How A Bankrupt Mega Law Firm Cooked Its Books For Four Years

Tyler Durden's picture

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.

Indictment link

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starman's picture

Dewey and Le beouf?! is this a April 1st joke?

observer007's picture

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:

Smegley Wanxalot's picture

22 billion would pay for about 3 days.  Maybe less given all the meds your average dumbass gringo is addicted to.

FL_Conservative's picture

"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."


The US Government has been doing this for years. When (if ever) will they be held accountable for fraud and theft against US citizens?

y3maxx's picture

...Dewey Cheat'em and How...

Never One Roach's picture

‘taint it a shame the way they hound innocent lawyers….


…cough, cough…..choke, choke….

TruthHunter's picture

Website of the law firm:

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?

Rafferty's picture

How can a  mega law firm go bust given the fees those parasites charge?

StychoKiller's picture

Mr. McCawber explained it well in "David Copperfield"

Dollarmedes's picture

I keep seeing the revisions (mostly all one way) to BLS statistics and think, "maybe someone should audit them."

Freddie's picture

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?

Grande Tetons's picture

Could probably find 22 Trillion in Casa de Rothschild.  Good thing they are not criminals. 

paulwyre's picture

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TheRedScourge's picture

Faker than shit. What kind of sane human being who distrusts the government would willingly hold that many fiat dollars?

williambanzai7's picture

“He always had the best interests of the firm at heart… "

Where have we heard this before?

AlaricBalth's picture

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?

- P.J. O'Rourke

Skateboarder's picture

Client Receivable Propellers... that's quality stuff dr. banz.

LawsofPhysics's picture

Meh, unless there are real consequences for these corrupt fuckers, nothing changes.

Divided States of America's picture

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.

NoDebt's picture

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.

Skateboarder's picture

It takes more work to be a dishonest greedy bastard.

Winston Churchill's picture

Lawyers following the precedent of mark to model.

Got to be a defense in there somewhere.

john39's picture

accepted custom and practice in the industry... aka, everyone is doing it.

Screwtape III's picture

Better known as Dewey Cheatem and Howe.

fonzannoon's picture

It's crazy you have Italians and Jews all mixed up in this thing. I can see how it would get confusing.

john39's picture

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...

Divided States of America's picture

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!"

Rafferty's picture

Like Teddy Kennedy was the clueless goyishe front for the 1965 Immigration Act.....the original cause of most of America's current problems.

Ghordius's picture

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

TruthHunter's picture

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>

fonzannoon's picture

"Austin Campriello, a lawyer for Mr. DiCarmine said Heeey Ba Fongoul Wasamatta? My client ain't gonna pay no penality...capisce?"

NoDebt's picture

.... these two youts.

.... what the heck is a 'yout'?


TheRedScourge's picture

fine...the two defendants.

Itchy and Scratchy's picture

Crooked lawyers????? Say it ain't so!!!!!

0b1knob's picture

What next priest child molesters?   Criminal police?  oh wait....

Smegley Wanxalot's picture

Dewey, LeBeouf'em, and Howe.

texas sandman's picture

So, they used fraudulent numbers to hide their insolvency.   This is different from your average TBTF bank in what way exactly????

monad's picture

Lawyers prosecuting lawyers. Sure. Right. Yup.

KickIce's picture

Hard to argue a recovery when lawyera can't make it in system set-up by lawyers for lawyers.

Dr. Engali's picture

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.

Saratoga's picture

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.

youngman's picture

no tears here...its what lawyers do..cheat people out of their money

KickIce's picture

One of my favorite jokes:

What's the difference in an attorney and a prostitute?

The prostitute stops screwing you when you're dead.

Mi Naem's picture

"Dewey and LeBeouf"

Sounds pornographic.  Apparently it is, now. 

Maybe it will become a verb: They Dewey and LeBeouf'ed themselves. 

Atlantis Consigliore's picture

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?



Seasmoke's picture


atomicwasted's picture

(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.