White-Collar Crime

Dewey & LeBoeuf executives cooked the books, former law firm finance director testifies

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About a third of the way into the prosecution case against three former law firm leaders criminally charged in the downfall of Dewey & LeBoeuf, testimony began Monday to establish what the government hopes will prove to be a crucial link:

Former finance director Francis Canellas is pointing the finger at all three defendants, testifying that then-chairman Steven Davis, executive director Stephen DiCarmine and chief financial officer Joel Sanders were aware of improper accounting methods used to deceive lenders and auditors about the law firm’s precarious financial state, Reuters reports.

Prosecutors hope the specifics he will offer to show that the defendants conspired to cook the books will persuade the jury in the Manhattan case. His testimony is important because, so far, none of the government’s witnesses have said Davis or DiCarmine directly ordered any tampering with the firm’s accounting, the New York Law Journal (sub. req.) reports.

On Monday, Canellas described a December 2008 dinner meeting at which he, Sanders and another indicted law firm employee, who will be tried later, went to a midtown Manhattan steakhouse to figure out what to do about a $50 million revenue shortfall. They wound up in the office of the employee, Zachary Warren, covering the walls with notes, Canellas said.

The result, he testified, was a “master plan”: Income adjustments the trio figured out not only gave Dewey the $50 million benchmark required by its lenders but added another $3 million, for a total of $53 million.

Canellas, a cooperating witness, pleaded guilty last year to grand larceny. He could get as much as 15 years when he is sentenced, but the government will recommend a two- to six-year prison term if he satisfies the terms of his plea deal.

He admitted to the jury Monday that he had “directed others to make false accounting entries to the accounting system” from 2008 to 2011, as well as participating in the scheme himself.

Related coverage:

ABA Journal: “How Dewey management’s rosy picture masked an ugly truth”

ABAJournal.com: “Defense in Dewey leaders’ trial blames disloyal partners who ‘picked up their marbles and ran’”

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