The Rise and Fall of Dewey & LeBoeuf
Dewey & LeBoeuf was the result of the 2007 merger of two prestigious New York law firms, Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae. At its peak, Dewey employed over 1,000 attorneys and 3,000 people globally. It was one of the world's largest blue chip firms, built through a series of mergers and choice personnel acquisitions. As with many law firms, the most effective rainmakers were lured by promises of lavish guaranteed contracts.
Trouble Begins for the Law Firm in 2008
Prosecutors allege that the firm's troubles began shortly after the merger. Its poor financial performance, combined with the country's economic crisis, lead to Dewey & LeBoeuf's breach of a cash flow covenant which was the basis of financing its growth. When business slowed down in 2008, the firm accelerated the process of hiring rainmakers, hoping that investments in making rain would cover up the law firm's financial drought.
During the same year, Dewey & LeBoeuf faced objections to legal fees and billing practices in Bankruptcy Court concerning private equity company, Wextrust Capital. Ferrara was reportedly a key connection leading to the court appointment of a Dewey partner as bankruptcy receiver. Even with a fee reduction by receiver, Timothy J. Coleman (the former Dewey partner now with Freshfields Bruckhaus Deringer LLP), the firm still racked up an eyebrow raising $2.2 million in legal fees in just the first 20 days on the job. Attorney billing rates charged were up to $950 for partners, $605 for associates, and close to $300 for summer associates and paralegals. Dewey & LeBoeuf ultimately billed the bankrupt company over $9 million for just 14 months of work. Judge Denny Chin scolded the law firm and reduced Dewey's fees, which marked the beginning of several years of billing disputes.
The defendants allegedly continued to fraudulently misrepresent the firm's performance and financial condition from 2009 through 2012. Irregularities included reporting loan payments and capital infusions as legal fee income, inflated revenues, along with backdated checks to meet financial requirements. Notable and quotable electronic evidence introduced by prosecutors included an email exchange between Sanders and a Dewey employee concerning its auditors, Ernst & Young.
"Can you find another clueless auditor for next year?"
"That's the plan. Worked perfect this year."
Ferrara Details a 50% Pay Cut for Dewey Rainmakers
In his testimony, Ferrara described a intense atmosphere at a February 2012 meeting, just a few months before the law firm declared bankruptcy. Present were Davis, the firm's chairman, and its 17 top moneymaking partners. In order to keep the law firm afloat, a pay cut of up to 50% was deemed necessary. This would represent a big bite out of Ferrara's approximately $5 million annual salary. While the partners understood and appreciated the dire circumstances, they were incensed to learn that 100 Dewey partners had special compensation agreements that were not tied to the firm's performance. This revelation led to mass partner defection to other law firms and ultimately the complete collapse of Dewey & LeBoeuf.
- New York
- US Federal