Dewey & LeBoeuf executives lied as their law firm failed, say prosecutors

Three former executives conspired to hide a powerhouse law firm's snowballing financial problems from auditors and even their own partners as it headed toward collapse in the nation's biggest law firm bankruptcy, prosecutors said Thursday.

Dewey & LeBouef LLP ex-chairman Steven Davis, former chief executive Stephen DiCarmine and former chief financial officer Joel Sanders oversaw years of accounting tricks and lies, Manhattan District Attorney Cyrus R. Vance Jr. said as he unveiled fraud and other charges against them.

The former execs say they did nothing but strive — legally — to save a struggling firm from the vise of the 2008 financial meltdown.

"The actions taken by Steven Davis when he was chairman of Dewey & LeBoeuf were taken in good faith, in an effort to make the firm a success," his lawyer, Elkan Abramowitz, said in a statement.

Davis, 60; DiCarmine, 57; and Sanders, 55, were released on $2 million bond each after pleading not guilty to fraud and other charges. All attorneys themselves, the three were brought into court in handcuffs.

The now-shuttered firm traced its roots to the early 1900s and later counted former Manhattan DA, New York governor and Republican presidential nominee Thomas E. Dewey among its partners. At its height, it employed nearly 3,000 people around the world. Its 2012 implosion rocked the legal community, put thousands of employees out of work and left creditors trying to recover hundreds of millions of dollars owed them.

Two venerable New York corporate law firms, Dewey Ballantine LLP and LeBoeuf, Lamb, Greene & MacRae LLP, joined to create Dewey & LeBouef in 2007. The new firm boasted such clients as The Walt Disney Co. and Dallas Mavericks owner Mark Cuban, but its prospects quickly soured with the economy.

By the end of 2008, the firm was more than $100 million in debt and unable to meet cash-reserve requirements set by its banks, Vance said. So Dewey's leaders began doctoring records and devising accounting shenanigans to make expenses seem lower and revenue higher, said Vance's office and the FBI, which aided the investigation.

"This is not a simple case of aggressive accounting, bad business judgment or poor management," but of "blatant accounting fraud and deceit," Vance said.

Many tactics involved accounting arcana, but some were as simple as asking clients for backdated checks to count the income in a prior year, the authorities said.

The men sent emails alternately expressing trepidation and celebrating their guile, according to a Manhattan indictment and a federal Securities and Exchange Commission lawsuit filed Thursday. The SEC got involved because Dewey sold bonds in 2010 to finance its debt.

The SEC said Sanders, for instance, wrote to a then-colleague in early December 2008: "I don't want to cook the books anymore." But when DiCarmine came up with an accounting maneuver a few weeks later, Sanders gushed: "That's why we get the extra 10 or 20 percent bonus. Tell (your wife), stick with me! We'll buy a ski house next," the indictment says.

Months later, the indictment says, Sanders wrote to another, unidentified employee: "Can you find another clueless auditor for next year?"

DiCarmine's lawyer, Austin Campriello, said the indictment "spins some inartful emails into crimes." He and Sanders' lawyer, Edward Little, said authorities misunderstood law firm accounting.

"Despite what the district attorney's office apparently believes, the public does not need a scapegoat every time a financial disaster is reported in the media," Little said.

Seven ex-Dewey employees have pleaded guilty, and their cases were sealed, Vance said. Former Dewey client relations manager Zachary Warren, 29, pleaded not guilty Thursday to conspiracy and other charges; prosecutors said he helped figure out the accounting schemes. His lawyer, Steven Hyman, said Warren did nothing wrong at Dewey, his first post-college job.

Reach Jennifer Peltz on Twitter @jennpeltz.

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