"Dreier Troubles Show Danger of Single-Equity-Partner Structure," says a headline on the ABA Journal's site today.
One such danger: the single equity partner gets locked up for fraud.
This was in connection with the arrest of Marc Dreier, of the Dreier Law Firm, on wire and securities-fraud allegations. The firm has (or had) 250 lawyers, but only one equity partner – Mr. Dreier himself. Dreier told the National Law Journal last year that he earns all of the firm's equity, controls all its expenses, and pays all partners who are not Marc Dreier a base salary plus business-origination bonuses.
That arrangement probably works great, at least if you are the single equity partner, but it "spells trouble for other partners," the ABA Journal opined today, quoting expert legal consultants for this surprising analytical result. "When that person goes," said one such consultant, "there goes the business." But is it really that simple?
"It's that simple," he continued. "Nobody else has any right to any of the firm's assets. It's just not a business model that makes sense for a 250-lawyer firm. What if Dreier just got hit by a bus? What would happen then?" The other 249 lawyers would sue the bus company, that's what would happen then; the real question is, what if Dreier, let's say, got charged with over $100 million worth of fraud in connection with bogus debt instruments? Well, then 249 lawyers would be wishing he had been hit by a bus instead, probably. But no such luck.
Our multiple-equity-partner structure prevents such dangers, or at least greatly reduces them. Equity partners please take note: the more people you let into the club, the less risk that all of you will be hit by a bus or buses at the same time. Don't you owe it to your firm to plan for these sorts of things?
Link: ABA Journal