Dewey & LeBoeuf Execs Accused of Accounting Fraud; In a multiyear scheme, the law firm’s CFO and other executives falsified accounting entries to conceal a cash-flow shortfall

March 6, 2014

CFO.com | US

Dewey & LeBoeuf Execs Accused of Accounting Fraud

In a multiyear scheme, the law firm’s CFO and other executives falsified accounting entries to conceal a cash-flow shortfall, Manhattan prosecutors allege.

Vincent Ryan

Dewey & LeBoeuf executives, including its former chief financial officer, are accused of running a multiyear scheme designed to hide the law firm’s financial struggles from creditors in the years prior to its filing Chapter 11 bankruptcy, according to a report in The Wall Street Journal.

A grand jury indictment unsealed on Thursday charges former CFO Joel Sanders, chairman Steven Davis, executive director Stephen DiCarmine and client relations manager Zachary Warren with grand larceny, securities fraud, conspiracy, falisfying business records and other misdeeds.

Over a period from November 2008 to March 2012, the law firm “misrepresented expenses and claimed revenue to hide a cash-flow shortfall stemming from the financial crisis,” the WSJ reported.

In that period, the defendants made adjustments to the firm’s books that made it appear that the firm had either increased revenue, decreased expenses or limited distributions to partners, said the WSJ. According to the Manhattan prosecutor’s indictment, at one point in February 2009, Dewey & LeBoeuf told its lenders that it had satisfied a cash-flow covenant, but “in fact, the firm was able to achieve this result only by making millions of dollars of fraudulent accounting entries.”

The Securities and Exchange Commission filed civil charges against Davis, DiCarmine and Sanders on Thursday and also named the firm’s former director of finance and controller in the complaint. In the runup to a 2010 bond deal, the SEC alleges, Dewey & LeBoeuf inflated 2008 profits by $36 million and misstated 2009 financials by $23 million.

The SEC complaint contained details about an email message between CFO Sanders and Dewey’s then chief operating officer. ”I don’t want to cook the books anymore,” Sanders allegedly said. “We need to stop doing that.

Lawyers for the indicted executives said their clients did not commit any crimes.

Dewey & LeBoeuf LLP file for bankruptcy protection in May 2012, after two thirds of its partners left. At the time of the filing, the firm owed creditors $315 million.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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