Bloomberg News
Three former top executives at Dewey & LeBoeuf LLP, once the No. 3 legal adviser to banks handling merger deals, were charged with a 'cook the books' fraud scheme that led to the largest law firm bankruptcy in history.
Steven Davis, Dewey's former chairman; Stephen DiCarmine, the former executive director; and Joel Sanders, the ex-chief financial officer, were charged along with former client relations manager Zachary Warren, Manhattan District Attorney Cyrus R. Vance Jr. said today in a statement.
Lies to auditors, partners and the firm's own executive committee began in November 2008 as Dewey's cash flow slowed and continued until March 2012, two months before the firm filed for bankruptcy, according to the indictment. Dewey, which once had 1,300 lawyers in Manhattan and 3,000 internationally, liquidated under court protection with disputes among most of the firm's attorneys resolved through a settlement.
'Fraud is not an acceptable accounting practice,' Vance said in a statement. 'The defendants are accused of concocting and overseeing a massive effort to cook the books' that 'contributed to the collapse of a prestigious international law firm.'
'Bold' Fraud
The Securities and Exchange Commission today sued Davis and four others alleging they led a 'bold and long-running accounting fraud.' The separate criminal charges stem from an investigation by Vance's office that has taken almost two years. Seven of the firm's employees have already pleaded guilty to roles in the scheme, according to the statement.
Davis, 60; DiCarmine, 57; and Sanders, 55, are charged with grand larceny, scheme to defraud, Martin Act Securities Fraud, falsifying business records and conspiracy. The three former executives stole almost $200 million from 13 insurance companies and two financial institutions, according to Vance's office.
Warren, 29, faces charges of scheme to defraud, falsifying business records and conspiracy. The men are scheduled to appear today in Manhattan criminal court.
The New York-based firm, the product of a 2007 merger between Dewey Ballantine and LeBoeuf, Lamb, Green & MacRae, fell apart in weeks after ousting Davis in April 2012 and watching virtually all its partners quit for competing firms.
In 2008, during the credit crisis, Dewey found it couldn't meet covenants on its more than $230 million in debt, Vance's office alleged. That November, the firm allegedly began cooking the books to hide its non-compliance with cash-flow requirements under the debt.
'Doubled Down'
'As bad went to worse, the defendants doubled down, and continued to exaggerate, manipulate, and downright lie in a vain attempt to right a sinking ship,' George Venizelos, Federal Bureau of Investigation assistant director in charge in New York, said in a statement.
The fraud methods, memorialized in a document called the 'Master Plan,' included changing accounting records to make it look like Dewey had either increased revenue, decreased expenses, or limited distributions to partners, Vance's office alleged. From 2008 to 2011, for example, Dewey reversed millions of dollars of write-offs for money it spent on clients, even though it had no means of getting the funds back, according to the indictment.
Lawyers for Davis, DiCarmine and Sanders denied the men committed any crimes. Elkan Abramowitz, an attorney for Davis with Morvillo Abramowitz Grand Iason & Anello PC, said his client acted in 'good faith' and 'in service of the firm's best interest.'
'Simply Wrong'
'The view of the district attorney and the SEC of Mr. Davis's conduct is simply wrong,' Abramowitz said in an e-mailed statement.
DiCarmine's lawyer, Austin Campriello of Bryan Cave, said the indictment 'is guilty of scapegoating' and 'spins some inartful e-mails into crimes.'
'They are attempting to elevate traditional and typical accounting adjustments to crimes,' Ned Bassen, a lawyer for Sanders with Hughes Hubbard & Reed LLP, said in a phone interview. 'We are 100 percent confident that he will be acquitted.'
Michael F. Armstrong, a lawyer representing Warren, declined to comment.
In June 2012, Henry Bunsow, an intellectual property attorney formerly with the firm's San Francisco office, contended in lawsuit that he was recruited to join Dewey without being told its true performance figures.
The defendants 'concocted and participated in a conspiracy intended to misrepresent the financial performance of Dewey,' according to Bunsow's complaint.
Aviva Suit
Aviva Life & Annuity Co. also sued the three former executives during Dewey's bankruptcy, alleging they induced the life insurer to buy $35 million of secured notes in April 2010. According to Des Moines, Iowa-based Aviva, Dewey kept the obligations a secret even from the firm's own partners to avoid the 'possibility of a mass defection.' Aviva alleged the firm misstated 'revenues by over $100 million per year.'
A bankruptcy court approved Dewey's liquidation plan in February 2013 and it was implemented the following month, creating a trust to bring lawsuits and knock out claims. Dewey's Chapter 11 petition listed assets of $193 million and liabilities of $245.4 million.
The SEC case is U.S. Securities and Exchange Commission v. Davis, 14-cv-01528, U.S. District Court, Southern District of New York (Manhattan).
The bankruptcy case is In re Dewey & LeBoeuf LLP, 12-12321, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporters on this story: Tiffany Kary in New York at tkary@bloomberg.net; Christie Smythe in Brooklyn at csmythe1@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net
Posted by Unknown on Thursday, March 6, 2014 - Rating: 4.5
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