Fordham Law

Dewey Execs Likely Bound For Trial Despite Ace Legal Teams

James Cohen in Law360, July 14, 2014

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Through their crack legal teams, Dewey & LeBoeuf LLP's disgraced leaders on Friday launched robust bids to dismiss the fraud charges leveled against them in the wake of their firm's collapse, but experts say the Manhattan district attorney's case won't go away that easily and is all but bound for trial.

The former Dewey executives on Friday lodged a series of motions in New York Supreme Court seeking to dismantle Manhattan District Attorney Cyrus R. Vance’s 104-count indictment, arguing there’s a lack of evidence establishing criminal intent, and lambasting the testimony of cooperating witnesses as hearsay and innuendo.

It’s a well-prepared argument crafted by high-profile defense attorneys, says Pace Law School professor and former Manhattan prosecutor Bennett L. Gershman, but a judge is likely to find that more than enough evidence was presented to the grand jury to sustain an indictment.

“I think the motions are well-done by very prominent lawyers, but I think [they're] really focused on concerns that don’t come up now; they would come up at trial,” Gershman said.

Vance contends that ex-Dewey Chairman Steven Davis, former Executive Director Stephen DiCarmine and former Chief Financial Officer Joel Sanders committed grand larceny and artificially inflated the firm’s revenues to keep it afloat by falsely reporting that Dewey was in compliance with a "cash flow covenant" requiring it to maintain a minimum year-end cash flow.

From late 2008 to 2012, Davis, DiCarmine and Sanders caused others at the firm to make tens of millions of dollars of fraudulent accounting entries that made Dewey appear healthier than it was, according to the indictment.

The trio were indicted alongside former Dewey client manager Zachary Warren, who prosecutors say helped to plan the fraudulent entries and attempted to cover up the scheme.

According to Jim Cohen, associate professor at Fordham University School of Law, for the motions challenging the indictment to succeed at this stage, there would have to be almost zero evidence presented to the grand jury, which doesn’t appear to be the case here.

“You have the combination of the testimony from the cooperating witnesses and the cooperating witnesses explaining some of the financial documents,” Cohen said. “That will be enough to defeat the motions.”

Thus far, seven ex-Dewey employees, including former Finance Director Francis Canellas, have pled guilty to a role in the scheme to artificially pump up the firm’s revenues.

In his plea agreement, Canellas describes how under the direction of Sanders, he began to make false adjustments to the firm’s books in 2008, shortly after the merger that gave birth to the firm, in order to make it appear it was in compliance with the cash flow covenant. Canellas also said he discussed the bogus adjustments with Davis, and that DiCarmine was aware of the scam as well.

But Davis, DiCarmine and Sanders have derided the accounts of Canellas and others as unreliable, contending the cooperators only say they “understood” that the executives knew of the accounting gimmicks and this understanding is based on secondhand accounts.

Cohen says the ex-Dewey leadership will have a hard time establishing that this was all hearsay, unless they can prove the secondhand accounts came from third parties and not co-conspirators.

“If that’s true, then it’s a big problem for the state prosecution,” Cohen said. “But when a co-conspirator says it, there’s a co-conspirator exception to the hearsay rule.”

Attorneys for Davis and DiCarmine — Elkan Abramowitz of Morvillo Abramowitz Grand Iason & Anello PC and Austin Campriello of Bryan Cave LLP, respectively — said Monday they had confidence in the legal positions they had taken.

“We are hopeful that the judge will treat our arguments with the same seriousness with which we made them,” Abramowitz said. “We believe the indictment should be dismissed.”

An attorney for Sanders could not be immediately reached for comment Monday.

Putting aside the other hurdles they face at the dismissal stage, Gershman says a central problem for the former Dewey heads is that they don’t contest that a fraud had taken place at the firm. Rather, they argue that Vance hasn't put forth evidence that connects them to it, which will ultimately be a tough sell to a jury, he says.

“That’s never a viable argument: You concede there is a crime, but [say], 'My client didn’t do it.' You're already conceding there was a crime, now one just has to connect a person to it,” Gershman said. “These defendants were in it, they were managers, they were right there. It’s a difficult sell to a jury.”

That being said, the former executives’ attorneys may be out of options for a better argument, according to Gershman, since there’s no question the firm was engaged in fraudulent behavior.

“Their hands are tied,” he said. “I don’t know if there’s any other avenue of litigation strategy that can avoid dealing with the reality of what happened.”

Warren, for his part, claims the best the district attorney can do is put him in the room at the time some of the allegedly fraudulent accounting entries were made and can’t establish that he knew that anything illegal was going on.

However, Cohen said these claims are triable issues of fact that won’t get dismissed at this stage.

Gershman said the charges that Warren falsified business records seem weaker than the other fraud counts he faces, as his guilt depends almost entirely on his presence alone.

"Presence might be sufficient to show guilt, but it obviously depends on the existence of other circumstances, including statements from the other participants and anything that Warren may have said," Gershman said.

An attorney for Warren declined to comment.

A more pressing issue for Warren is his pending motion to sever his case from that of the other executives. Gershman said that Warren, if tried alongside Davis, DiCarmine and Sanders, risked a “spillover effect,” as the jury might associate the evidence against the central three defendants with Warren.

That being said, getting a separate trial is a long shot for Warren, Gershman said.

“It’s a huge uphill battle,” he said. “It rarely happens.”

Davis is represented by Elkan Abramowitz and Lawrence Bader of Morvillo Abramowitz Grand Iason & Anello PC. DiCarmine is represented by Austin Campriello and Mary Beth Buchanan of Bryan Cave LLP. Sanders is represented by Marc A. Weinstein, Edward J.M. Little and Ned H. Bassen of Hughes Hubbard & Reed LLP. Warren is represented by Paul Shechtman and William J. Murphy of Zuckerman Spaeder LLP.

The government is represented by New York County Assistant District Attorney Peirce Moser.

The case is the People of the State of New York v. Davis et al., case number 00773/2014, in the Supreme Court of the State of New York, County of New York.