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Stage Set for Dewey & LeBoeuf Trial with Opening Remarks

May 27, 2015, 12:13 AM

A lawyer for Steven Davis, chairman of Dewey & LeBoeuf not long before its May 2012 collapse, told a jury in Manhattan state court on Tuesday that his client was not responsible for the firm’s demise and did not participate in a massive accounting fraud.

Instead, Davis’s attorney Elkan Abramowitz 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.

“It’s nothing more than a misguided, and fanciful theory,” said Abramowitz.

He made the comments during opening statements in the criminal trial of Davis, and two other former Dewey executives, chief financial officer Joel Sanders and executive director Stephen DiCarmine.

The three men are standing trial on 106 criminal charges including securities fraud, grand larceny and falsifying business records in connection with the finances of their former law firm. Dewey staffed 1,300 lawyers worldwide at its peak but filed for Chapter 11 bankruptcy in 2012, marking the largest large law firm to collapse in history.

The cause of the failure will be a key argument at the trial: The defense will argue an exodus of partners, the economy and other factors spurred its collapse. Prosecutors allege the defendants engaged in a series of fraudulent acts, including directing lower-ranking employees to falsify documents, to obtain financing and keep the firm afloat, and that ultimately it all crashed.

Seven Dewey financial managers have pleaded guilty to charges of participating in the alleged fraudulent scheme and are expected to testify against the defendants in a case that will likely provide a rare view of the finances and management of a global law firm.

Earlier on Tuesday, prosecutor Steve Pilnyak laid out the Manhattan DA Office’s case that the three had defrauded investors, lenders and firm partners, saying they directed the fraudulent adjustment of financial statements in order to overstate the firm’s performance.

Dewey had relied on a $100 million line of credit from its banks – its lenders were JP Morgan Chase, Wells Fargo, Barclays and Citibank – and $150 million in a privately placed bond by 13 insurance companies, Pilnyak said. The firm’s line of credit, he explained, was contingent on certain cash flow and asset covenants being met.

Pilnyak said that in order to meet covenants, the Dewey executives oversaw accounting tricks carried out by lower-level employees to inflate the firm’s financial performance.

Specifically, Pilnyak accused the executives, among other things, of overseeing a massive fraud that included taking expenses off of the firm’s balance sheet, backdating checks from January to December to increase revenue in the prior year, and even counting a partner’s capital contribution – that of Silicon Valley M&A rainmaker Richard Climan – as a client invoice, which was more than $1 million.

Pilnyak pointed a finger at each of the three defendants in drawing out the charges.

“Dewey & LeBeouf was hit hard by the Great Recession,” said Pilnyak. “However, rather than tell the truth about the reality of the firm’s financial state,” the defendants “made it seem far better than reality.”

But in their opening statement, defense lawyers said that the prosecutor cannot show a direct link between their clients and the fraudulent accounting measures of which they are accused.

Austin Campriello, a lawyer for DiCarmine, said Pilnyak often used the word “they” in his opening remarks without specifying who did what, and asked the jury to pay close attention to the specifics of the accusations.

Added Abramowitz: “Steve Davis did not have anything to do with the illegality of the accounting department.” Abramowitz also suggested the seven Dewey members with plea agreements who may testify for the prosecution are not credible.

“Some of the cheaters in the accounting department tried to take the heat off themselves,” he said.

The seven to testify are Francis Canellas, director of finance, Thomas Mullikin, controller, Victoria Harrington, accounting manager, Ilya Alter, director of budgeting, Dianne Cascino, director of revenue support, Lourdes Rodriguez, director of billing, and David Rodriguez, partner relations specialist.

Abramowitz said that it was an exodus of key partners that triggered the firm’s downward spiral. A potential merger with Greenberg Traurig, he said, could have saved the majority of employees at Dewey, but after a news article revealed the DA’s investigation into Davis, the deal was scuttled.

The trial will resume on Wednesday, when a lawyer for Joel Sanders, the former chief financial officer, is expected to speak.

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