Dewey & LeBoeuf executives, including its former chief financial officer, are accused of running a multiyear scheme designed to hide the law firm’s financial struggles from creditors in the years prior to its filing Chapter 11 bankruptcy, according to a report in The Wall Street Journal.
A grand jury indictment unsealed on Thursday charges former CFO Joel Sanders, chairman Steven Davis, executive director Stephen DiCarmine and client relations manager Zachary Warren with grand larceny, securities fraud, conspiracy, falisfying business records and other misdeeds.
Over a period from November 2008 to March 2012, the law firm “misrepresented expenses and claimed revenue to hide a cash-flow shortfall stemming from the financial crisis,” the WSJ reported.
In that period, the defendants made adjustments to the firm’s books that made it appear that the firm had either increased revenue, decreased expenses or limited distributions to partners, said the WSJ. According to the Manhattan prosecutor’s indictment, at one point in February 2009, Dewey & LeBoeuf told its lenders that it had satisfied a cash-flow covenant, but “in fact, the firm was able to achieve this result only by making millions of dollars of fraudulent accounting entries.”
The Securities and Exchange Commission filed civil charges against Davis, DiCarmine and Sanders on Thursday and also named the firm’s former director of finance and controller in the complaint. In the runup to a 2010 bond deal, the SEC alleges, Dewey & LeBoeuf inflated 2008 profits by $36 million and misstated 2009 financials by $23 million.
The SEC complaint contained details about an email message between CFO Sanders and Dewey’s then chief operating officer. “I don’t want to cook the books anymore,” Sanders allegedly said. “We need to stop doing that.
Lawyers for the indicted executives said their clients did not commit any crimes.
Dewey & LeBoeuf LLP file for bankruptcy protection in May 2012, after two thirds of its partners left. At the time of the filing, the firm owed creditors $315 million.