New York Prosecutors Examining Former Dewey Chairman

Robert Caplin/Bloomberg NewsSteven Davis of Dewey & LeBoeuf.

Michael Kirby Smith for The New York TimesCyrus Vance Jr., the Manhattan district attorney.

The Manhattan district attorney’s office is investigating accusations of wrongdoing at the troubled law firm Dewey & LeBoeuf, the firm said on Friday.

Dewey acknowledged the investigation in an internal memorandum sent to its partners. The firm said that state prosecutors were focused on misconduct by Steven H. Davis, its former chairman, who helped drive the 2007 merger that formed the firm. The memorandum also said that the firm had asked two of its own lawyers to conduct an internal investigation into the accusations.

A group of Dewey partners presented evidence to the district attorney about supposed financial improprieties by Mr. Davis, leading the office to open an investigation, according to a person with direct knowledge of the situation who requested anonymity because he was not authorized to discuss it publicly.

The district attorney’s inquiry is said to be in its early stages, and Dewey is cooperating fully, the firm said.

Mr. Davis, who is 58, did not return telephone calls and e-mails seeking comment. A spokeswoman for the district attorney’s office declined to comment.

The firm is fighting for its survival amid an accelerating wave of partner defections. About 75 of its 300 partners have left the firm since January after a weak financial performance forced management to slash partners’ salaries, many of which had previously been guaranteed.

On top of the partner departures, Dewey is struggling under the weight of a heavy debt load. The firm is locked in negotiations with its banks to restructure its debt. In addition to a $100 million credit line with the banks, it also has a $125 million bond issue, some of which matures next year.

The banks — JPMorgan Chase, Citigroup, Bank of America and HSBC — have given the firm until Monday to come up with a reorganization plan. That deadline, already extended once, could be further delayed, according to people in the discussions.

Dewey has been exploring a prepackaged bankruptcy filing in which the firm would reach an agreement with its lenders over a restructuring while striking a merger with another firm. Such a prearranged filing could avoid a conventional bankruptcy filing and likely dissolution.

Greenberg Traurig, one of the nation’s largest law firms, with more than 1,700 lawyers, has contemplated a possible merger with Dewey, and has also looked to “cherry pick” certain groups of Dewey lawyers. On Friday, however, Greenberg issued a statement suggesting that a merger deal was unlikely.

Dewey told its partners that in light of the district attorney’s investigation, it had asked Harvey Kurzweil and Seth Farber, as counsel to the firm, to conduct an internal investigation into the accusations. Mr. Kurzweil is a veteran litigator who joined Dewey Ballantine directly out of law school in 1969. Mr. Farber, a former federal prosecutor in Manhattan, practices white-collar criminal defense.

The firm ran into problems after financial mismanagement by its leadership. To retain important partners, the firm extended dozens of guarantees to existing talent. And to further fuel growth, it poached star lawyers away from other firms with rich pay packages.

Yet Dewey’s business never fully recovered from the 2008 financial crisis. Faced with disappointing performance, the firm could not meet its compensation commitments. The firm’s partners are owed tens of millions of dollars in deferred compensation.

Many of Dewey’s partners are angry with the firm’s leaders and have accused them of paying themselves their multimillion-dollar guarantees while withholding pay from some of the more junior partners.

Mr. Davis, the firm’s former chairman, assumed leadership of the firm in 2007 after the merger. A graduate of Yale College and Yale Law School, Mr. Davis joined LeBoeuf Lamb in 1977 and was head of the firm’s vaunted energy and utility practice before assuming leadership of the firm.

As the firm’s troubles grew last month, the firm stripped Mr. Davis of his chairman title. He joined four other lawyers in an office of the chairman, with five coequal members. The firm also said that Mr. Davis was moving to London, though he has not yet relocated overseas.

This month, the American Lawyer magazine announced that it was making substantial revisions to the last two years of financial results for Dewey in its rankings of the country’s largest law firms. The American Lawyer, which is the chief trade publication for the legal industry, said it was making the changes to the firm’s revenue and profitability after a discrepancy arose between what Dewey’s management had reported to the magazine and what it had told the media. Dewey defended the numbers it had reported as accurate, explaining that they were arrived at using a different methodology than the one use for its recently published numbers.

Dewey & LeBoeuf was formed in 2007 after the merger of two old-line law firms: Dewey Ballantine and LeBoeuf, Lamb, Greene & McRae. It created one of the largest law firms in New York, with more than 1,100 lawyers in 26 offices around the globe.

Dewey’s namesake is Thomas E. Dewey, the three-term New York governor who also served as Manhattan district attorney.

Source & Image : New York Times