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Former Dewey partner sues management, claims they were “running a Ponzi scheme”

The lawsuit is the first that has been publicly filed by a former partner against the bankrupt firm

It was only a matter of time. Henry Bunsow, a former Dewey & LeBoeuf partner and IP litigation specialist who now has his own boutique firm, dropped the first publicly filed lawsuit from a former partner Tuesday in California Superior Court.

Bunsow claims that five former members of Dewey’s management team, and a number of John Does to be named later, misrepresented Dewey's financial performance and stability in an effort to recruit partners at other firms. He also asserts that the defendants then used the capital brought in by the new talent to pay favored partners and not run the firm. In a particularly scathing section of the complaint, Bunsow alleges that the firm’s management was "running a Ponzi scheme in order to enrich themselves and select partner of the Firm."

Among those named in Bunsow’s suit is former chairman Steven Davis, who was shown the door in April after New York prosecutors began investigating his actions for wrongdoing after a number of Dewey partners tipped District Attorney Cyrus Vance off to “financial irregularities” at the firm.

The other named defendants are former executive director Stephen DiCarmine, former office of the chairman member Jeffrey Kessler, former chief financial officer Joel Sanders and former executive committee member James Woods.

Kessler, who is now is with Winston & Strawn, told Reuters that Bunsow’s allegations about him were "outrageous, untrue and without the slightest bit of merit."

"It is sad that Mr. Bunsow, who received more of his compensation for 2011 than I did, would lash out with such false allegations against me," Kessler wrote in an email.

Bunsow says in his complaint that Dewey promised that profits per equity partner were expected to be about $2 million in 2011, which factored heavily in his decision to join the firm in January 2011. But he adds that the management team failed to mention at the time that Dewey already owed partners about $300 million in compensation promises and bonuses to select partners from previous years.

He claims that he was guaranteed $5 million per year when he joined the firm, and was underpaid by $3.6 million in 2011 and $1.65 million for the first few months of 2012. Bunsow also alleges that he lost $7.55 million in damages as a result of losing capital he invested in the firm and not receiving what he was owed in guaranteed compensation and other benefits.

Reuters reports that a number of Dewey partners have retained lawyers both in anticipation of being sued by the firm's bankruptcy estate and to contemplate bringing their own claims against the firm and its principals.

In other Dewey news, Reuters says the firm reached a deal with its lenders yesterday on a budget to fund its bankruptcy. The firm’s bankruptcy counsel, Albert Togut, whom it hired in April, said the principal charge now for the parties is to pursue a global settlement under which hundreds of former partners would pay Dewey varying amounts to contribute to creditor paybacks.

Dewey finally announced that it had filed for bankruptcy on May 28 after months of assertions to the contrary.

For more on Bunsow’s lawsuit, read Reuters.

And for more from InsideCounsel on Dewey, read:

Dewey finally files for bankruptcy

Dewey prepares for bankruptcy

Regulators sue Dewey, Warsaw office transfers to Greenberg Traurig

Dewey’s leaders discuss downfall, next steps

Exodus of Dewey attorneys in full effect

Dewey warns employees that firm could shut down

Dewey’s potential merger with SNR Denton falls apart

Dewey encourages partners to jump ship

N.Y. prosecutors probe Dewey & LeBoeuf, firm cuts ties with executive

Dewey & LeBoeuf plans to sublease executive floor

Dewey & LeBoeuf hires bankruptcy counsel

12 Dewey & LeBoeuf partners defect to Willkie Farr

Dewey & LeBoeuf overhauls management team amid more defections

Dewey & LeBoeuf loses 4 more lawyers

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