08 Jul 2015

Dewey trial might put law firms off from listing on stock exchanges

The fraud trial of three former Dewey & LeBoeuf executives in New York might serve as a warning to other firms that the legal sector is not always at ease with standards of financial transparency required in the outside world.

New York Dewey trial is casting a light on legal practice Paolo Costa

The focus of the trial of the three men is on whether they intended to mislead creditors about the state of the 1,000-lawyer firm which filed for bankruptcy in May 2012. Writing in Bloomberg Business of Law, Nicolas Morgan, a former DLA Piper partner, says: 'Are big US law firms ready for the transparency and regulatory scrutiny that come with participating in the securities markets?'

'Fake income'

Mr Morgan, founder of Zacarro Morgan in Los Angeles, highlights communications in the final months of Dewey about 'fake' and 'phantom' income as the senior managers in the firm tried to maintain cash flow at the necessary levels for the firm to continue. One famous email reads: 'Keep in mind though that at these levels we will not have the cash to pay the partners by Jan. 31 since $25M is fake income.'

Grab bag of accounting tricks

The US's Securities and Exchange Commission has also taken a civil case following the firm's collapse. It has accused the firm of using a 'grab bag of accounting tricks' to mislead potential investors in a $150m private securities offering. Source: Bloomberg Business of Law