Weep for the Lawyers

Herewith, the sad ending to the demise of a once-great lawfirm that cratered about five years ago, sticking creditors with large unpaid debt.  Dewey & Lebouef, the result of a merger of two large firms with one tracing its roots back to Governor Tom Dewey (famously defeated by Truman in ’48), expanded quickly and borrowed $150,000,000 by issuing its debt under a private bond placement and pursuant to a private placement memorandum which inaccurately described the firm’s finances.

Although typically the SEC chases fraud committed by shady sellers of securities to unsuspecting citizens, or committed in connection with the public markets, Federal (and State) law prohibits material misstatement and omissions in connection with any sale of securities, whether or not public or private and regardless of other exemptions from regulation.

Today the SEC resolved litigation brought in 2014 against the CFO, Controller and lawyer/firm chairman for securities fraud.  While the settlement announced today enjoined all three from future violations, the actual monetary settlements were startlingly small, given the magnitude of the allegations and the fact that many Dewey partners had to pay back many thousands of dollars to the bankruptcy trustee to help pay off creditors.  Monetary assessments of $43,178.82, $8,635.78 and (for the chairman) $130,000 ended all SEC claims against the three.  The chairman also is prohibited from sitting as a director or officer of any publicly held company.

The Dewey matter stands as a cautionary tale for law firms and professional firms generally to be careful about leverage, to be careful about growth, and to be careful about the reach of the securities laws.  Indeed a melancholy end-note to a once-great international law firm, and perhaps one more small nail in the coffin of public opinion of lawyers generally.

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