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Instead, NYC Off-Track Betting Corp. will issue $250 million in bonds. These funds will go towards paying debts, purchasing new technology, and improving the ...Emails to Play Key Role in Dewey & LeBoeuf Trial
Prosecutors will try to prove that three of Dewey’s former leaders intentionally misled banks and others
Former Dewey & LeBoeuf CFO Joel Sanders appeared for an arraignment at Manhattan Criminal Court last March. PHOTO: CARLO ALLEGRI/REUTERS
When opening arguments kick off on Tuesday in a criminal trial over the collapse of once-elite law firm Dewey & LeBoeuf LLP, emails will play a starring role.
Prosecutors will be trying to prove that three of Dewey’s former leaders intentionally misled banks and others in an ultimately futile effort to keep the firm afloat.
“Can you find another clueless auditor for next year?” one of the defendants, former chief financial officer Joel Sanders, allegedly wrote in one email included in the 100-count indictment. The recipient responds: “That’s the plan. Worked perfect this year.”
Mr. Sanders and his co-defendants, former chairman Steven Davis and former executive director Stephen DiCarmine, have denied any guilt, saying they worked honestly to head off a 2012 bankruptcy that brought an end to a firm with roots dating back more than a century. The firm carried the name of former New York governor and onetime presidential hopeful Thomas E. Dewey.
Prosecutors in the office of Manhattan District Attorney Cyrus Vance Jr. allege the three defendants intentionally inflated revenue and used other accounting tricks to stay in compliance with covenants on $100 million in term debt and revolving credit lines of more than $130 million from four banks. The fraud, prosecutors say, was also used to deceive more than a dozen insurance companies into participating in a $150 million bond offering in 2010.
In addition to scores of emails, the prosecution will rely on testimony from some of the seven lower-level employees at the firm who have pleaded guilty to related crimes. The trial is expected to last between four and six months, and the eight women and four men on the jury must weigh the evidence against each defendant separately.
The trial will be “a long, dense, complex journey into the defendants’ minds,” said Bennett Gershman, a Pace Law School professor and former prosecutor in the Manhattan district attorney’s office. “That’s really what it’s all about.”
The case, one of few in recent decades to charge a law firm head with criminal fraud, brings into focus the pressure law firm leaders face to keep revenue and profit rising even as demand for legal work dims in many sectors. Once considered a collegial profession in which partners banded together to share in the up years and down years, law firms now more often resemble their corporate clients, with billion-dollar-plus revenues and the bureaucracies to match.
“This case is really about law-firm economics and management,” said Marc Mukasey, a white-collar partner at Bracewell & Giuliani LLP who isn’t involved in the case.
Dewey, the product of a 2007 merger between old-line New York firm Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, took more steps than most to shed the old ways of doing business.
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Its top managers commanded multimillion-dollar salaries but produced no revenue. Dewey promised lavish pay guarantees to lure talent, a risky step that many law firms shy away from. And in 2010, the firm made the unprecedented decision, for a law firm, to raise debt through a bond offering.
Prosecutors allege that soon after the merger, Messrs. Davis, DiCarmine and Sanders began manipulating the law firm’s finances to make it appear they were in compliance with bank-loan covenants requiring the firm to maintain certain levels of cash flow.
Allegedly laid out in a document dubbed the “Master Plan,” the maneuvers included overstating revenue, reversing credit-card write-offs, reclassifying lawyer salaries, and seeking backdated checks from clients.
Collecting receipts by year-end is crucial for law firms, which, unlike corporations, use what is called a cash-basis accounting method that recognizes revenue when it is collected and not when it is billed.
One of the seven former employees to take a plea deal, former director of finance Francis Canellas, said in his plea agreement that when the firm failed to meet internal projections in 2008, he discussed accounting adjustments with Mr. Sanders that would keep the firm in compliance with bank covenants. “During these discussions, Sanders and I considered how likely the various adjustments were to be caught by auditors and others,” he said.
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- Fallen Law Firm’s Leaders Are Charged With Fraud (March 6. 2014)
Testimony included in court documents from Dewey’s former chief operating officer, Dennis D’Alessandro, offers a different view. He said the finance department was “overwhelmed, overworked and understaffed,” and “cooking the books” was just a wacky term they used. Mr. D’Alessandro hasn’t been accused of wrongdoing.
The three former leaders, all of whom have law degrees but don’t currently practice law, have steadfastly denied the allegations.
Austin Campriello, a partner at Bryan Cave LLP who represents Mr. DiCarmine, said his client “did not steal any money,” defraud anyone, or falsify records. “What he did do was work tirelessly and lawfully to try to make Dewey & LeBoeuf a success.” Mr. DiCarmine, 58 years old, is currently taking a leave of absence from fashion school.
Andrew Frisch, counsel to Mr. Sanders, said in a statement: “We put more people in prison than any other country on earth, and now they want to criminalize law firm accounting adjustments.”
Elkan Abramowitz, who represents Mr. Davis, said, “The evidence will show that my client had nothing to do with the alleged improprieties in the accounting department,” and that “those improprieties had nothing to do with the failure of Dewey & LeBoeuf.”
Mr. Sanders, 57, is on leave from a position as a consultant to Florida law firmGreenspoon Marder. Mr. Davis, 62, isn’t working. If convicted, the three each face between 8 1/3 and 25 years in prison.
A fourth Dewey employee indicted by the D.A.’s office, 30-year-old Zachary Warren, will be tried after the three former leaders.
Civil charges brought last year by the Securities and Exchange Commission are also likely to be pursued after the criminal trial.
Write to Sara Randazzo at sara.randazzo@wsj.com
