Ex-Partner Sues Dewey, Says Law Firm Was Ponzi Scheme

By | June 14, 2012

A former partner at Dewey & LeBoeuf has sued a group of the law firm’s ex-leaders for fraud, saying they ran the now-bankrupt firm as a Ponzi scheme to benefit themselves.

Henry Bunsow, an intellectual property lawyer in San Francisco, said in court papers that former Dewey Chairman Steven Davis and other one-time members of top management sought to misrepresent the firm’s financial performance and stability as they tried to recruit partners at other firms.

Management was “running a Ponzi scheme in order to enrich themselves and select members” of Dewey, Bunsow said in the complaint, filed Tuesday in California Superior Court in San Francisco.

The case is the first lawsuit to be made public by a former partner against Dewey or its former management in the wake of the firm’s Chapter 11 bankruptcy filing last month. Formerly one of the largest U.S. law firms, the firm collapsed amid a high debt load and a raft of partner defections this year.

Defendants in the lawsuit include Davis; Jeffrey Kessler, the former head of litigation; Joel Sanders, the former chief financial officer; Stephen DiCarmine, its former executive director; and James Woods, a one-time executive committee member.

Davis, through a spokeswoman, declined to comment, as did Ned Bassen, a lawyer for DiCarmine.

Kessler, now a partner at Winston & Strawn, said in an email that the allegations about him were “outrageous, untrue and without the slightest bit of merit.”

“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 wrote.

The other defendants or their representative did not respond to requests for comment.

Ronald Souza, a lawyer for Bunsow, also did not respond to a request for comment. Bunsow is now with law firm Bunsow De Mory Smith Allison in San Francisco.

The lawsuit was first reported by The American Lawyer.

Bunsow joined Dewey in January 2011 from Howrey, a law firm that filed for bankruptcy later that year. In his complaint, he said Dewey’s management lured him to join the firm with a promise of $5 million a year in guaranteed compensation.

But he said 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.”

Bunsow said that in conversations before joining Dewey, Dewey’s management assured him about the firm’s financial condition, with Davis stating he expected its profits per partner to hit $2 million for 2011. But he said the defendants misrepresented Dewey’s financial picture.

Bunsow said Dewey’s management conspired to deprive partners of their capital investments in the firm and instead selectively distributed those investments to themselves and others. He said he suffered $7.55 million in damages as a result of losing capital he invested in the firm and not being paid owed compensation and other benefits.

Davis has been the focus of an investigation by Manhattan District Attorney Cyrus Vance into his oversight of Dewey. He has denied wrongdoing. A Dewey bankruptcy lawyer, Albert Togut, said at a May 29 hearing in U.S. Bankruptcy Court in Manhattan that the firm was “fully cooperating” with the New York probe.

Several Dewey partners have retained lawyers in anticipation of being sued by the firm’s bankruptcy estate and to consider bringing their own claims against Dewey and its principals.

On Wednesday, the firm reached a deal with lenders on a budget to fund the bankruptcy through July. Dewey lawyer Togut said at a bankruptcy hearing that the primary task now for the parties was to seek a settlement under which hundreds of former partners would pay Dewey varying amounts for creditor paybacks.

Bunsow’s case is Bunsow v. Davis, Superior Court of the State of California, County of San Francisco, No CHC-12-521540.

The bankruptcy case is In re Dewey & LeBoeuf LLP, U.S. Bankruptcy Court, Southern District of New York, No 12-12321.

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