By Chris Dolmetsch, Bloomberg News
The collapse of Dewey & LeBoeuf LLP almost five years ago returned to center stage as two former executives went on trial for a second time on charges they lied to investors before the law firm went bankrupt.
Former Executive Director Stephen DiCarmine and Joel Sanders, the firm’s former chief financial officer, are facing fewer charges than in their initial trial, which lasted more than three months before ending in a mistrial in October 2015.
That case was complicated by details of an alleged larceny scheme that some experts said at the time left the jury probably “confused” and deadlocked after more than 20 days of deliberations.
The case in New York State Supreme Court highlights the challenges prosecutors face in trying to hold individuals responsible for corporate crime, even with the help of cooperating witnesses.
Former Chairman Steven Davis, Sanders and DiCarmine were accused of inflating income as Dewey’s cash flow slowed to a trickle. The trio allegedly used accounting tricks, including mis-characterizing expenses and payments to partners, to hide the firm’s financial condition.
“These defendants and others were part of a scheme that involved lying to banks and insurance companies to get and keep money for their law firm,” Assistant District Attorney Gregory Weiss told the jury in opening statements Tuesday.
Sanders and DiCarmine aren’t only facing fewer charges, but a much lower possible penalty this time around. Originally accused of grand larceny, which carried a maximum penalty of 25 years in prison, the men are now facing two felony fraud counts, which carry maximum prison terms of four years, plus a misdemeanor conspiracy count.
Davis avoided a second trial after striking a deal with prosecutors last year. As part of that agreement, he’s barred from practicing law in New York or acting as an officer of a publicly traded company for five years. A former client- relations manager also charged in the scheme made a similar deal in exchange for 350 hours of community services.
Dewey had been ranked as high as 28th in gross revenue among large law firms by the trade publication American Lawyer before the firm filed for bankruptcy protection in May 2012 while owing creditors $245 million.
Prosecutors allege that the men devised a “master plan” to falsify the firm’s profit and reverse writeoffs for costs incurred on the behalf of clients deemed uncollectible. They also schemed to mis-characterize payments to equity partners, the government said.
“Instead of being honest with the banks, instead of being honest with their insurance companies, instead of being honest their partners, they chose to lie,” Weiss said. “They chose to break the rules and in this situation, breaking the rules meant committing a crime.”
Andrew Frisch, an attorney for Sanders, used his opening statement to attack the government’s reliance on more than a half-dozen cooperating witnesses such as finance director Frank Canellas.
The employees, many who had worked their way up in the firm, were suddenly forced to make a choice between facing charges or testifying against their co-workers, Frisch said.
The lawyer told jurors that prosecutors began investigating the firm after “a few disgruntled partners” complained about Davis’s management. Dewey executives were simply trying to save jobs and preserve the firm amid a “global financial crisis of unprecedented scope,” he said.
“No one in this case no one ever deleted any emails or even tried to. No one in this case no one ever shredded any documents or even tried to,” Frisch told jurors. “There is no cash secretly exchanged in this case. Nobody ever had a secret meeting at McDonald’s or Starbucks or anywhere else.”
The state case is People v. Davis, 773-2014, New York State Supreme Court, New York County (Manhattan).
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