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Ex-Dewey Partner Sues Firm: Alleges Ponzi Scheme

June 14, 2012
[ by Melanie Gretchen ] The Dewey & LeBoeuf bankruptcy process has hit a roadblock.  Less than 3 weeks after the New York law firm filed for Chapter 11 Bankruptcy on 5/28/12, a former partner has sued the firm's management team and several partners, including former chairman Steven Davis and global litigation chair Jeffrey Kessler [see WHO'S NEWS story, "Dewey Hopes to Resolve Bankruptcy Quickly"]. Complaint. Describing the firm's structure as "a Ponzi scheme," Harry Bunsow, who joined Dewey in 2011, claims that Dewey misrepresented the financials and pushed partners to make capital investments in the firm, which Dewey & LeBoeuf never intended to repay.  The "conspiracy" began in 2008, Mr. Bunsow said, after the merger of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae.  According to the complaint filed in San Francisco Superior Court, clauses therein forced the firm to extend large compensation packages to certain partners. As revenue declined during the financial crisis, problems exacerbated by the multi-year obligations, prompted senior partners to cover problems by inflating its numbers to the media and withholding information from employees, the complaint said.  The firm told the monthly magazine, American Lawyer, that it made gross revenue of $935 million in 2011 and profit of $335 million.  In fact, the firm made $781.5 million in revenue and profit of $252.5 million, the claim said. Firm Investment to Partners. In addition, Mr. Bunsow claimed Dewey's partners forced him to make capital investments in the firm as a condition of his employment – while knowing that the money would never be repaid.  Rather than going into the firm, the $1.8 million he invested was disbursed to current partners to fulfill the firm’s compensation obligations, he alleges: "Defendants never intended to return the departing partners’ capital investments, but rather intended to selectively distribute said capital to themselves and others, thereby denying the return of capital to most of the departing partners.  This way, defendants used partner capital investments as a form of revenue to enrich themselves and to hide the dire condition of the firm from the public." For further details, go to [Dealbook, 4/27/12].