How Dewey & LeBoeuf Went Bust

In 2007, Steven Davis spearheaded the merger of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, creating a 1,000-lawyer firm that once ranked among the 25 largest in the country with ambitions to rival big players like Skadden and Cleary Gottlieb.

Just five years later, Davis was among a group of Dewey executives slammed with criminal charges following the firm’s 2012 bankruptcy. He was accused of falsifying financial information and, after the case ended in a mistrial, agreed to give up his law license temporarily to avoid being prosecuted a second time.

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Many have blamed Dewey’s fall on the Great Recession, along with the overpaying of star lawyers even in the face of increasing financial troubles, but Davis has pushed back on this narrative.

“A lot of people pointed to these [compensation] agreements and said, ‘This is the reason the firm collapsed,’” Davis told Bloomberg Law. “’Steven Davis and the Rise and Fall of Dewey & LeBoeuf.’ I don’t believe that. The concept I think is actually what held the firm together. It’s when people became concerned about whether these agreements would be honored that the firm collapsed.”

The recession crashed down on the economy less than a year after the merger, bringing work to a halt across a number of areas and stopping Dewey’s rise as it was just getting started. A wave of partner defections followed, in no small part due to the growing fears about whether the firm would be able to honor its financial commitments.

While many experts have claimed that Dewey’s strategy of luring high-powered partners with big compensation packages made it more difficult for the firm to cut costs, Davis said these packages mostly involved “target compensation agreements” rather than guaranteed money. Either way, he felt like he had to honor the targets, despite mounting profit concerns, considering the amount of business that those high-powered lawyers were bringing in.

“Five percent of the partners produced almost 50% of the revenues, and that group of 5% we could not lose,” Davis said. “Now with the benefit of hindsight, people could attack that and say that, you know, it wasn’t fair. Everyone should have been treated equally. But we felt, as a brand new firm, we didn’t have that luxury.”

Dewey filed for bankruptcy in May 2012, listing debts of $245 million and assets of $193 million. Davis had already been removed from his leadership post a month before, after word got out that a criminal investigation was underway.

Later, Davis, along with former Dewey executives Joel Sanders and Stephen DiCarmine, were charged with more than 100 criminal counts stemming from an alleged scheme to deceive lenders. However, in a 2015 trial, a jury deadlocked on fraud and larceny charges against the three executives and cleared them of falsifying business records.