Former Dewey Leaders Face Lawsuit Over 2010 Bond Offering
The Am Law Daily
Three former Dewey & LeBoeuf leaders already defending themselves in legal battles in several jurisdictions are facing new allegations of misconductthis time in Iowa.
The latest legal headache for former Dewey chairman Steven Davis, former executive director Stephen DiCarmine, and former chief financial officer Joel Sanders is a lawsuit filed in federal district court in Des Moines on December 14 by Aviva Life and Annuity Company. Aviva claims in the suit that it lost 45 percent of its $35 million investment in the now-defunct firm's 2010 bond offering "as a result of false and misleading statements" by the men.
The insurance company's 31-page complaint follows a demand letter containing similar allegations that Aviva sent to the trio six months ago, according to Ned Bassen, a Hughes Hubbard & Reed partner who represents DiCarmine and Sanders.
Aviva claims the three former leaders violated federal and state securities laws while preparing the 2010 offeringwhich, according to the complaint, raised $150 millionby giving the impression that Dewey was "financially sound" with a "conservative debt profile." That image, Aviva says, was at odds with the firm's true condition. "In fact," the complaint states, "upon information and belief, Dewey was suffering from serious financial problems and had incurred, and was continuing to incur, hundreds of millions of dollars in undisclosed debt to certain of its highly compensated partners."
Aviva points specifically to Dewey's failure to disclose in its bond offering memorandum that it had missed required payments to retirees in 2010 and that it had struck scores of guaranteed compensation deals with partners.
Based on the information presented in the memo, Aviva bought $35 million in secured Dewey notes in April 2010, according to the suit. The company wound up selling those notes for $19.27 million on May 4 as the firm entered its final death throes less than a month before it filed for Chapter 11 bankruptcy protection. Aviva says in the suit that it is suing Davis, DiCarmine, and Sanders rather than Dewey because "Dewey is currently insolvent."
The suit, which demands a jury trial, makes no secret of the fact that its allegations are based on news articles and documents filed in other suits rather than direct knowledge from the plaintiffs, a method Bassen calls "the equivalent of muckraking."
Bassen continues: "I'd go so far as to say this is a frivolous lawsuit." He specifically takes issue with the suit not naming Dewey as a defendant, saying that leaving the firm out because it is insolvent amounts to a misrepresentation of the law. He adds that lawyers and bankers hired by Dewey in 2010, not his clients, decided what should be included in the offering materials given to potential investors, and that the compensation guarantees were disclosed at an investor meeting and well received as a method of locking in rainmakers.
Kirkland & Ellis partner Kevin Van Wart, who represents Davis, said in an email that "Rather than accept responsibility for its own investment decisions and actions, Aviva has decided to use Mr. Davis as a scapegoat, even though the complaint does not point to any dealings Aviva ever had with him. Mr. Davis looks forward to mounting a vigorous defense."
Three lawyers for Aviva, Nyemaster, Goode, West, Hansell & OBrien partner John Clendenin in Des Moines, and Kilpatrick Townsend & Stockton partners Helen Michael in Washington, D.C., and Stephen Hudson in Atlanta, did not respond to requests for comment Monday. A spokesman for Aviva said in a statement that the lawsuit "simply seeks to recover damages stemming from Aviva's investment and to hold Dewey's senior leaders accountable" for failing "to sufficiently inform Aviva about the firm's financial health" and other information it deemed critical to its investment.
Bassen says he plans to quickly file a request to have the suit transferred to bankruptcy court in New York, "where it belongs."
In seeking to move the litigation, Bassen is pursuing a tactic similar to one he employed in a suit filed against his clients and Davis by former Dewey partner Henry Bunsow. That suit, which Bunsow brought in California state court claiming he was fraudulently induced to join Dewey in early 2011 from Howrey, is now in the hands of U.S. Bankruptcy Judge Martin Glenn, who is overseeing Dewey's bankruptcy.
Davis, DiCarmine, and Sanders are also readying themselves for litigation expected to be brought by the Dewey estate, which has so far excluded the three from settlement deals offered to former partners. Dewey's lawyers have repeatedly said they plan to sue the three, who are also working to secure coverage under a $50 million management insurance policy that Dewey held.
Since the firm's collapse, Sanders has taken a job in Florida as Greenspoon Marder's chief financial officer, DiCarmine has begun studying fashion in New York, and Davis remains unemployed.