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FBI and Manhattan DA charge four former Dewey managers with fraud

The long-running investigation into the collapse of Dewey & LeBoeuf shifted up a notch today with the announcement that three top executives and a client relations manager at the now defunct firm have been charged with fraud.

Former chairman Steven Davis, former executive director Stephen DiCarmine, former chief financial officer Joel Sanders and client relations manager Zachary Warren are alleged to have ‘defrauded and stolen’ from the firm’s lenders, investors and others.

The charges were unveiled at a press conference held this afternoon (6 March) at 11am New York time, 4pm UK time, by the New York Federal Bureau of Investigation and the Manhattan District Attorney (DA).

The announcement follows a two-year investigation by the Manhattan DA’s major economic crimes bureau, kickstarted on the request of a group of Dewey partners into alleged financial irregularities at the firm.

Davis, DiCarmine and Sanders are charged with grand larceny in the first degree, ‘scheme to defraud’ in the first degree, Martin Act securities fraud, falsifying business records in the first degree and conspiracy in the fifth degree. Warren is charged with two indictments of ‘scheme to defraud’ in the first degree, falsifying business records in the first degree and conspiracy in the fifth degree.

These are the first criminal charges since Dewey gained the ignominious title of the largest law firm failure in history after filing for Chapter 11 bankruptcy in 2012, following the ill-fated 2007 merger between Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae.

In a strongly worded announcement today, District Attorney Cyrus Vance said: ‘Fraud is not an acceptable accounting practice. The defendants are accused of concocting and overseeing a massive effort to cook the books at Dewey & LeBoeuf. Their wrongdoing contributed to the collapse of a prestigious international law firm, which forced thousands of people out of jobs and left creditors holding the bag on hundreds of millions of dollars owed to them.’

The announcement of the criminal prosecution comes as it also emerged that The Securities and Exchange Commission (SEC) has filed a civil suit regarding alleged misrepresentations in the firm’s 2010 issue of $150m in bonds to refinance some of its bank debt.

SEC Division of Enforcement director Andrew Ceresney said today: ‘Investors were led to believe they were purchasing bonds issued by a prestigious law firm that had weathered the financial crisis and was poised for growth. Dewey & LeBoeuf’s senior-most finance personnel used a grab bag of accounting gimmicks to create that illusion, and top executives green-lighted the decision to sell $150m in bonds to investors as a desperate grasp for cash on the basis of blatantly falsified financial results.’

The prosecutions follow the separate announcement in April 2013 that Davis had offered to pay over half a million dollars to settle civil claims against him following the firm’s collapse last year.

Davis agreed to pay $511,145 in the form of a promissory note to the firm’s liquidation trust.

The firm’s insurance company, XL Speciality Insurance, which held the firm’s management liability policy, agreed to pay $19m in the proposed settlement.

In these latest charges all four defendants have pleaded not guilty.