Trials & Litigation

Defendant Dewey Leader Calls Ex-Partner's 'Ponzi Scheme' Suit 'Sad,' Says Plaintiff Got Bigger Bucks

Responding to a lawsuit filed by a former Dewey & LeBoeuf partner that accuses leaders of the now-bankrupt law firm of “running a Ponzi scheme” in recent years, one of the five named defendants described the litigation by Henry Bunsow as “sad” and said Bunsow received more of his promised compensation for 2011 than the defendant did.

Calling the suit’s allegations against him “outrageous, untrue and without the slightest bit of merit,” former Dewey litigation chief Jeffrey Kessler said most of the allegations were directed at other defendants and concerned matters in which he had no involvement. He also said, in an email to Reuters,”It is sad that Mr. Bunsow, who received more of his compensation for 2011 than I did, would lash out with such false allegations against me.”

Kessler is now a partner at Winston & Strawn. Four other named defendants either declined to comment or did not respond to requests for comment by the news agency. The suit was filed Tuesday in San Francisco County Superior Court.

As detailed in an earlier post, the suit (PDF) accuses the five and other “Doe” defendants of conspiring together to misrepresent Dewey’s financial performance and stability, both privately and publicly, in order to lure lateral partners to join the firm and contribute needed capital to help keep it running. The suit contends that the firm’s money was improperly distributed to those in charge and other favored partners rather than across the board for the benefit of the partnership.

Meanwhile, a lead restructuring lawyer for Dewey told a Manhattan judge overseeing the firm’s Chapter 11 bankruptcy filing at a Wednesday hearing that the firm had reached agreement with creditors on a budget through July for winding down its operations as it seeks to collect on accounts receivable, the Reuters article reports.

At this point, said attorney Albert Togut, the primary focus will be on seeking a global settlement with hundreds of former partners concerning the amounts they will contribute to help pay a portion of the law firm’s debts.

According to the allegations of Bunsow’s suit, he was falsely told, before joining Dewey in early 2011, that the firm was on target to exceed its budget for the year. Instead, he says, it was teetering on the brink of bankruptcy, having failed to meet budget in every year since the 2007 merger that created the more than 1,000-attorney legal shop. When Bunsow asked about firm debt obligations before he joined, he alleges, nothing was said about some $300 million owed for partner pay guarantees and bonuses from prior years.

The suit says Bunsow was guaranteed $5 million annual compensation in 2011 and 2012 and required to make a $1.8 million capital contribution by the end of 2011. It contends he and others learned at a Jan. 27, 2012 partnership meeting that $140 million—nearly half of the firm’s 2011 profit—had been used to pay debts owed to partners for prior years. Although the firm had reported $340 million profit on $980 million in revenue to the Am Law 100 survey, partners allegedly were told there by then-chairman Steven Davis that Dewey actually had made only about $280 million on $780 million in revenue.

On April 16, 2012, at another partnership meeting, it was disclosed that the PriceWaterhouseCoopers accounting firm had been retained to review partner pay distributions made in 2011 and 2012, in conjunction with Dewey’s partnership agreements, the suit says.

“During this meeting, the representative of PWC reported that the firm had not been making distributions in accordance with the PSA for many years and certainly not in 2011,” the suit continues. “It was further reported that 83 percent of firm profits had been used by defendants for fraudulent and improper payments to themselves and other privileged partners, leaving plaintiff and the remaining partners without a source of profit for distributions to them.”

Additional coverage: “Former Dewey Partner’s Suit Compares Firm Leaders’ Lateral Partner Recruitment to ‘Ponzi Scheme’”

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