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Update:  The Intra Firm infighting is just beginning to take shape.  Reportedly there are groups of certain partners of Dewey LeBoeuf who are meeting to plot their strategy at recovering what they believe is their entitlement to monies that were deferred.  BankruptcyMisconduct believes they won't see a dime, but their efforts could prove very effective at reducing the funds that some partners will otherwise be forced to surrender in the Claw Back actions.  In any event, as described further below, BankruptcyMisconduct believes that the real fight, the most interesting struggle among the soon to be former partners, will be on the criminal prosecution front.  There is likely to be only one deal extended by any given prosecutorial authority, and there are only so many top white collar criminal attorneys, contrasted with many partners who held authority or learned of certain facts.  Be sure to bookmark our ongoing Perp Chart so that you can track the progress of investigations and the full aftermath.

Even with a dwindling partner pog at Dewey LeBoeuf, their scheming and positioning hints at some serious Intra Firm Conflict down the road.  Even after Dewey LeBoeuf no longer exists as a going concern, the drastic imbalance between the financial fortunes of the partners will continue to haunt them.

Dudes, you Ain't Seen Nothin' Yet

The firm is not just failing because employees are leaving the firm, the firm is not just failing because they have a cash flow problem.  The firm is under water like whale shoot on the bottom of the ocean floor.  Let's look at the liabilities again:

  • $ 75 Million credit line
  • $ 80 200 Million pension liability Estimated by Fed's PBGC
  • $125 Million private placement
  • $ ??  General American Mutual hush money
  • $ ??  WARN Act liability
  • $ 39 Amounts owed vendors and general trade creditors Estimated
  • $ ??  Lease and contract liability
  • $ ??  Deferred Partner Compensation
  • $ ??  Partner Equity Contributions / Loans

We don't know the exact amounts, and some of them we are only estimating.  But let's take a look at the big picture.  The firm claimed revenue of almost a billion dollars at their peak, though it was reduced by Shutran's "Accounting Something" to about $750 million. Point is, you've got a firm that was generating and spending on the order of $700 Million dollars per year.  And not unlike our Congress, these suits are big time addicted to spending the money.  That is a huge negative cash flow, and once revenues dry up, or turn out to be bogus, the negative cash flow eats into the lives of innocents.

The Intra Firm Risk that BankruptcyMisconduct described in our prescient, provocative, and original piece on the Viability of Dewey LeBoeuf pales in comparison to the infighting that is on the horizon.  Of course, Marty J. Bienenstock was undoubtedly acutely aware of the dynamic that will be affecting partners who are "owed money" whether in his pre-packaged plan or the plain old bankruptcy plan down the road.  Having said that, we feel obligated by fairness to report Marty's public comment on the issue, following in the eloquent echoes of Stevie "The Wonder" Davis:

“There  are  no plans  to  file  bankruptcy, ” Martin   Bienenstock,  the  head  of  Dewey’s  restructuring practice  and  a  member  of  the  office  of  the  chairman,  said  late  Monday.   “And  anyone  who s ays differently d oesn’t  know  what  they’re  talking  about.”

Actually, a dissolution of the firm outside of bankruptcy is theoretically possible, with the lenders' support.  Still, we find Marty's quote quite disingenuous.  And the end result is the same ... no more Dewey.  But exactly which partners bleed first and how much is the key, what we are talking about today.

Umm... an what's this item General American Mutual hush money?  We have no idea ... other than let's say between the $100 Million paid by Goldman and Morgan Stanley, each, and the $3 Billion dollar amount of the lawsuit.  Yeah, we've been talking about this one for a while because we didn't get the memo from the crime boss telling us otherwise.  Though we've gotten a death threat or two from organized crime in the past...


Partners as Creditors vs. Forfeiting Bag Holders

Compensation was withheld from equity partners for some period of time.  Anyone out there have an opinion if these partners are creditors or owners?  Well, both.  They are definitely creditors.  The issue you'll want to look up is something called "Priority".  For example, that WARN act stuff gets 100% before some other debt.  In fact, you could ask anyone on Bruce Bennett's bankruptcy team to explain equitable subordination to you.  We are highly confident that they won't be stifled by any notion of conflict of interest in answering the question for you.

Long story short, moneys owed to Partners are low on the priority totem pole. 

But it can get worse.  Partners who leave the firm are forfeiting all sorts of compensation.  Why is that bad if they're not getting paid?  Make no mistake, at the very end of the day the Partners will be funding the creditors claims.  A partner who is owed money can offset his shared obligation with the other partners for amounts that he is owed.  But not once they are forfeited! 

Last One Out - Turns Out The Lights  becomes   Last One Out - Screw 'em if you can and Maximize Your Own Position


And what is this?   The Gang Of Four is encouraging partners to leave. 

What a difference a day or two will make.  When is the best time to leave the firm?  After filing for bankruptcy when the firm stops paying you, and you file an administrative claim, or receive some other retention and stay bonus. 

You've known about "Clawbacks" - but just wait for Marty and Bruce's clawback offset lottery.
Whoever said life was fair?

 

Innocent vs. Guilty - Informer vs. Tacit Victim

 
Couple things to say here.  First on the subject of "Guilt".  There is no need to remind lawyers of this, but the corporate veil is gone in a flash for a criminal enterprise.  And what are the predicates to a RICO case?  Mail fraud and wire fraud, a number of sequential acts.  So who believes that Steven Davis did absolutely nothing wrong, or in the alternative did a single act?  And here is another point to ponder amongst friends at the empty water cooler - once a RICO case is established is intent deprecated in favor of membership in the money flow?

Yeah, crime makes it bad.  Potentially very bad, for everyone who received money.  But are we talking about just Steven Davis, or just the decline in revenues?  We believe there is more, much more.  Remember, Dewey LeBoeuf didn't suffer a decline in revenues but instead a restatement of revenues due to Shutran's "Accounting Something".  Remember, when the firm was at $900+ Million things were good but kind of tough?  Has anyone heard anything remotely reasonable to explain Shutran's "Accounting Something".  Well, we observe that Shutran knew something about something, at least the Accounting Something.  Shutran's a very smart lawyer so he wouldn't be fooled by a fancy ledger book entry.  We think he's involved.  But lets imagine that we are one of the other executive committee members.  Are we going to hear about the $155 Million dollar "Accounting Something" and shake it off as just something.  Do we have such a deep love and respect for Davis and Shutran that we just brush it off and take our smaller draws home to our frugal wives?  Al right, BankruptcyMisconduct is going to way out on a limb again.  We believe that a whole bunch of partners from the old executive committee share in culpability for some fraud.



Is that it?   Do we think it's just fraud?

Of course not.  We believe that there was a cover-up of criminal activity in the General American Mutual client raping.  We believe that the "Accounting Something" is related to hush money being prepared for John M. Huff.  We believe that all of the lawyers involved in the $3 Billion litigation may have egregiously failed their self reporting duties to their self regulating bar associations, but that's for another series of web pages.

 

What about Informer vs. Tacit Victim?

Glad you asked.  First, remember how you heard the derision when BankruptcyMisconduct presented Informant Inclination as a factor of Intra Firm Risk in our Viability analysis?  Well, now we see the Manhattan DA performing a publicly acknowledged investigation of Steven Davis, which was prompted by "a goup" of partners from the firm.   Now do a timeline which shows the date of this announcement with the web page and blog accounts which declare "Dewey is Done" or similar sentiments.  Suffice it to say,"We told you so".

We think there is a lot more talking to be done.  We think that the former managing partners are delusional boobs if they are letting only Steven Davis have the advice of criminal counsel.  This is another one of those "first to the deal window" situations. 

Are you going to let your former partners get first choice of criminal counsel?

Remember, a conflict for one lawyer is a conflict for the firm.  So if there is a criminal law firm that you'd like to represent you, if any one of their lawyers spoke with a Dewey LeBoeuf employee, the entire firm is conflicted out of representing you.  There isn't a lot of time here.  Do you want to be represented by a kid out of law school?  You will be able to sleep better once you've retained an attorney with experience in this type of matter.  Your counsel can make anonymous inquiries on your behalf to the D.A.  Your counsel can find out what kind of deal you could get without negotiating.

If you wait, then Davis makes the deal and testifies.  Against you while he's got immunity.  Then ... You'll only get to testify against the advice of your belatedly retained counsel.


OK, that was a focus on the top level partners, who were really in on things

What about the rest of you lawyers?  Are you happy about your coming obligations to pay off John M. Huff's beneficiaries, unfunded pensioners, bondholders, and so forth?  Wouldn't you like to put the schemers on the defensive?  Are you comfortable with the idea of trusting others to resist the urge of the Prisoner's Dilemma game?

There are ethical things about which you are obligated to complain.  And there are criminal matters too.   What did you know and when did you know it?   "Better Late Than Never" ain't just a saying at the senior nudist colony.

The existence of serious criminal controversy will dampen the justification held by any trustee that seeks to marshal funds from your accounts to the estate.  You will justly be able to argue that the parties responsible for the criminal conduct owe first.  You will also be able to claim offsetting damages as a result of the crimes, for your own lost revenues, harm to your career, opportunities, adverse impacts on your health and so forth.  Once the estate is found to have transformed into a criminal enterprise, you are transmogrified into a victim instead of just another deepish pocket forced to attend the dreary after party.  Of course, that assumes you have been proactive enough to make sure that a criminal investigation is commenced against those parties. 

On the other hand, if you were involved yourself, then you've got some bigger worries and you really need to be thinking about a Deal.

Anyway, just an idea.  If you prefer to pay 100% on the liabilities and receive 0% on your contributions, then just let the cards fall by themselves.


It's not like Steven Davis isn't thinking about a deal already...
 

Why would Stephen Davis seek a Deal?
 

 

Dewey LeBoeuf Accelerating Defections