The Dewey Trial: Sad Tears for the Victims
Aug. 18, 2015 (Mimesis Law) — The opening to the jury in the trial of the Dewey LeBoeuf Three was carefully devised to fit the standard crime narrative: make them feel the pain of the victims. Bring them to tears for the harm they did. Evoke the feelings of empathy for the poor men and women who suffered at the hands of these criminals.
Via Sara Randazzo at the WSJ Lawblog:
As the Manhattan district attorney’s office pointed out in its 2014 indictment against three ex-law firm leaders, Dewey’s collapse “forced thousands of people out of jobs and left creditors holding the bag on hundreds of millions of dollars owed to them.”
The firm’s May 2012 bankruptcy hurt Dewey’s former employees and lawyers, including retirees who were suddenly faced with declining prospects for their future income. Dewey’s partners were asked to contribute large sums of money through the bankruptcy to pay creditors, even though many felt the firm actually owed them money.
Lost their jobs? Lost their futures? Forced to pay back money even though the firm actually owed them money? This is horrible. Awful. They deserve justice!
But that narrative, teed up for the perfect drive during the opening statement, hooked right as the trial went forward.
But the alleged crimes the D.A. says Dewey’s former chairman, Steven Davis, ex-chief financial officer, Joel Sanders, and former executive director, Stephen DiCarmine, committed aren’t really about what led the firm to collapse.
The firm wasn’t quite the Ponzi scheme it was painted to be. It did bigtime legal work for bigtime clients and brought in bigtime money. The problem was that the money didn’t necessarily match up well with the firm’s commitments to pay bigtime partners, for whom there were promises to pay in excess of the money they brought in.
Somebody failed economics 101 and ended up running a law firm.
Even so, had the news not broken of the investigation, the indictment not been sought and returned, the firm would likely have survived and, given some time, fixed its revenue and expense issues. Everyone would have lived happily every after.
But that didn’t happen, and upon news of the investigation, rats fled the ship before it sunk, thus causing it to sink.
The real “victims,” however, are finally coming to light:
Prosecutors are painting the dozen or so insurance companies that bought into the bond as some of the victims of the alleged financial fraud. And a recent filing made in the case shows exactly how much the companies lost:
Monumental Life Insurance Co.: Expects to lose $3 million of its $10 million investment
Transamerica Life Insurance Co.: Expects to lose $4.5 million of its $15 million investment
Transamerica Life (Bermuda) Ltd.: Lost $1.5 million of its $5 million investment
Life Insurance Co. of the Southwest: Lost $2.2 million of its $5 million investment
Aviva Life and Annuity Co.: Lost $14.8 million of its $33 million investment when it sold its stake in 2012
Aviva Life and Annuity Co. of New York: Lost $0.9 million of its $2 million investment when it sold its stake in 2012
AXA Equitable Life Insurance Co.: Lost $8.9 million of its $20 million investment when it sold its stake in 2012
CUNA Mutual Insurance Society: Lost $8 million of its $15 million investment when it sold its stake in 2012
Pan-American Life Insurance Co.: Lost $1.75 million of its $5 million investment when it sold its stake in 2012
Remember that sad tear evoked by the prosecution’s opening? Nobody mentioned Transamerica insurance being one of the big victims. Nobody sheds a tear for Transamerica.
The problem isn’t that others were touched by the collapse of Dewey. A firm toppled essentially overnight, and indeed, jobs were lost, futures ruined and finances burned. But the link between these outcomes and Dewey isn’t quite what the prosecution would make of it.
It anybody was responsible for what became of these poor victims, it was the prosecution, who knocked down the first domino that led to a long line of harms to follow. And they did so, putatively, to protect the assets of the core victims, the insurance companies who bought the bond that kept the firm afloat.
But if the prosecution has argued in the opening about the poor insurance companies, it would not have had anywhere near the impact of the unemployed workers. After all, they invested, and as with all investments, there is no guarantee of winning. Sometimes investments go south. That’s the nature of the beast.
Further, these insurance companies are big boys, fully capable of performing their own due diligence before making the decision to buy the bonds. No one put a gun to their head. Were they really hornswaggled by Dewey’s wily finance guy, who soothingly told them Dewey was doing fine?
Whether or not the defendants on trial knowingly misled investors and lenders to believe that Dewey had tons of receivables in the mail, that they were floating in dough (because most businesses in need of working capital are, you know, floating in dough), the one immutable fact is that Dewey, left to its own devices, might well have brought in enough revenue from the practice of law to make everyone smile plus pay a bonus or two.
But Dewey never got that chance because the District Attorney pulled the plug on them. The question may not be who, and how many, are victims of the Dewey collapse, but who is truly responsibility for their suffering. As for the insurance carriers, so what? They should know better.