It’s been two and a half months since opening statements were delivered in the criminal trial of three of Dewey & LeBoeuf’’s top managers for fraud and the prosecutors’ case is winding down: All seven cooperating witnesses have now testified or started testifying.
Since late May, a wide variety of witnesses — from former top partners and top personnel to members of the collection department — have appeared in the downtown courthouse, providing a strange variety of details about the inner machinations of what was once a global law firm with more than $1 billion in revenue.
From anecdotes about celebrations in the city’s best steakhouses and eateries to revelations by former partners that their loans were never repaid, the trial has provided a slow-motion portrait of a firm struggling to stay afloat.
For those who haven’t been following at all, prosecutors from the Manhattan District Attorney’s Office have been building a case that former Dewey chair Steven Davis, former executive director Stephen DiCarmine and former chief financial officer Joel Sanders, committed fraud and falsified business records in an ultimately failed effort to keep the firm afloat.
Seven former Dewey employees have pleaded guilty and agreed to cooperate with prosecutors.
Below is a recap of the trial, pulled together from the various reports on the trial that American Lawyer, Law 360 and other publications have produced. Those reporters have chronicled the ups and downs of one of the most closely watched trials, at least among lawyers, in decades. The dates represent the publication date of the news article cited, not the day testimony was given.
Even today, the trial continues and we’ll continue to update this file. As Steptoe & Johnson’s New York managing partner Michael Miller told the American Lawyer, early on, “This is more of a marathon than a sprint.”
[caption id="attachment_3850" align="alignnone” width="300"][Image “Steve Davis of Dewey & LeBoeuf LLP in New York, U.S. April 8, 2007 Photographer: Robert Caplin/Bloomberg News” (src=https://bol.bna.com/wp-content/uploads/2015/08/Dewey-Davis-1-e1439421515549.jpg)]Steve Davis of Dewey & LeBoeuf LLP in New York, U.S. April 8, 2007 Photographer: Robert Caplin/Bloomberg News[/caption]
Opening statement coverage.
- In the first day of an expected months-long trial, prosecutors said three former top managers of the now defunct-Dewey & LeBeouf committed fraud to deceive lenders and investors about the firm’s financial health. But defense counsel “pinned the blame for accounting misconduct” on subordinates and argued the firm’s demise was triggered by the recession, the departure of key rainmakers, and bad publicity fromthe New York County District Attorney’s Office criminal investigation .(American Lawyer)
- The defendants “met at Del Frisco’s steakhouse where they hatched a plan to cook their books and make it look like the firm was profitable when it was actually teetering on insolvency … [and] continuedto richly compensate themselves with packages of more than $2 million a year until the firm’s 2012 bankruptcy.” Dewey & LeBoeuf was formed in 2007 through the merger of the prestigious firm of Dewey Ballantine — founded by one-time New York Gov. Thomas E. Dewey — and LeBoeuf, Lamb, Greene & MacRae. (New York Post)
- Prosecutors said the defendants relied ona document called the “Master Plan” that spelled out accounting adjustments that could help the firm appear to meet crucial covenants on its bank debt and led to falsely reducing expenses, falsely increasing revenue, and falsifying invoices, among other improper adjustments. (WSJ)
- A defense lawyer called the prosecution’s case“nothing more than a misguided, and fanciful theory,”and said Dewey’s bankruptcy was the result of an exodus of “greedy partners … who sought greener pastures” and that prosecutors’ allegations that his client oversaw a plan that fraudulently inflated the firm’s financial statements are wrong. (Big Law Business)
- A defense lawyer argued that all of the fraudulent adjustments pointed out by prosecutors “added up to just a few million dollars fora firm that at its peak generated $1 billion in gross revenue.” (The New York Times)
• Opening statements in the criminal trial of three former Dewey & LeBoeuf executives wrap up as a defense lawyer for ex-CFO Joel Sanders argued his client never intended to defraud fellow partners, investors or lenders in the lead-up to Dewey’s collapse. He said what prosecutors are calling fraud was actually “creative accounting.” (Big Law Business)
• Former Dewey partner Jane Boisseau testifed that firm leaders had assured her they would repay a capital loan she took out. But in 2012, Boiseau learned that the firm had never made any of the repayment installments to Barclays. She had to pay the $621,000 with interest herself. (American Lawyer)
• “On Monday afternoon, John Salmon, a former senior tax partner and executive committee member at legacy firm Dewey Ballantine and at Dewey & LeBoeuf … testified that partners had more access to financial information at Dewey Ballantine than they did at successor firm Dewey & LeBoeuf.” Salmon, who wore a salmon-colored tie, testified that after the merger, he repeatedly requested more financial information. (American Lawyer)
• Defense attorneys launched an aggressive cross-examination of Salmon, who repeatedly took “sips of water” and agreed with a defense lawyer that widely disseminating information about partner compensation could have made partners more vulnerable to poaching. (American Lawyer)
• Two former partners testified Wednesday they were shocked when Dewey & LeBoeuf in 2009 reported to the Internal Revenue Service that it had distributed the capital it owed them, when in fact the capital had not been repaid. Washington, D.C.-based partners, Deirdre Johnson, an insurance arbitrator who left Dewey & LeBoeuf for Crowell & Moring in April 2009, and Fred Reinke, who left the firm in November of that year for Mayer Brown, where he currently serves as U.S. head of insurance litigation. (American Lawyer)
• The criminal trial of three former Dewey & LeBoeuf executives resumed Tuesday with testimony from a J.P. Morgan Chase managing director who made loans to the firm. “Throughout the day, jurors could be seen yawning and rubbing their eyes” and at one point one juror even asked if the previous ten minutes of testimony could be read back. (American Lawyer)
• Dewey & LeBoeuf promised top partners seven-figure salaries , which collectively exceeded the law firm’s entire income in some years, jurors were told. Dewey set partner pay targets of $356 million in 2011 — and paid out $295 million — while earning $250 million. (WSJ)
• Prosecutors presented emails, mainly between former chief financial officer Joel sanders and executive director Stephen DiCarmine, that appear to suggest the defendants lied to their bankers about how the now-defunct firm spent a $125 million long-term loan meant for capital improvements.
Sanders allegedly wrote, “…we spent most of it to pay the partners. Obviously I couldn’t tell the bankers so I told all them that we used the money to do capital improvements and technology upgrades.”
In another email, he wrote, “I think we’re going to have to suck wind on the clunky stuff … for a little while until our numbers turn around a bit so I can bury it.” (American Lawyer)
• In a “straightforward tone with little expression,” Thomas Mulliken, the former controller at Dewey & LeBoeuf testified that he had falsified the firm’s accounting records at the beginning of 2009 in order to make it appear that the firm’s net income was greater than it really was in 2008. The adjustments allegedly were made in response to instructions from the firm’s former finance director, Francis Canellas, who has also pleaded guilty. The names of the three defendants on trial rarely came up during the testimony. (American Lawyer)
• Mulliken admitted falsifying financial entries and faced harsh cross-examination on Thursday. He described Frank Canellas, the firm’s finance director and his boss, as “manipulative” and a liar. (American Lawyer).
• A former Dewey & LeBoeuf employee testified on Monday that the firm’s finance director, Frank Canellas, told him reclassify income in early 2011, about a year before the law firm’s collapse. “Boss told you what to do and you just did it,” said David Rodriguez. (American Lawyer)
• “A former Dewey & LeBoeuf client relations manager Suzanna Sanchez testified Wednesday that partners at the now-defunct firm knew she was looking for backdated checks in order to meet year-end collections targets, but that few questioned the activity .” (American Lawyer)
• The defendants “ got an unexpected lift ” on Thursday afternoon when former partner Ralph Ferrara, a witness for the prosecution and reported rainmaker, provided glowing praise of “their work ethic and professional character.” (American Lawyer)
• Former partner Ralph Ferrara said that in a February 2012 meeting, chairman Steve Davis asked a group of 17 partners to forgo half their salary so that the firm could repay its debts. (American Lawyer)
• Emails that show infighting among the top lawyers at Dewey & LeBoeuf could help the defense blame the firm’s collapse on a partner exodus, rather than a fraud, are entered into evidence. (American Lawyer)
• Defense lawyers sought to characterize the March 2012 departure of an insurance partner for Willkie Farr & Gallagheras a catalyst that propelled Dewey into bankruptcy two months later. One partner testified that in 2011 his group brought $60 million into the now-defunct firm’s coffers. (American Lawyer)
• Former Dewey partner Richard Shutran denied responsibility for a $150 million bond offering in April 2010 that prosecutors allege was fraudulent. Shutran said that, in advising Dewey on the transaction, he relied on information from the firm’s chief financial officer, Joel Sanders, and finance director Frank Canellas. (Law360)
• Former Dewey senior partner Richard Shutran testified that a criminal investigation into the firm by the New York County District Attorney’s office helped sink the firm’s negotiations in 2012 for potential mergers with Greenberg Traurig and other Am Law 100 firms. Shutran, not a defendant in the case, appeared to bolster defense arguments that news of the investigation, and the loss of key partners, pushed the teetering firm over the edge into bankruptcy. (The American Lawyer)
[caption id="attachment_3852" align="aligncenter” width="380"][Image “The Dewey & LeBoeuf LLP logo is displayed in front of the company’s offices in New York, U.S., on Thursday, May 3, 2012. Dewey & LeBoeuf LLP, whose bank loans are partly secured with money due from clients, told partners they canÕt have their monthly pay until they send all the bills for their services, a person familiar with the matter said. Photographer: Scott Eells/Bloomberg” (src=https://bol.bna.com/wp-content/uploads/2015/08/Dewey-main-art1-e1439421654973.jpg)]The Dewey & LeBoeuf LLP logo is displayed in front of the company’s offices in New York, U.S., on Thursday, May 3, 2012. Dewey & LeBoeuf LLP, whose bank loans are partly secured with money due from clients, told partners they canÕt have their monthly pay until they send all the bills for their services, a person familiar with the matter said. Photographer: Scott Eells/Bloomberg[/caption]
• The firm’s former financial controller, Ilya Alter, testified that he helped cook accounting entries for three years as part of a futile effort to fend off Dewey’s collapse in May 2012. Alter is one of the seven former Dewey employees who have pleaded guilty in exchange for lighter sentences. (The American Lawyer)
•Alter testified that some accounting adjustments at the firm were valid. Questioned Wednesday by ex-CFO Joel Sanders’ attorney, Alter agreed that changing entries on books is a routine accounting operation. (The American Lawyer)
• The defense is attacking the prosecution’s star witness, former Dewey finance director Frank Canellas, even before he takes the stand.
One cooperator, former Dewey partner relations specialist David Rodriguez, described Canellas, according to Law 360, as an acerbic boss, recounting how Canellas flew into a fit of rage after he expressed reservations about making a false accounting entry.”
Rodriguez testified: “He stormed into my office and just blew up on me. He was just cursing,” adding he made an accounting adjustment for fear of losing his job. (Law360)
• Six weeks into the criminal trial of three former Dewey & LeBoeuf executives, jurors have heard a lot about how fraud allegedly caused the firm’s end, but so far there has been no smoking gun and, consequently, no sign the jury’s job will be over any time soon. (American Lawyer)
• While Dewey & LeBoeuf’s bankruptcy and the continuing criminal trial of its former leaders has had a traumatic effect on the firm’s employees, the firm’s downfall spurred a “reality check” for the industry that is likely to have lasting, and mostly positive, impacts on the business of law. (Law360)
• The prosecutor’s star co-operating witness Francis Canellas testified that plans to handle a $50 million hole in the accounts of failed firm Dewey & LeBeouf began at a lunch in a Manhattan steakhouse and continued with the staff returning to the office and writing up notes of the scheme. (Global Legal Post)
• Canellas testified Monday that he and former Dewey CFO Joel Sanders met in late 2008 to cook up several accounting adjustments that made the firm appear to have the means to pay back its loans. (The American Lawyer)
• Canellas, the firm’s ex finance director, testified that it appeared to him that Steven Davis, the former chairman, lived in fear of audits during the period the firm was allegedly cooking its books to stay afloat.
Canellas also testified about one email by Sanders that said, “Can you find another clueless auditor for next year?”
An attorney for Mr. Sanders argued earlier in the trial that his client was using sarcasm when he used the term “clueless auditor.” (WSJ Law Blog)
• Jurors in the Dewey & LeBoeuf criminal trial saw more evidence Tuesday that the defunct firm’s former leaders used allegedly illegal accounting tricks to mask financial shortfalls, including an internal email between the defendants that described $25 million as “fake income.” (American Lawyer)
• A defense attorney attempted to poke holes in Canellas' testimony that the firm took fraudulent action to hide Dewey’s poor financial health from auditors, banks, and investors. Under cross-examination, Canellas said he had unintentionally made inaccurate statements to investigators early in the case. (WSJ Law Blog)
• Canellas said during cross-examination he never talked about improper accounting practices with Dewey’s former chairman, Steven Davis, while finance director at the now-defunct firm. (WSJ Law Blog)
• Prosecutors tried to bolster the credibility of their star witness ,Francis Canellas, after two days of defense lawyers’ efforts to undermine his testimony that linked their clients to alleged false accounting. (The American Lawyer)
• “After seven days of sometimes-emotional testimony , lawyers for both sides finish grilling the former finance director and star witness for the prosecution, Francis Canellas ... [who] conceded he only came to view his actions as wrong after his first interview with prosecutors, when he learned he was facing serious criminal charges." (American Lawyer )
• A former executive at Hartford Financial Services Group Inc. testified the insurer lost millions of dollars investing in a Dewey & LeBoeuf bond offering in 2010. (Law 360)
• Francis Canellas, the prosecution’s star witness who spent seven days on the stand, came under relentless attack by defense lawyers for his testimony that all the firm’s executives participated in an alleged scheme to cook the firm’s books and hide financial problems that eventually put it out of business. (Law360)
• Howard Schickler, a former structured finance partner at Dewey, said he joined Katten Muchin Rosenman in late 2010 because he did not recieve the promised compensation and that he only found out about Dewey’s 2010 debt offering to investors through a client. (The American Lawyer)
• After a one day hiatus, The jury heard three witnesses’ testimony regarding financial practices at the firm ,including an assistant to a former high-profile corporate partner, a former Dewey Balantine partner and an HSBC executive.
Defense attorneys also tried to emphasize that the departure of a large group of insurance partners to another firm destabilized and helped spur the collapse of Dewey & LeBoeuf, rather than alleged fraud. (American Lawyer)
[caption id="attachment_3853" align="aligncenter” width="300"][Image “A pedestrian walks past the headquarters of the Dewey and Leboeuf LLP Law Firm in New York, NY, Friday May 11, 2012. The firm, which has struggled amid accusations of wrongdoing and an exodus of partners, announced huge layoffs this week.” (src=https://bol.bna.com/wp-content/uploads/2015/08/Dewey-main-art-spill-e1439421738515.jpg)]A pedestrian walks past the headquarters of the Dewey and Leboeuf LLP Law Firm in New York, NY, Friday May 11, 2012. The firm, which has struggled amid accusations of wrongdoing and an exodus of partners, announced huge layoffs this week.[/caption]
• Former Dewey billing chief Lourdes Rodriguez testified that she cooked up invoices for clients that the fallen firm had no intention of paying, in order to make the firm’s revenue look bigger. Rodriguez is one of seven former Dewey employees who have pleaded guilty in exchange for lighter sentences. (The American Lawyer)
• Former billing director Lourdes Rodrigueztestified on Monday that the defunct law firm’s former chief financial officer Joel Sanders told her to prepare client invoices in a way that artificially inflated the firm’s revenue. (American Lawyer)
• After former Dewey partner Edward Nelson testified that the firm had failed to pay $100,000 on a loan in his name, a defense lawyer sought to deflect responsibility onto the defunct firm’s COO , Dennis D’Alessandro, who is not a defendant. (American Lawyer)
• “Former Dewey revenue support director Dianne Cascino told jurors with a shaky voice that she had reversed expenses that had been written off and placed them back on the firm’s books, thereby inflating revenues.” Cascino testified she took directions from Sanders and Canellas. (American Lawyer)
• “Testifying in a Manhattan courtroom for a second straight day, Cascino told jurors she had faced frequent questions at the firm about accounting entries used to artificially inflate the firm’s bottom line.” (American Lawyer)
• Cascino testified she never intended to defraud on cross-examination. But she walked this back and hedged on on re-direct examination by the prosecution, testifying that “she knew the accounting adjustments ... were wrong, but did not know they were criminal” and that she lied to partners, other employees and auditors. (American Lawyer)
• Dewey & LeBoeuf’s former chief operating officer Dennis D’Alessandro “is not likely to be called to testify” by either side. D’Allesandro’s name has come up at trial because he received an email in November 2009 from former CFO, Joel Sanders, that said: “Keep in mind though that at these levels we will not have the cash to pay the partners by Jan. 31 since $25M is fake income.” D’Alessandro reportedly testified to the grand jury that he did not believe his former colleagues were doing anything illegal . (New York Law Journal)
• Prosecutors rested their case last week and within hours, attorneys for Davis and Sanders filed motions to dismiss all 100 charges against their clients. DiCarmine’s lawyer joined those motions orally on Tuesday. Acting Supreme Court Justice Robert Stolz reserved the right to grant their motions but announced Tuesday that the case is going to the jury because the prosecution established a prima facie case of conspiracy. (American Lawyer)
• Defense attorneys said they all plan to rest their case when the jury returns next Tuesday , so they will not call their clients or anyone else to testify. (American Lawyer)