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According to an email sent by Dewey to its partners on Friday, the firm “learned earlier today” that the Manhattan District Attorney’s Office has launched a probe into the actions of Steve Davis, current member of Dewey’ management team and former chairman of Dewey.
Industry sources report that a group of Dewey partners had asked the District Attorney Cyrus Vance to look into financial irregularities at the firm. While the scope of the probe is yet unclear, it is related to handling of finance and it has to do with the former chairman of the firm.
What has been learned so far is that prosecutors are investigating whether the leadership of the firm had made misleading statements about payments due to partners. The probe comes just before the last weekend in the hand of Dewey, after which it will need to renegotiate a $100 million revolving debt.
Considering the fact that the firm owes a bank syndicate about $75 million in direct loans from a revolving $100 million loan account set for renewal by the end of April, chances seem slim that the firm would be able to steer itself out of jeopardy.
While comments could not be had on the probe issue from Dewey management, on the off-track, Dewey’s hiring partner, Jonathan Richman, told the media that the firm was cancelling its summer associate program.
According to the memo circulated to partners on Friday, the management of the firm has been in contact with the District Attorney’s office and “intends to cooperate with that Office’s investigation.” The memo also mentioned that two internal lawyers, Seth Farber ad Harvey Kurzweil would conduct “an internal investigation into these allegations.”
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The bank syndicate whose deadlines Dewey has to meet is made up of JPMorgan Chase, Citi Private Bank, Bank of America Corp and HSBC Holdings PLC. Considering that all of these banks are in problems of their own with executives being publicly taken to task by shareholders, it is doubtful that any would extend a helping hand bypassing formal requirements.
As things stand now, industry experts are of the opinion that most of the original loan agreements with Dewey may be already under default due to Dewey failing to maintain the percentage of partners stipulated by such agreements.
A DA Office probe into financial irregularities at this moment is rather akin to sounding of the death knell, since the publicly available information cannot be ignored by bankers, and the banks may be compelled to demand repayment instead of renewing the loans.
It’s not that the firm management has not considered the possibility and it has retained a noted bankruptcy attorney for handling anticipated demise of business. Most star partners have already jumped ship throughout 2012 leaving gaping holes in Dewey’s market collateral.
