Three former top executives of Dewey & LeBoeuf, the giant law firm that filed for bankruptcy protection in 2012, are expected to be charged on Thursday with misleading other lawyers and lenders about the financial health of the firm.
The Manhattan district attorney, Cyrus Vance Jr., is expected to announce the filing of criminal charges against the three, Steven H. Davis, the firm’s former chairman; Stephen DiCarmine, the former chief executive; and Joel Sanders, the former chief financial officer, two people briefed on the matter said.
The details of the charges are still unclear. However, one of those people, who spoke on the condition of anonymity because the charges have not been made public yet, said that Mr. Vance would possibly accuse the lawyers of grand larceny.
The filing of charges against the three lawyers would be the most significant event yet in the collapse of a once mighty firm that was created by the 2007 merger of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, two of New York City’s most prestigious law firms. The collapse of the firm, which once had 26 offices around the globe and employed 1,300 people, was closely followed in the New York legal community as large groups of lawyers at the firm left to join other practices.
New York prosecutors have been investigating accusations that Dewey’s leadership committee misled other lawyers about the firm’s financial health, along with investors in a private sale of debt to raise financing for the firm. A grand jury has been reviewing evidence in the investigation since the fall.
The Securities and Exchange Commission is also expected to file a civil action related to apparent misrepresentations in the firm’s 2010 sale of $125 million in debt notes to refinance some of its bank debt, another person briefed on the matter said.
Civil and criminal charges could also be filed against others who once worked for the firm, these people said.
Erin Duggan Kramer, a spokeswoman for Mr. Vance, declined to comment. An S.E.C. spokesman also declined to comment.
Lawyers for the three former Dewey executives either declined to comment or could not be reached for comment.
A series of off-color emails about Dewey’s health â€" messages that emerged in the wake of the firm’s collapse â€" are likely to underpin the indictment, a person close to the matter said. In turn, defense lawyers will most likely argue that the emails are being taken out of context.
Prosecutors are expected to home in on the aftermath of the merger between the two firms.
On paper, the merger seemed a brilliant way to bring together the talents of two top law firms. But soon after the merger was completed, the firm began experiencing financial difficulty because of long-term commitments it made to pay multimillion-dollar salaries to some of its star lawyers. The law firm agreed to those contracts just as the financial crisis hit and took a big bite out of legal work at top firms, including Dewey.
Law firm consultants, however, said the financial crisis hurt Dewey more than most firms because of the large debts it owed to its star lawyers and lenders.
The autopsy of Dewey’s wreckage during its bankruptcy proceeding showed a classic case of mismanagement and borrowing to try to stay afloat. After piling up tens of millions of dollars in I.O.U’s to its partners, the firm tried to make up for lost revenue by hiring new lawyers so it could increase its billings. But the plan failed as expenses continued to rise and the sour economy depressed the firm’s ability to sharply increase its revenues.
In the bankruptcy case, the largest ever involving a law firm, the former Dewey partners agreed to return some of their pay to meet some of the creditors’ claims, which totaled about $550 million. They contributed about $72 million to paying down those debts.
The collapse of the firm led to much second-guessing by lawyers at Dewey. Some partners accused the firm’s executive committee of not keeping a closer eye on three men who were responsible for running the firm’s daily affairs. Other lawyers privately conceded that should have been paying closer attention to the firm’s finances and not relying on the leadership team to make all the decisions.
