Jacob Gershman at the WSJ LawBlog provides the timeline for Dewey & LeBoeuf’s slide into the toilet of financial ruin, which started shortly after the 2007 merger of the two firms, Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae. As the indictment suggests, it was doomed from the start. That can happen. Biglaw is no more immune from the vicissitudes of finance and profitability than anyone else, as much as that may shock some young bucks who are absolutely certain that it’s where God would go for representation.
That it didn’t turn out as well as some thought isn’t a big deal. That the management of Dewey was no less arrogant about it than any two-bit swindler who thinks he’s smarter than everyone else, on the other hand, is quite an indictment. From the New York Times:
Four men, who were charged by New York prosecutors on Thursday with orchestrating a nearly four-year scheme to manipulate the firm’s books to keep it afloat during the financial crisis, talked openly in emails about “fake income,” “accounting tricks” and their ability to fool the firm’s “clueless auditor,” the prosecutors said.
The messages were included in a 106-count indictment against Steven Davis, Dewey’s former chairman; Stephen DiCarmine, the firm’s former executive director; Joel Sanders, the former chief financial officer; and Zachary Warren, a former client relations manager. They were charged with larceny and securities fraud. One of the men even used the phrase “cooking the books” to describe what they were doing to mislead the firm’s lenders and creditors in setting the stage for a $150 million debt offering that was supposed to solve the firm’s financial woes, according to the messages.
Book cooking, clueless auditors, accounting tricks, are nothing new. These are the tools used by swindlers and those trying desperately to keep an enterprise afloat in the belief that revenue will eventually come, fill the coffers and allow life to go on as if the hard times never happened.
No doubt the powers at Dewey believed they were doing nothing more than what any savvy businessman would do under the same circumstances. It wasn’t that the firm wasn’t great, as it was Biglaw, and greatness is inherent, but that it just needed a little time. They were buying time, and the price was shenanigans. Once revenues caught up with expenses, everyone would get paid and be happy, and life would go on at dinner parties and charity functions as if none of this ever happened.
Until the well ran dry and there were no games left to play, and the rats left the sinking ship for other sinking ships that hadn’t yet sunk so low.
But the foolishness and arrogance to send emails around the firm about it? That isn’t so easily swallowed.
It is the kind of rogue language that one might expect to find in emails unearthed during a corporate fraud case from the Enron era, but not at a law firm that carried the name of Thomas Dewey, the former governor of New York, who began his legal career by prosecuting organized crime.
Apparently, this is exactly how Biglaw does it, because this is how Dewey did it. And not only does it seem shocking to those of us on the outside, but it was similarly shocking to some on the inside:
The case is also surprising in that it stems partly from a revolt within the firm itself. Lawyers at Dewey ousted Mr. Davis, an architect of the merger, as chairman just as the firm was preparing to file for bankruptcy. Soon afterward, several of them went to Mr. Vance, urging him to investigate Mr. Davis and his administrative team.
To be clear, there was enormous anger generated by Dewey’s demise, which should come as no surprise. Lawyers who understood that they were set for life watched helplessly as those they trusted hung them out to dry. It’s a long, long fall when you’re so high up. And angry lawyers can be hard on those they blame for their misery.
On the other hand, loose and stupid language in emails may be nothing more than loose and stupid language. So they were playing gangsta among themselves, or as less venerable defendants might say, “talking shit.” Talking foolishly does not mean that anything they did was criminal, though it’s hard to explain that to a prosecutor who sees a smoking gun in an email and starts breathing heavy.
Whether there is merit to the indictment, or it reflects a facile recharacterization of efforts to save Dewey from disaster, whether lawfully, skirting the edge or deep into swindler territory, has yet to be seen. Accounting is a funny thing, and accounting tricks are often not just legal, but the foundation of American commerce. You may not like it (especially since they rarely inure to the benefit of ordinary folk), but that doesn’t make them criminal.
But even if this turns out to be a bunch of prosecutors who lack the business acumen of the assistant manager of Dairy Queen, it doesn’t change the massive arrogance reflected by the attitude and handling of this huge ship going down hard. Perhaps this is a message that the peers elsewhere should chew on a bit. Maybe you really aren’t the masters of the legal universe, and ought to show a little more humility about your good fortune of working for a biglaw firm other than Dewey.