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How A Bankrupt Mega Law Firm Cooked Its Books For Four Years
Two years ago, the mega law firm Dewey and LeBeouf shocked the legal world when it announced, out of the blue, it would be filing for bankruptcy following an exodus of employees as the money had run out. However, as usually happens in cases like these, it was not just gross incompetence that was at fault: one must usually add major act criminality to explain such a rapid fall from grace. Such was the case in the Dewey bankruptcy too.
Moments ago former top executives from bankrupt U.S. law firm Dewey & LeBoeuf were criminally charged for "cooking the books" at the once prestigious firm and defrauding investors and lenders.
Charges were announced against former Dewey chairman Steven Davis, 60, former executive director Stephen DiCarmine, 57, and former chief financial officer Joel Sanders, 55 as initially reported by Reuters.
In a parallel filing, the SEC filed a related civil lawsuit against Davis, DiCarmine, Sanders and two former Dewey finance officials, finance director Frank Canellas and former controller Thomas Mullikin. The SEC complaint accused the former executives of defrauding investors by misleading them about Dewey's finances in marketing materials for a $150 million bond offering in 2010.
According to the regulator, the Dewey officials "orchestrated and executed a bold and long-running accounting fraud intended to conceal the firm's precarious financial condition".
This was announced by Manhattan District Attorney Cyrus Vance Jr at a press conference earlier today. Vance has been investigating Dewey's collapse since April 2012, when some Dewey & LeBoeuf partners asked him to examine "financial irregularities" at the firm.
Naturally, the former lawyers refuse to admit anything. WSJ adds quotes Elkan Abramowitz, a lawyer for Mr. Davis, said: “We believe strongly that no crime was committed by Steve Davis at all.” He added: “He always had the best interests of the firm at heart… the [criminal] indictment deals with accounting issues that are susceptible to different interpretations. We committed no crime, committed no fraud.”
Austin Campriello, a lawyer for Mr. DiCarmine said his client “did not commit any crimes” and “did not cause the collapse” of the firm. “It is very easy for a prosecutor to bring an indictment,” he said. “But cases like this crumble when an innocent person gets to mount a defense in court. And that is what we will do.”
Ned Bassen, a lawyer for Mr. Sanders, said: “We are completely confident that we are going to win this case.” Mr. Sanders “is absolutely innocent. He consistently cautioned the partners of the law firm not to be spending money they did not have. They consistently did not listen to him, and these very same people look to blame him instead of taking responsibility.
Maybe, but probably not. In the meantime, reading through the indictment, here is how a law firm - and here we can only assume Dewey is hardly alone - can cook the books for 4 years thinking it can get away with it.
* * *
The Fraudulent Methods
By or about the end of 2008, the Schemers had created a document they called the “Master Plan” that described certain fraudulent accounting adjustments that the Schemers decided to pursue as part of the Scheme. From in or about the end of 2008 until the Firm’s bankruptcy in 2012, the Schemers input numerous of these and other fraudulent adjustments, and engaged in other fraudulent conduct, most of which made it appear that the Firm had either increased revenue, decreased expenses, or limited distributions to partners. Some of these fraudulent adjustments and acts were:
a. Reversing disbursement write-offs – From 2008 through 2011, the Schemers improperly reversed millions of dollars of write-offs of client disbursements that the Firm had no intention or reasonable expectation of collecting.
b. Reclassifying disbursement payments – From 2008 through 2011, the Schemers improperly reclassified millions of dollars of payments that had been applied to client disbursements during the year and applied the payments instead to outstanding fee amounts.
c. Reclassifying Of Counsel payments – From 2008 through 2011, the Schemers reclassified millions of dollars of compensation to Of Counsel lawyers as equity partner compensation. Historically, Of Counsel compensation had been treated as an expense in the Firm’s financial statements.
d. Reversing credit card write-offs – In 2008 the Firm initially properly wrote off more than $2.4 million in charges from an American Express card associated with defendant SANDERS that had not previously been expensed and were not chargeable to clients. For year-end 2008, the Schemers fraudulently reversed this write-off and hid the amount in the Firm’s books as an unbilled client disbursement receivable. Each subsequent year, the Schemers initially wrote this amount off, but then reversed the write-off at year-end. The amount remained on the Firm’s books as an unbilled client disbursement receivable at the time of the bankruptcy.
e. Reclassifying salaried partner expenses – In 2008, the Schemers improperly reclassified as equity partner compensation millions of dollars in compensation paid to, and amortization of benefits related to, two salaried, non-equity partners. Similar amounts had previously been treated as expenses on the Firm’s financial statements, so the reclassification had the effect of reducing Firm expenses. This change in treatment was neither disclosed to the Firm’s auditors nor disclosed on the Firm’s audited financial statements. In later years, the compensation paid to these two salaried partners was classified as equity partner compensation.
f. Seeking backdated checks – During at least two year-ends from 2008 through 2011, the Schemers sought backdated checks from clients to post to the prior year. At the end of each of the Scheme years the Schemers engaged in efforts to hide the date on which checks were received by the Firm. These efforts minimized the risk that the Firm’s auditors would discover that December checks received in January, including backdated checks, were being posted to the prior year.
g. Applying partner capital as fee revenue – For year-end 2009, more than $1 million that had been contributed by a partner to satisfy his capital requirement was applied as a fee payment for the client of a different partner. This amount was backed out of fees and applied to the partner’s capital account during 2010, but for year-end 2010 it was again applied as a fee payment for the same client. h. Applying loan repayments as revenue – In 2008, pursuant to defendant DAVIS’s authorization, the Firm took on $2.4 million in bank loans that benefitted defendants DICARMINE and SANDERS. In early 2012, defendants DICARMINE and SANDERS repaid the Firm the final $1.2 million owed under the loans but structured the transaction so the loan repayment would increase the Firm’s revenue for 2011.
Bottom line:
By in or about March 2012, the Scheme had collapsed in on itself. For years, the Schemers had been fraudulently claiming revenue that the Firm did not have and pushing expenses and financial obligations off into the future. The Firm could no longer pay partners enough to prevent their departure, and the Schemers could no longer fool the Firm’s lenders, investors, and others. The Firm declared bankruptcy; thousands lost their jobs; and the Firm’s creditors were left owed hundreds of millions of dollars.
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Dewey and Le beouf?! is this a April 1st joke?
No April joke:
22 Billion Dollars found: Photos of a Mexican drug lord's home after being raided
The money and valuables found in this one house alone, would be enough to pay for health insurance for every man woman and child in the USA for 12 years!
All photos here:
http://homment.com/drug-lord-home
22 billion would pay for about 3 days. Maybe less given all the meds your average dumbass gringo is addicted to.
...Dewey Cheat'em and How...
‘taint it a shame the way they hound innocent lawyers….
…cough, cough…..choke, choke….
Website of the law firm: http://www.dewey-cheatham-howe.com/
This story reminds me of the joke:
What do you call 40 lawyers going off a cliff in a bus?
A good beginning.
Can we dream that every crooked law firm overreaches into bankruptcy?
How can a mega law firm go bust given the fees those parasites charge?
Mr. McCawber explained it well in "David Copperfield"
I keep seeing the revisions (mostly all one way) to BLS statistics and think, "maybe someone should audit them."
The Mexican drug cartels own Congress and the White hut. Bush, Clinton, Bush, Obama = all friends of who? Who is pushing for open borders and amnesty?
Could probably find 22 Trillion in Casa de Rothschild. Good thing they are not criminals.
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Faker than shit. What kind of sane human being who distrusts the government would willingly hold that many fiat dollars?
“He always had the best interests of the firm at heart… "
Where have we heard this before?
Excellent as usual.
During the mid-1980s dairy farmers decided there was too much cheap milk at the supermarket. So the government bought and slaughtered 1.6 million cows. How come the government never does anything like this with lawyers?
Client Receivable Propellers... that's quality stuff dr. banz.
Meh, unless there are real consequences for these corrupt fuckers, nothing changes.
I agree with you Laws...but honestly for us somewhat less clueless simpletons, what can we do to stop this?
Looks like the banker suicides took a hiatus this week...or MSM just isnt reporting any REAL EVENTS anymore.
There is no way to stop fraud like this. That's why the punishment when caught is so important. It needs to be so onerous as to give others pause before they decide to do similar.
These guys are NOT TBTF bankers. They are not Senators or Administration Officials. Believe me, they have a serious legal colonoscopy headed their way. Their friends will NOT help them in this situation.
It takes more work to be a dishonest greedy bastard.
Not anymore.
Lawyers following the precedent of mark to model.
Got to be a defense in there somewhere.
accepted custom and practice in the industry... aka, everyone is doing it.
Better known as Dewey Cheatem and Howe.
Sue, Grabbit and Runn.
Dewey or Jewey?
It's crazy you have Italians and Jews all mixed up in this thing. I can see how it would get confusing.
http://www.youtube.com/watch?v=i8jZz_QawBg
look at the U.S. Supreme Court... made up entirely of Jews and Catholics... not that there is anything necessarily wrong with that... but, it certainly seems unusual...
Trust me the Catholics are useless...they dont hold any power whatsoever, the Jews do. The Catholic representation are there as fillers for the masses to witness. Like yesterday most of us got some ashes placed on our foreheads and I am sure people are staring at you like "That idiot got some dirt on his face!"
Like Teddy Kennedy was the clueless goyishe front for the 1965 Immigration Act.....the original cause of most of America's current problems.
Catholics? nearly 80 million of them in the US, 25% of the pop. yet your supreme judges have to be appointed by a sitting president and approved by congress, right? I know i-dog and others find this very suspicious, but perhaps the litmus-tests were more important than exact religious denomination, at the time of each appointment
look at the U.S. Supreme Court... made up entirely of Jews and Catholics...
The weird part is Justice Thomas became Catholic after joining the court.
Was this part of some kind of "Deal"? < /tinfoil hat>
"Austin Campriello, a lawyer for Mr. DiCarmine said Heeey Ba Fongoul Wasamatta? My client ain't gonna pay no penality...capisce?"
.... these two youts.
.... what the heck is a 'yout'?
fine...the two defendants.
Crooked lawyers????? Say it ain't so!!!!!
What next priest child molesters? Criminal police? oh wait....
Dewey, LeBeouf'em, and Howe.
So, they used fraudulent numbers to hide their insolvency. This is different from your average TBTF bank in what way exactly????
Lawyers prosecuting lawyers. Sure. Right. Yup.
Hard to argue a recovery when lawyera can't make it in system set-up by lawyers for lawyers.
This is nothing that isn't being done at every bankrupt firm in this mark to fantasy bankrupt country. Just a little tweet to the accounting rules and everything appears great.
The cooking of the books doesn't bother me as much as the fact that the firm couldn't generate enough income to sustain itself.
no tears here...its what lawyers do..cheat people out of their money
One of my favorite jokes:
What's the difference in an attorney and a prostitute?
The prostitute stops screwing you when you're dead.
"Dewey and LeBeouf"
Sounds pornographic. Apparently it is, now.
Maybe it will become a verb: They Dewey and LeBeouf'ed themselves.
Monica? monica, go down like a lawyer Monica,
law? its depends what meaning of is IS/
now whats that phone no, of rent a Senator?
LOL....
I AM NOT FAMOUS.
(d) is the most damning and the one that a jury will convict on. The others (with the possible exception of (g), which looks ponzi) will just make the jury's eyes glaze over.
Quick just rename the company just like GMAC, or Arthur Andersen has done.
How about Rapem, Robbem, and Flee, esq
Cooking the books is standaed practice. What is amazing about this is their failure to pay off the right people.
Gee, it's unlike for Dewey et al that they weren't quite big enough not to fail or be prosecuted.
Here is a very good way even a small pile of snakes can make some $$:
Charge clients for costs then fail to pass through the payment to pay the copiers, court reporters, and expert witnesses.
As a vendor, the more decent you are as a human being the more they will fuck you.
"Greatness or brightness conferreth not excellence" as John Milton said; but smaller does not mean better.
As they were so willing to fraudulently interpret and manipulate accounting rules to this extent, imagine what they must have been doing to the law in the cases they were involved in.
Gosh, if only they were bankers instead of lawyers, they would have nothing to worry about.
Wouldn't it be great to see Covington & Burling BITE THE DUST?
WHAT MUST BE UNDERSTOOD IS THAT LIBERTARIANISM WOULD HAVE BEEN QUITE USELESS IN PREVENTING THIS GRIM TURN OF EVENTS!! PERSONALLY I WOULD NOT WANT TO BE WORKING FOR SUCH A COMPANY EVEN IF PAID SIX FIGURES!!! AS THIS TITANIC SINKS, THERE WILL BE A HUGE SUCKING SOUND YOU DON'T WANT TO BE ANYWHERE NEAR!!! I WONDER WHICH POLITICAL SIDE WAS FAVORED BY THIS ENRON LIKE COMPANY???
Stephen Dicarmine sounds like a good guy...
2. Crime, organized and otherwise: DiCarmine, whom Stewart describes as Davis’s e-mail-snooping hatchet man at Dewey & LeBoeuf, has a colorful family back story. DiCarmine’s cousin, with whom he was close as a child, turns out to be Vincent (Vinny Gorgeous) Basciano, a senior figure in the Bonanno crime family who has been convicted of murder and other crimes, Stewart reports. In 2011, as the law firm melodrama unfolded, Basciano faced a death-penalty hearing. DiCarmine took the stand to declare, “My cousin Vinny is loved by his family.” The jury sentenced Basciano to life in prison.
http://www.businessweek.com/articles/2013-10-11/big-law-with-gays-and-th...
From a comment on the Above the Law website:
"He's a closeted, insecure, pathological liar, who would push you out the door or in front of a bus in a nano-second if he thought it would gain him the good graces of his "flavor of the month" partner."
http://abovethelaw.com/2012/06/dewey-have-stephen-dicarmine-as-a-bankrup...
And many more comments like this one posted on this story and others about the firm, Davis and Dicarmine at Above the Law. Seems like Dicarmine was well liked by former employees. /s
I noticed they (SEC, DOJ) didn't mention the "insurance companies" defrauded.
I smell public employee pension money loss
If they've been cookin' for 4 years they cud all be chefs now!
I always use, Chattum, Cheatum & Runn. Far more respectable than Shotgunn, Bastard & Dribble.
justice is throwing some small fry under the bus but i hope that they get slammed if guillty...the real stories are at jpm, mf global, db, bank of england and other crime rings proving that crime pays.
Right now, these detailed findings are being circulated within every large law firm in the country with only one comment added....
"?"
This story is linked by the NY Times at http://boss.blogs.nytimes.com/2014/03/07/today-in-small-business-is-it-t... -- but they misspelled your last name!
Tony Lima