now in force. He said it delayed proper funding “on the theory that ‘over the long haul, everything will work out.’””, Mary Williams Walsh, “Lawsuit Contends Consultant Misled Detroit Pension Plan”, New York Times

Restructuring & Bankruptcy

Lawsuit Contends Consultant Misled Detroit Pension Plan

By Mary Williams Walsh

Coletta Estes sued a pension consultant, saying its methods “doomed the plan to financial ruin.”Credit Sean Proctor for The New York Times

With the nation’s states and cities slowly sinking in a $3 trillion pension hole, the professionals who advise their pension plans have long wondered whether the fingers of blame might eventually point to them.

One of those fingers has surfaced in bankrupt Detroit, and it is singling out Gabriel Roeder Smith & Company, a top actuarial consultant for public pensions, which has hundreds of clients across the country that rely on it to keep track of data, calculate required annual contributions and advise on key assumptions like future investment returns.

Detroit has been a client of Gabriel Roeder since 1938, when the city first started offering pensions. Now the city is bankrupt, the pension fund is short, benefits are being cut and one of the system’s roughly 35,000 members, Coletta Estes, is suing the firm, contending it used faulty methods and assumptions that “doomed the plan to financial ruin.”

Gabriel Roeder’s job was to help Detroit’s pension trustees run a sound plan, she says, but instead the firm covered up a growing shortfall and encouraged the trustees to spend money they did not really have. Her complaint contends that the actuaries did this knowingly, “in concert with the plan trustees to further their self-interest.” The lawsuit seeks to have the pension plan made whole, in an amount to be determined at trial, and to have Gabriel Roeder enjoined “from perpetrating similar wrongs on others.”

Lawsuits like the one Ms. Estes filed have also been brought against Gabriel Roeder by members of Detroit’s pension fund for police and firefighters, and the fund for the employees of surrounding Wayne County. The plaintiffs cite damage growing out of Detroit’s financial collapse, but the litigation may have implications far beyond southeastern Michigan because of Gabriel Roeder’s status and influence in the world of public pensions. Its method for scheduling pension contributions is exceptionally popular and widely used by governments, although federal law does not permit companies to use it. A former chairman of the Governmental Accounting Standards Board, James F. Antonio, tried 20 years ago to disallow it for governments, too, saying it “fails to meet the test of fiscal responsibility.” But he was outvoted, and cities and states have been using it ever since.

Two retired Detroit workers, William Davis, right, and Mike Shane, left, protested cuts in July.Credit Paul Sancya/Associated Press

Gabriel Roeder said the three lawsuits “are factually, legally and procedurally infirm and reflect a gross misunderstanding of the nature of actuarial services.”

In a written statement, the firm also said that it was still providing services to all three pension funds and would vigorously defend itself against the lawsuits “without further public comment.”

The three lawsuits are separate from Detroit’s bankruptcy case. They were filed in Wayne County Circuit Court by Gerard V. Mantese and John J. Conway, Michigan lawyers who have tangled with Detroit’s pension system before. The lawsuits focus on the calculations and analysis that Gabriel Roeder provided to the trustees. Like many city and state pension systems, those of Detroit and Wayne County are mature, complex institutions, governed by trustees who do not necessarily have sophisticated financial backgrounds and rely heavily on the meaningful advice and accurate calculations of their consultants.

Detroit’s trustees did not get that, Mr. Mantese and Mr. Conway contend. Even as the city slid faster and faster toward bankruptcy, its workers kept building up larger, costlier pensions, and the actuaries “assured the trustees that the plan was in good condition.”

“Gabriel Roeder recommended that the plan could maintain and increase benefits,” Ms. Estes contends in her complaint, which was filed in September. That might sound odd, coming from a plan member who stood to enjoy any increases. But Detroit was making promises it could not afford, and Ms. Estes is also a Detroit homeowner and taxpayer who argues she was harmed as the city kept piling more and more obligations onto its shrinking tax base.

As the residents of other struggling cities have discovered, public pension promises, once made, are extremely hard to break, even if the city goes bankrupt. Now Ms. Estes has lost not only part of her pension but much of the savings tied up in her house, while she and her neighbors overpay for paltry city services. She says she might have been spared some of the misery had Gabriel Roeder warned the trustees years ago that the pension system was unsustainable and recommended changes.

“We just got blindsided,” she said.

In its plan to exit bankruptcy, Detroit proposes to claw back certain overpayments that the pension system made improperly in the past. Ms. Estes said she received a letter telling her she would have to forfeit $25,000 when she reaches retirement age, without explaining how that would happen. She is now 50.

Records for her pension plan show a number of anomalies. Not only was pension money spent on off-the-books benefits like “13th checks” and ad hoc death payouts, but some of the actuarial assumptions clearly conflict with reality. For example, Gabriel Roeder assumed that Detroit’s total payroll was growing by 4 percent a year. But in fact, Detroit’s payroll has been shrinking at 5 percent a year since 2003. Ms. Estes said that the two dozen employees she supervised as chief operator of a city water treatment plant all suffered 10 percent pay cuts in the last year, and she herself resigned last June.

A steadily growing payroll is an important element of Gabriel Roeder’s widely used funding method. A big part of any pension actuary’s job is to forecast a plan’s future benefit costs, then devise a contribution schedule that will fully fund the benefits over time. There are many ways to do this, and Gabriel Roeder’s method relies on assumed steady payroll growth. It calculates an employer’s required annual contribution as a level percentage of its payroll. This “backloads” the contributions so that they may not cover the plan’s true costs in the early years, but will rise automatically later as the payroll grows.

If the payroll shrinks, however, the required contributions will skyrocket as a percent of payroll, placing an extraordinary burden on the city and its tax base. The federal pension law that bars companies from using this method is not binding on states or cities, however, and virtually all of them use it.

In Detroit, Gabriel Roeder combined this funding method with a schedule to pay off shortfalls over a “rolling” 30-year period. This meant, in effect, that the 30-year period restarted every year at “Year 1,” or the low end of the rising contribution schedule. The high end was always put off into the future. Many governments “roll” their funding schedules back every year in this manner. Mr. Antonio of G.A.S.B. was so perturbed by this practice that he included a long statement of opposition to it in the pension accounting standard now in force. He said it delayed proper funding “on the theory that ‘over the long haul, everything will work out.’ ”

His warnings were largely ignored, and city and state pension systems have been free for the last 20 years to do what their actuaries’ models suggest. The pension accounting rules are now being updated, and starting next summer, “rolling” contribution schedules will no longer be acceptable. Backloading a city’s pension contributions on the assumption that the payroll will grow will still be the norm, but over a shorter time frame. That should reduce some of the risk.

In Detroit, Mr. Mantese said it was “indefensible” for Gabriel Roeder to assume the payroll was rising when in fact it was falling.

In its written statement, Gabriel Roeder said it was not a plan administrator, fiduciary or trustee for Detroit’s pension system and therefore did “not make decisions of any kind on behalf of the retirement systems.” It said it came to pension board meetings only when requested, usually just “a handful of occasions per year,” and based its analysis and recommendations on unaudited data supplied by the pension systems, the city or the county.

In its most recent report on Ms. Estes’s pension plan, submitted last November, the firm did note that the payroll had declined during the previous year. It recommended calculating contributions a different way for the next year or two, “to avoid the contribution loss that occurs with a declining payroll.”

Mr. Mantese also questioned the plan’s assumption that its investments would earn 7.9 percent over the long term, when the average in recent years was much less.

In an interview, Ms. Estes said that for the 20 years she worked for the city water department, she considered it her duty to provide pure, safe water all the time — not just when the stock market went up or if the payroll grew at a certain rate.

She said she thought the pension professionals should have been held to that standard, too.

“They had a job to do and we trusted them,” she said. “And it turned out the trustees, the advisers, the actuaries and the accountants misled us.”

A version of this article appears in print on 10/29/2014, on page B1 of the NewYork edition with the headline: Detroit Pension Adviser Faces Suits.

…When it comes to Washington policy, macroeconomists shut out innovative colleagues, some even of the sort Mr. Litan celebrates. The ruling macro-theorists, for instance, demonstrate an annihilating contempt for the Austrian School, which focuses more on individuals than aggregates. The same contempt is directed at Public Choice Theory, which predicts that governments will take advantage of market crises to expand in nonmarket sectors. Scholars from these schools do not win top positions at the Fed or at major universities and firms. Such guildthink is what proved fatal just before 2008 and after. There were no Public Choice School theorists at the White House or powerful institutions to warn that there might be a housing bubble if government expanded its presence in the housing sector. Few elite economists warned that the administration might use a financial crisis to undermine bankruptcy precedent or socialize health care. Ironically, analysis by economists demonstrates the inefficiency of guilds, yet these scholars perpetuate their own. Until that changes, go ahead and blame the economists.”, Amity Shlaes, Chairperson of the Calvin Coolidge Presidential Foundation and presidential scholar, King’s College, “The Wonks Can’t Save Us”, Wall Street Journal

Bookshelf

The Wonks Can’t Save Us

Economists have gotten a bad rap for failing to predict downturns like the recent recession. But innovation—not soothsaying—is their job.

AMITY SHLAES

Blame the economists. That’s been the refrain ever since scholars in this branch of social science failed to forecast the 2008 crash, costing stakeholders in our economy trillions of dollars. Now one of their number, Robert E. Litan, a fellow at the Brookings Institution, rides to the rescue of his peers with “Trillion Dollar Economists: How Economists and Their Ideas Have Transformed Business.”

To nonexperts, as Mr. Litan notes, economists often seem to be enablers of bad policy—at the Federal Reserve, on Capitol Hill, or within regulatory agencies and financial firms. Given their expertise, it is thought, economists should be able to protect us from downturns like the recent one.

But, Mr. Litan points out, “prediction is not what all economists do and the worth of economic ideas should not be measured by the success or failure of the few who make predictions.” He prefers to shine a light on lesser-known innovations that have been inspired by the work of economists. Such innovations are collectively worth trillions of dollars and have the potential to offset the damage from the recession. His hope? That readers will come away with “a more positive view about the importance of economic ideas and the way economists tend to think.”

Mr. Litan’s tour highlights the wonky economic ideas that have markedly improved the lives of average Americans. A phenomenon known as artificial scarcity, for example, occurs when suppliers limit availability or raise the price of a product that might otherwise be plentiful or inexpensive. Application of this concept, as recommended by the economist Muriel Niederle, fixed a problem at the dating site Cupid.com. Male customers were barraging females with so many requests for dates that the females couldn’t decide which suitors to meet. Then, on advice from Ms. Niederle and her colleague Dan Ariely, Cupid.com limited the males to two approaches a month. Constrained, men revealed more about themselves and targeted more carefully. More successful matches were the result.

Trillion Dollar Economists

By Robert E. Litan
Bloomberg, 385 pages, $40

The economist Alvin Roth focused on matching of a different sort. Americans and Britons who needed kidney transplants had long tried to find a loving spouse or sibling willing to donate a kidney. But donor compatibility proved so rare that such offers were of little use. Mr. Roth and his colleagues noted that more matches would be possible if the data on willing donors, available kidneys and patients were pooled and sorted, creating a clearinghouse. This system has facilitated hundreds of transplants that otherwise might not have occurred.

Energy is the area where economists have had their greatest effect in recent years. Long ago, they had drawn supply and demand curves showing that price controls and government regulations limited supply, but they were compelled to make the case again after an era of heavy government interference in the economy. Eventually economists’ logic did drive a Democratic president, Jimmy Carter , to partner with Congress in dismantling crude-oil price controls. Economists’ evidence likewise made Congress pass the Natural Gas Wellhead Decontrol Act of 1989. The freeing of various energy sectors created the potential for greater profits, which in turn goaded entrepreneurs and engineers to undertake remarkable technological innovations, such as fracking. The result: an area of growth in an otherwise spotty economy and the possibility of the formerly unthinkable transformation of the U.S. from needy importer to robust energy exporter.

In the course of making his argument for economic thinking, Mr. Litan sketches deft portraits of scholar-colleagues, including Nobel winners like the late William Vickrey, who studied the dynamics of auctions, and the late Elinor Ostrom, the political scientist who won the prize for economics in 2012. Mr. Litan’s summary of Ostrom’s complex work is clearer than most: “Groups can self-organize to share resources.”

In such portraiture, Mr. Litan evokes admiration for his beleaguered brethren. But of course most economists aren’t really underdogs in need of defending. Taken together, they constitute a classic phenomenon, one to which the otherwise comprehensive Mr. Litan gives short shrift: the guild. The economists’ guild, like others, insists on adherence to a particular methodology and set of beliefs—in this case, the standard understanding of macroeconomics, with its emphasis on Keynesian categories and government-fueled aggregate demand. The guild operates with an unofficial but real license from the banks and the federal government.

When it comes to Washington policy, macroeconomists shut out innovative colleagues, some even of the sort Mr. Litan celebrates. The ruling macro-theorists, for instance, demonstrate an annihilating contempt for the Austrian School, which focuses more on individuals than aggregates. The same contempt is directed at Public Choice Theory, which predicts that governments will take advantage of market crises to expand in nonmarket sectors. Scholars from these schools do not win top positions at the Fed or at major universities and firms.

Such guildthink is what proved fatal just before 2008 and after. There were no Public Choice School theorists at the White House or powerful institutions to warn that there might be a housing bubble if government expanded its presence in the housing sector. Few elite economists warned that the administration might use a financial crisis to undermine bankruptcy precedent or socialize health care. Ironically, analysis by economists demonstrates the inefficiency of guilds, yet these scholars perpetuate their own. Until that changes, go ahead and blame the economists.

Miss Shlaes chairs the board of the Calvin Coolidge Presidential Foundation and serves as presidential scholar at the King’s College.

…so that they cannot simply bundle all the risks into mortgage-backed securities and then pass them on to the muppets who run government pension funds. But now regulators have enacted rules that you can call the “No-Skins Game.” Mortgage borrowers don’t have to put down a nickel and can have a debt-to-income ratio up to 43%.”, “More Risky Loans Allowed”, Wall Street Journal

Review & Outlook

More Risky Loans Allowed

The feds ease rules for mortgages but tighten them for business.

Washington has settled on a perfect credit-allocation strategy to stunt economic growth. Step One: Hand out mortgages with little or no money down. Step Two: Discourage loans to businesses.

Last week we told you about Federal Housing Finance Agency Director Mel Watt ’s plan to bring back down payments as low as 3% to Fannie Mae and Freddie Mac , the two government mortgage monsters that helped create the last financial crisis. Along with Mr. Watt’s other initiatives to expand credit, it could lead to another boom and bust housing cycle.

Now the Federal Reserve and other banking regulators have approved new rules for private mortgage-backed securities that don’t require the underlying loans to have any down payments at all. But this latest move may be less immediately damaging than it sounds. As a general matter, the bureaucrats shouldn’t be setting the terms of private contracts. And until a new Congress enacts serious reform, the government—via Fannie, Freddie and the Federal Housing Administration—will likely continue to dominate this market anyway.

Therefore, in contrast to the fate that awaits taxpayers in the government mortgage programs, in the near term participants in the fully private market probably won’t have the chance to come to much harm—even if they’re foolish enough to follow the regulators’ advice on what constitutes a “qualified mortgage.”

Getty Images

So this may be the rare occasion when we can laugh at the hypocrisy of Washington without having to pay for the privilege. We say hypocrisy because these rules from the banking regulators have been marketed since the 2010 Dodd-Frank law as a way to reduce risks by ensuring that everyone has “skin in the game.” The concept was that borrowers and the people who sell these mortgages to investors have to be on the hook for losses, so that they cannot simply bundle all the risks into mortgage-backed securities and then pass them on to the muppets who run government pension funds.

But now regulators have enacted rules that you can call the “No-Skins Game.” Mortgage borrowers don’t have to put down a nickel and can have a debt-to-income ratio up to 43%. The creators of mortgage-backed securities can assemble entire pools of such questionable loans, sell them to the muppets and retain not one dime of credit risk. The regulators even had the gall to keep calling them “risk-retention rules,” though they codified that mortgage risks won’t be retained.

Whenever Congress gets around to reform, it should eliminate this part of the law before real damage is done. Absent reform, investors could get fooled into thinking that risk is being retained by the sellers of mortgage bonds, and that “qualified mortgages” really are safe.

Another part of the new rules demands more immediate attention. Perhaps in an effort to justify the title of their rule-making, the regulators did force risk retention on the market for so-called leveraged loans. These are bank loans made to heavily indebted companies that certainly do carry risk. And that risk does not disappear when slices of these loans are bundled together in what’s called a collateralized loan obligation (CLO).

But get this—the regulators put a mandate to retain 5% of a deal’s credit risk on the buyers, not the sellers, of these loans. Rather than putting new requirements on the banks that make these loans or the businesses that borrow, the bureaucrats somehow decided to lay the burden on CLO managers, who act essentially like the managers of mutual funds in selecting which pieces of loans to buy on behalf of investors. It’s as if Fidelity or Vanguard had to accept losses whenever your bond fund declines in value.

Leveraged loans had little or nothing to do with the financial crisis. But discouraging risky loans to businesses serves two purposes for the Fed. Along with justifying the “risk retention” campaign, this new regulatory burden might partially offset credit-market distortions from the Fed’s experiments in monetary policy. Fed officials no doubt get worried that they are creating a corporate debt bubble when they consider the gargantuan bond issuance of recent years and low credit spreads.

The solution is to start raising rates for everyone, not to single out asset classes that bureaucrats have decided shouldn’t receive additional funding. There’s also a role for judges here in making sure this provision of Dodd-Frank isn’t applied to CLO managers in a way that Congress did not intend.

All of which should give the next Congress even more incentive to rewrite Dodd-Frank, starting with a repeal of the “risk retention” provisions that have become the biggest joke in the Washington bureaucracy.

U.S. 10 QUESTIONS

Lawyer and founder of the Equal Justice Initiative Bryan Stevenson on crime, death row and kids in prison

Your book Just Mercy is about getting legal help for poor people in Alabama. What are the biggest impediments?

We have a criminal-justice system that treats you better if you’re rich and guilty than if you’re poor and innocent. I don’t believe that America’s system is shaped by culpability. I think it’s shaped by wealth. The poor are very vulnerable in a system that relies so heavily on skilled advocates, then doesn’t provide skilled advocates. Until recently, [court-appointed] lawyers in Alabama could only be paid $1,000 for their out-of-court time. A lawyer could make more defending a traffic ticket than a capital case.

You say that 1 in 3 black men in the U.S. under 30 is in jail, on probation or on parole. Is this the scariest stat?

I think the newer statistic that 1 in 3 black males born in 2001 is expected to go to jail or prison during their lifetimes is more astonishing because it’s about the future. And 1 in 6 Latino boys. That wasn’t true in the 20th century.

What do you say to people who say, “It’s easy to not go to jail–don’t commit a crime”?

I say it’s very naive. In this country we have a presumption of guilt that follows young kids of color so that even when they haven’t done anything, they get stopped, and if they don’t manage those confrontations, they get arrested. Also, they’re more likely to go to prison for doing something lots of kids do. Black kids make up 18% of the people arrested [on drug-possession charges], 36% of the people convicted and 55% of the people sent to prison.

How many people have you gotten off death row?

Something like 115.

And how many people have you exonerated?

Under 10. Even when we’ve shown that they’re innocent, we make concessions where the person might plead to something just to get out of prison, because the system is so unreliable.

How do you counter the argument that people who kill deserve to die?

The question with the death penalty is, Do we deserve to kill? Do we have a system of justice that functions free of bias, free of political influences, doesn’t make mistakes? I think the answer is no. People of goodwill can correctly say we can’t engage in this activity when we are so compromised by our own imperfections.

What is the most frustrating part of your work?

We have 14 states with no minimum age for trying a child as an adult. I’ve represented 10-year-olds being prosecuted as adults. They are put in an adult jail. They get targeted for abuse, rape and assault. It’s so unnecessary–we have juvenile facilities. No one defends it, and yet we still have 10,000 children in an adult jail or prison. It really provokes me; it’s our indifference that allows it to continue.

What’s the role of the corporations that build prisons?

I think corporations have really corrupted American criminal justice by creating these perverse incentives where they actually pay legislators to create new crimes so that we can maintain these record-high-level rates of imprisonment.

“To create new crimes”? Isn’t that a big accusation?

These companies spend millions of dollars a year on lobbying to fight reforms that will bring down the prison population. Prison spending has gone from $6 billion in 1980 to $80 billion today. Those dollars are coming from education, health and human services, and roads.

People call you Atticus Finch. Do you mind? I mean, he lost.

I’m really looking for more than Atticus Finch achieved. I want the innocent released. I want people unfairly sentenced to be resentenced. I want kids out of adult prisons. I want more justice than Tom Robinson gets in To Kill a Mockingbird.

This appears in the October 27, 2014 issue of TIME.

…The rules have seen some successes. In Dubai, for instance, house prices have risen only marginally this year after shooting up nearly 50% last year. Homes in the U.K. capital have been among the hottest global assets in recent years…..The most-recent national statistics show London house prices were up nearly 20% in July from a year earlier…Last week, data from buying agency Huntly Hooper showed average sale prices for central London homes costing at least £10 million ($16.1 million) fell 7.4% on the year.”, “London Real Estate Market Shows Signs of Cooling”, Wall Street Journal

“Don’t these worldwide housing bubbles…especially at the very high end (where mortgages aren’t used much)…go a long way to dispelling the mainstream view that U.S. mortgage lenders, non-conforming mortgages, and securitization were the cause of the pre-2008 U.S. housing bubble? I think they do.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Europe News

London Real-Estate Market Shows Signs of Cooling

Real-Estate Agents Blame Constrained Lending, Economic and Political Uncertainty

Home prices in London were up nearly 20% in July from a year earlier, but the market has started to cool. Press Association/Associated Press

By Ed Ballard and Art Patnaude

LONDON—Homes in the U.K. capital have been among the hottest global assets in recent years, but Thursday brought fresh signs the market is cooling off.

Foxtons Group PLC, one of the city’s biggest real-estate brokers, reported weak third-quarter financial results and warned that earnings for the year would fall short of investors’ expectations. The culprit, the firm said in a statement, was “a sharp and recent slowing of volumes in London property sales markets following an exceptionally strong nine-month period.”

The stock fell 19.6%, its largest one-day drop since the company went public last year, to close at 165 pence, 59% below its peak of 402 pence reached in February this year.

London has been the focus of a heated national debate on rapidly rising house prices. The Bank of England earlier this month asked the U.K. government for new tools to curb real-estate lending across the country, after BOE Gov. Mark Carney in June called the entire housing market “the greatest risk to the domestic economy.”

The most-recent national statistics show London house prices were up nearly 20% in July from a year earlier.

But over the summer, evidence mounted that a tipping point had been reached. Leading real-estate agents in September warned that constrained lending, looming interest-rate increases and political uncertainty were making buyers more cautious.

So far, market prices in high-end neighborhoods—targeted by international investors drawn to the U.K.’s owner-friendly property laws, stable currency and a comparatively simple buying process for overseas capital—have been hardest hit. Last week, data from buying agency Huntly Hooper showed average sale prices for central London homes costing at least £10 million ($16.1 million) fell 7.4% on the year.

Foxtons said it expects the market “to continue to be constrained for some time due to political and economic uncertainty within the U.K. and Europe, tighter mortgage lending markets, and mismatches between the price expectations of buyers and sellers.”

The introduction of stricter lending standards in April has helped suppress prices, and the BOE, in an effort to limit the riskiest type of mortgage lending, told banks in June to put restrictions on loans to borrowers requesting mortgages amounting to more than 4.5 times their income.

Policy makers around the world have been taking measures to address incipient housing bubbles. Singapore, Hong Kong and Dubai all have targeted home prices with tighter mortgage-lending criteria and transaction taxes. In New York, the median sales price of Manhattan luxury co-ops and condos was $5 million in the third quarter of 2014, up 22% from a year earlier, according to appraisal and consulting firm Miller Samuel Inc.

The rules have seen some successes. In Dubai, for instance, house prices have risen only marginally this year after shooting up nearly 50% last year.

The possibility of further measures is keeping wary buyers out of the London market, said Chris Millington, an analyst at Numis Securities. The U.K.’s opposition Labour Party, vying for a win in next May’s national elections, has promised to introduce a levy on homes worth above £2 million. The Liberal Democrats, the junior party in the U.K.’s Conservative-led coalition government, backs a move that would disproportionately affect homes in the capital.

“The main uncertainty is over what the tax situation in London is going to be,” Mr. Millington said. “If I switch from renting, or move from a £1 million house to a £2 million house, am I going to be whacked by a mansion tax?”

Despite the market’s downward shift in momentum, London house prices remain among the highest in the world. The average London home cost £596,692 in October, up 7% from September, according to property-search website Rightmove PLC. This was the biggest monthly jump this year, but came after prices fell in three of the past fourth months.

Foxtons said its weak third-quarter sales will hit full-year results, with a common benchmark measurement—earnings before interest, taxes, depreciation and amortization—estimated to end the year below the £49.6 million the firm posted in 2013. Its revenue in the three months to Sept. 30 was £39.9 million, down from £41.1 million in the third quarter of last year.