Things continue to look bad for New York law firm Dewey & LeBoeuf. Over the weekend, reports surfaced that New York prosecutors are investigating the beleaguered firm over allegations of wrongdoing by Steven Davis, formerly firm chairman and, until yesterday, part of its recently appointed five-person management team.

Reuters reported on Friday that a source said a preliminary investigation was instigated by a group of Dewey partners who asked District Attorney Cyrus Vance to examine “financial irregularities” at the law firm. Another source said prosecutors are looking into whether the firm made misleading statements about payments owed to partners.

It didn’t take long for Dewey to respond to the news. Yesterday the firm announced that it had removed Davis from all leadership positions. Reuters reported that it obtained an internal memo detailing how Dewey’s executive committee voted to remove Davis.

Also detailed in the memo was information related to discussions with law firm Greenberg Traurig about a potential transaction. According to the memo, Dewey’s executive committee team said its decision to oust Davis was neither related to the cessation of talks with Greenberg Traurig nor the prosecutors’ investigation.

As for next steps, Dewey is reportedly considering filing for bankruptcy as a means to merge with or be acquired by another law firm.

“We are in discussions with other firms about a possible transaction and will consider those and other options for the firm moving forward,” the memo said.

Greenberg Traurig confirmed in a statement that talks with Dewey had ended.

“Dewey is a firm we hold in high regard with many fine lawyers, though we never considered a merger,” said Greenberg Traurig CEO Richard Rosenbaum.

Since January, Dewey has lost about 77 partners to other law firms because of its financial woes, which stem from extending lucrative pay guarantees to top producers. Prior to the news of Davis’ expulsion, a source told Reuters that Dewey was close to securing a 90- to 120-day extension of about $75 million in loan debt today, which would potentially stay a default that could incite bankruptcy.

On April 19, speculation ran rampant when reports surfaced that Dewey had hired prominent bankruptcy attorney Albert Togut. Togut, who has represented numerous large companies including General Motors, Chrysler Automotive and Ambac Financial in Chapter 11 bankruptcies, was said to be working with Martin Bienenstock, a bankruptcy attorney and another member of Dewey’s new five-person management team.

Among other losses, in mid-March, Dewey lost a dozen partners from its insurance transactional team to Willkie Farr & Gallagher. Later in the month, the firm announced its management team changeover, and a week later, it lost more attorneys from its mergers and acquisitions team to DLA Piper.

For more on Dewey’s latest troubles, read Reuters.

And for more InsideCounsel coverage on Dewey, read:

Dewey & LeBoeuf plans to sublease executive floor

Dewey & LeBoeuf hires bankruptcy counsel

12 Dewey & LeBoeuf partners defect to Willkie Farr

Dewey & LeBoeuf overhauls management team amid more defections

Dewey & LeBoeuf loses 4 more lawyers