Leaders at Dewey & LeBoeuf have been sued by UK insurance group Aviva in connection with a bond issued by the now-defunct US firm in 2010.
Aviva and its New York arm filed the action last week (14 December) against former chairman Steve Davis, former executive director Stephen DiCarmine and ex-CFO Joel Sanders following an investigation by the insurer’s lawyers into the sale of the bond two years before the law firm’s collapse.
The suit concerns Aviva’s purchase of $35m of senior secured notes issued by Dewey on 16 April 2010, which the company alleges was missold. It was forced to sell the bond at a discount and suffered damages as a result, it claims.
The company claims in its complaint: “As a result of false and misleading statements that Dewey and the defendants knew or should have known were deceptive, the Aviva plaintiffs were misled in their purchase of the notes, and have suffered significant damages. This action seeks actual damages and attorneys’ fees for violations of federal and state securities laws.”
It alleges that the firm, the defendants and “high-level officers and managers” of the firm prepared and disseminated false and misleading information about Dewey’s financial condition, financial obligations and practices and that Aviva relied on this information when buying the bond.
In particular, it claims that Dewey, Davis, DiCarmine and Sanders had said Dewey was financially sound with a “conservative debt profile”, when it in fact owed more than $100m to certain partners.
It continues: “In fact, at the time of the note offering, Dewey’s financial situation was so dire that it was unable to make required payments due and owing to retired partners, a fact that was not disclosed to the note purchasers.”
The company also alleges that Dewey did not disclose a practice of guaranteeing pay to certain partners regardless of the firm’s financial performance, leading to indebtedness in years in which the firm missed its revenue target.
It claims: “The reason that Dewey and the defendants concealed these compensation guarantees was because they created the possibility of a mass defection of partners, and ultimate collapse of Dewey, if they were revealed. That is in fact what ultimately happened.”
It also alleges that the defendants’ actions with regard to the note offering were part of a larger course of misrepresentation of the firm’s financial condition for their own enrichment, and that they induced lateral partners to join the firm and make a capital contribution by misrepresenting the firm’s financial position.
An Aviva spokesperson said in a statement: “In March 2010, Aviva purchased $35m in senior secured notes through a private securities offering issued and sold by Dewey & LeBoeuf. As a result of the law firm’s financial difficulties, Aviva incurred a financial loss on the sale of the notes.
“It has become clear to Aviva that certain members of Dewey’s leadership failed to sufficiently inform Aviva about the firm’s financial health, and did not provide certain critical information that Aviva required, and was entitled to, when purchasing the notes. Our complaint simply seeks to recover damages stemming from Aviva’s investment and to hold Dewey’s senior leaders accountable.”
Aviva has instructed Iowa-based Nyemaster Goode West Hansell & O’Brien partner John Clendenin and Kilpatrick Townsend & Stockton partners Helen Michael and Stephen Hudson in Washington DC and Atlanta respectively.
Davis, DiCarmine and Sanders were also defendants in a suit filed by former partner Dewey Henry Bunsow earlier this year alleging that the firm’s management ran a Ponzi scheme and misrepresented the firm’s financial situation (14 June 2012).
The defendants were unavailable for comment.