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New York prosecutors probe law firm Dewey & LeBoeuf
REVISED: April 27th, 2012, 11:10 pm

By Nate Raymond

NEW YORK (Reuters) - New York prosecutors are looking into allegations of wrongdoing by a key leader of the troubled law firm Dewey & LeBoeuf, according to an email sent by firm management to partners on Friday.

The memo, a copy of which was provided to Reuters, stated that the firm "learned earlier today" that the Manhattan District Attorney's Office has launched a probe into the actions of Steven Davis, formerly the firm chairman and now part of a five-member management team.

A source familiar with the probe said a preliminary investigation was prompted after a group of Dewey partners asked District Attorney Cyrus Vance to examine "financial irregularities" at the firm. The scope of the investigation remains unclear.

Another source familiar with the matter said prosecutors are investigating whether Dewey leadership made misleading statements about payments due to partners.

Davis did not respond to multiple requests for comment. Martin Bienenstock, another member of the management team, declined to comment. A spokesman for the firm, Angelo Kakolyris, also did not respond to requests for comment.

Erin Duggan, a spokeswoman for Vance, declined comment.

Dewey has lost some 70 of its 300 partners since the beginning of the year. The defections, coupled with debt, have left the firm struggling to stay afloat.

News of the probe comes just days before Dewey faces a deadline to renegotiate the terms of a $100 million line of credit.

The firm owes roughly $75 million to a bank group led by JPMorgan Chase that also includes Citi Private Bank, Bank of America Corp and HSBC Holdings PLC.

Jonathan Richman, Dewey's hiring partner, said Friday that the firm was cancelling its summer associate program, an indication that the firm was curtailing hiring plans. He declined to comment on how many law students would be affected by the decision.

The firm has retained a bankruptcy attorney to consider restructuring options. One possibility is a prepackaged bankruptcy that would involve merging with another firm. Greenberg Traurig has said it had "preliminary discussions" related to Dewey but has not elaborated. On Friday, Greenberg said the firm had not made any commitments or agreements and was not involved in Dewey's "financial situation or relationships."

Last year, Dewey hired a number of high-profile, highly compensated attorneys but has been unable to pay many of its long-tenured partners full compensation in recent months, according to two partners who have left.

According to the firm's memo to partners, Dewey has been in contact with the District Attorney's office and "intends to cooperate with that Office's investigation." The memo also said that two Dewey lawyers, Harvey Kurzweil and Seth Farber, would "conduct an internal investigation into these allegations."

(Reporting by Nate Raymond; additional reporting by Joseph Ax, Karen Freifeld and Nick Brown; editing by Eric Effron, Noeleen Walder and Bernard Orr)

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