By Jessica Dye
NEW YORK, Dec 17 (Reuters) - A life insurer that purchased
$35 million in notes issued by Dewey & LeBoeuf has sued three of
the defunct firm's former top executives, accusing them of
concealing the firm's "serious financial problems" to raise
money from potential bondholders.
Aviva Life and Annuity Company and a New York subsidiary
filed the lawsuit in Iowa federal court on Friday, naming former
Dewey chairman Steven Davis, former executive director Stephen
DiCarmine and former chief financial officer Joel Sanders as
The lawsuit alleges that the three violated federal and
state securities laws by concealing critical information about
the firm's financial health in the years leading up to its
failure. They hid information not only from investors but from
the public, the firm's auditors and even its partners, according
to the complaint.
Dewey & LeBoeuf, which in May became the largest law firm in
U.S. history to file for Chapter 11 bankruptcy, was not named as
a party to the suit.
Dewey raised $150 million in a 2010 bond offering in a bid
to refinance its existing debt, according to the lawsuit. The
bond issuance was rare for law firms and marked a departure from
the typical sources of law-firm funding -- banks and partner
A lawyer for Davis, Kevin Van Wart, said the complaint has
"It is another example of investors who, rather than accept
responsibility for their own investment decisions, look for
someone else to blame," Van Wart said. Lawyers for DiCarmine and
Sanders did not immediately return requests for comment, and a
spokeswoman for the Dewey estate declined to comment.
LARGER COURSE OF CONDUCT
Aviva was one of a number of institutional investors
approached in 2010 to purchase notes being privately offered by
Dewey in an attempt to shore up its finances, the lawsuit said.
Aviva was given a memorandum prepared by Dewey that touted the
firm's "strong financial condition and conservative debt
profile" and that left out any mention of disappointing profits
or fat salary guarantees that had been extended to various
attorneys, the lawsuit said.
In the memorandum and subsequent investor presentation, firm
executives painted a picture of a firm on solid financial
footing, the complaint said. In fact, the firm had been
struggling for several years -- and the defendants knew it,
Aviva alleged. The offering "was part of a larger course of
conduct engaged in by Davis, together with DiCarmine and
Sanders, to misrepresent Dewey's financial condition for their
own benefit," the lawsuit alleged.
Dewey ultimately issued $150 million in notes in the April
2010 offering, $35 million of which were purchased by Aviva, the
In April of this year, Dewey informed Aviva that it expected
to default on the notes, the lawsuit said.
Aviva, which says it sold the notes on May 4 for a
"significant loss," is seeking an unspecified amount of damages.
In October, U.S. Bankruptcy Judge Martin Glenn in Manhattan,
who is overseeing Dewey's bankruptcy, approved a $71.5 million
settlement in which 400 partners agreed to return between $3,000
and $3.5 million each in exchange for being released from future
That settlement excluded Davis, DiCarmine and Sanders. On
Nov. 29, Glenn gave Dewey's creditors the green light to sue the
three men for damages stemming from alleged breaches of
fiduciary duty prior to the firm's failure.
The Manhattan district attorney's office launched an
investigation in April into Davis for possible criminal
wrongdoing in his role as chairman. A spokeswoman for the office
declined to comment on the status of that investigation. Davis
has denied any wrongdoing.
The case is Aviva Life and Annuity Co v. Davis, U.S.
District Court for the Southern District of Iowa, No. 12-603.
For Aviva: John Clendenin of Nyemaster Goode, Helen Michael
and Stephen Hudson of Kilpatrick Townsend & Stockton.
For Stephen DiCarmine and Joseph Sanders: Ned Bassen of
Hughes Hubbard & Reed.
For Steven Davis: Kevin Van Wart, Kirkland & Ellis.
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