News Former Dewey Partner Details Infighting Prior To Bankruptcy

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    A former Dewey & LeBoeuf partner revealed the details of a tense meeting of the firm's rainmakers in early 2012, just a few months before it declared Chapter 11 bankruptcy. Ralph Ferrara, who also served as general counsel for the U.S. Securities and Exchange Commission (now at Proskauer Rose LLP), testified at the fraud trial of three former Dewey partners - Steven Davis, Joel Sanders and Steve DiCarmine. The defendants are accused of conspiring to commit fraud by misrepresenting the firm's financial condition to creditors. Ferrara provided insight into partner infighting and the significant compromises in attorney compensation which were deemed necessary prior to the law firm's collapse.

    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.
    Jurisdiction:
    • New York
    • US Federal

    Michael M. Wechsler

    Michael M. Wechsler
    Michael M. Wechsler is an experienced attorney, founder of TheLaw.com and of-counsel to Kaplan, Williams & Graffeo, LLC. He was also an SVP and chief Internet strategist at Zedge.net and legal consultant at Kroll Ontrack, a leading service e-discovery and computer forensics service provider.

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  1. army judge
    Greed can be the impetus to achieve great things, and to amass wealth.
    Greed, if used improperly, can kill the golden goose.
      thelawprofessor likes this.