Dewey & LeBoeuf and Structured Finance

Dewey & LeBoeuf, the result of a 2007 merger between Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, was a prominent law firm that ultimately collapsed in 2012 amidst a storm of financial impropriety. A significant aspect of its downfall was related to its aggressive pursuit of structured finance work and the pressures that this placed on its financial stability.

Structured finance, at its core, involves the creation of complex financial instruments, often backed by assets. These instruments are then sold to investors. Lawyers play a crucial role in structuring these deals, ensuring legal compliance, and providing opinions on the enforceability and tax implications of the transactions. For Dewey & LeBoeuf, structured finance was a key area of focus, offering potentially high fees and contributing significantly to the firm’s revenue. The firm boasted a talented group of attorneys experienced in collateralized debt obligations (CDOs), mortgage-backed securities (MBS), and other sophisticated products.

The firm’s increased focus on structured finance coincided with the boom years preceding the 2008 financial crisis. Fueled by readily available credit and a seemingly insatiable appetite for complex securities, Dewey & LeBoeuf aggressively expanded its structured finance practice. They hired top lawyers, promising lucrative compensation packages in order to capture a larger share of the market. This expansion, however, came at a considerable cost. The firm’s expenses soared, and it became heavily reliant on the continued flow of structured finance deals to meet its financial obligations.

When the financial crisis hit, the structured finance market evaporated. The demand for CDOs and MBS plummeted as investors realized the risks associated with these assets. The pipeline of new deals dried up, leaving Dewey & LeBoeuf with a bloated cost structure and a dramatic drop in revenue. The high-paid partners hired during the boom years became a liability, as the firm struggled to meet its compensation commitments. This led to internal disputes, partner defections, and ultimately, the firm’s bankruptcy.

Furthermore, investigations following the firm’s collapse revealed alleged accounting irregularities. Prosecutors argued that Dewey & LeBoeuf executives engaged in fraudulent schemes to inflate the firm’s revenue and earnings, misleading partners, lenders, and regulators about its true financial condition. While the exact role of structured finance transactions in these alleged improprieties remains debated, the pressure to maintain profitability in a declining market undeniably contributed to the environment that fostered such behavior. The Dewey & LeBoeuf saga serves as a cautionary tale about the dangers of over-reliance on a single, volatile market and the importance of sound financial management, especially within the high-pressure world of Big Law.