In the spring of 2012 Dewey & LeBoeuf LLP collapsed under a crushing load of debt and a rash of partner defections. Almost immediately allegations of impropriety began to surface and cast an eerie light upon the notoriously secretive world of elite law firms’ compensation practices.

Dewey & LeBoeuf was once a prestigious legal powerhouse headquartered in New York City. The firm was renowned for its corporate, insurance, litigation, tax and restructuring practices. When it collapsed, it employed over 1,000 lawyers in 26 offices around the world.

Prior to its demise, the firm ensnared its partners in a giant Ponzi scheme, according to Henry Bunsow, a former partner with the firm.

Bunsow has accused former Dewey Chairman Steven Davis and other members of top management of misrepresenting the firm’s financial condition in an effort to recruit partners from other firms. He alleges that senior management wooed new partners using a Ponzi-like scheme that portrayed Dewey as fiscally stronger than it was in order to keep the firm afloat and enrich a select few. Bunsow has filed a lawsuit contending that Davis and other firm partners who were accessories to the conspiracy engaged in fraudulent acts and committed “grand theft, grand larceny, false pretences and embezzlement.”

In his complaint, Bunsow states that Dewey’s management lured him with a promise of $5 million a year in guaranteed compensation. But Davis and others “knew they would be unable to keep that promised guarantee in view of the huge debt of guaranteed income then owed to prior partners,” he maintains.

According to Bunsow, the firm required partners to deposit 36% of their estimated annual take into the firm’s account and then conspired to scam partners out of these capital investments and keep the money for themselves. Bunsow claims he suffered $7.55 million in damages as a result of losing the capital he invested in the firm plus lost compensation and benefits.

Bunsow’s case quickly became embroiled in a jurisdictional battle as the defendants sought to move the suit from California, where it was filed, to federal bankruptcy court in New York, arguing that the litigation should be combined with Dewey’s Chapter 11 bankruptcy proceedings. Bunsow argues that the case deals with state tort law claims and should be heard in state court by a California jury.

He maintains that his claims are against the named defendants and not the Dewey estate. Currently the matter rests with a U.S. Bankruptcy Judge in Manhattan who will decide whether to keep the case, send it to arbitration or to New York district court, or return it to San Francisco superior court.

Since Bunsow filed his lawsuit in June, the plot has become thicker, twistier and more litigious – and fingers have been pointed in virtually every direction. For example:

  • Steven Davis has become the focus of an investigation by Manhattan District Attorney Cyrus Vance into his oversight of Dewey.
  • Several other Dewey partners have retained lawyers in anticipation of being sued by the firm’s bankruptcy estate.
  • Former partner Steven P. Otillar has filed a suit against Citibank alleging that Citi conspired with Dewey’s management to hide the firm’s true financial condition. His claim was made in response to Citibank’s lawsuit against him seeking repayment of a $210,000 loan the bank made to pay for his capital contribution to Dewey when he joined the partnership in 2011.
  • Roughly half of Dewey’s former partners signed a settlement agreement and will return a portion of their past compensation to help pay off the more than $300 million owed to the firm’s creditors. By agreeing to the settlement, these partners have inoculated themselves from future lawsuits related to the firm’s dissolution.

What is clear is that Dewey added scores of new partners to its ranks with guaranteed contracts although it had already owed millions of dollars in back pay to existing partners. The accusations made by Bunsow, Otillar and others allege that this Ponzi-like practice together with a debt-heavy balance sheet, the exodus of partners and the firm’s dubious financial performance led to Dewey’s spectacular collapse.

The case has brought to light the clandestine nature of the financial and compensation practices of many large law firms and calls into question whether such practices are legal or whether they constitute fraud.


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Bruce Robertson

Bruce Robertson is a private investigator and founder of Tristar Investigation, California’s premiere detective agency. Bruce is also a media commentator for the investigation industry, featured in the New York Times, CNN, History Channel, MSNBC, Los Angeles Times and many more. You can find him on Google+ LinkedIn and YouTube.