Guilty Pleas Detail Accounting Fraud at Dewey & LeBoeuf

Guilty Pleas Detail Accounting Fraud at Dewey & LeBoeuf NYLJ/Rick Kopstein Dewey & Leboeuf's former office at 1305 Avenue of the Americas

A day after ex-Dewey & LeBoeuf finance director Francis Canellas’ guilty plea to second-degree grand larceny became public, the pleas of six other former firm employees who have admitted committing crimes related to Dewey’s accounting practices were unsealed Friday.

The six former Dewey staffers—controller Thomas Mullikin, budget director Ilya Alter, director of revenue support Diane Cascino, billing director Lourdes Rodriguez, partner relations specialist David Rodriguez and accounting manager Jyhjing “Victoria” Harrington—were criminally charged for their roles in what Manhattan District Attorney Cyrus Vance described as a massive financial fraud engineered by a trio of firm leaders and one lower-level Dewey employee.

The four alleged masterminds of the scheme—former Dewey chairman Steven Davis, the firm’s former executive director, Stephen DiCarmine, the former chief financial officer, Joel Sanders and client relations manager Zachary Warren—have been accused of committing a slew of felonies in a 106-count indictment unsealed on March 6. In announcing the charges against the four defendants, Vance said his office had already obtained guilty pleas from seven individuals as a result of its investigation into the alleged fraud that helped plunge the firm into bankruptcy.

Until Thursday, those pleas remained sealed even after The New York Times filed motions asking that they be made public. But on the heels of Vance himself moving to have the cases unsealed, while at the same time rejecting the Times’ bid to do so, Manhattan Supreme Court Justice Michael Obus on Thursday ordered most of the records involving Canellas released.

Each plea deal included an allocution in which the cooperating witness accepts responsibility for what he or she did in a detailed account.

In Canellas’ plea and allocution, he discussed how he worked with Davis, DiCarmine and Sanders to carry out the scheme to mislead the firm’s lenders as well as the investors in a 2010 bond offering. In the allocution, Canellas also described how he directed the six people whose cases were unsealed Friday to help him fake the firm’s financial condition.

The details of those pleas released Friday are as follows:

• Mullikin pleaded guilty to first-degree scheme to defraud and faces up to four years in prison, though prosecutors are prepared to recommend five months’ incarceration. He is represented by Kenneth Kaplan, a criminal defense attorney with Kaplan & Katzberg and a former assistant U.S. attorney in Brooklyn. Mullikin worked until recently as the controller at Paul, Weiss, Rifkind, Wharton & Garrison.

• Alter pleaded guilty to second-degree scheme to defraud, a misdemeanor. The maximum sentence under state guidelines is one year, but prosecutors are recommending conditional discharge, requiring him to complete 200 hours of community service. He is represented by Benjamin Brafman of Brafman & Associates.

• David Rodriguez pleaded guilty to second-degree falsifying business records, a misdemeanor. He could face up to a year in prison under state sentencing guidelines. Prosecutors are recommending conditional discharge in exchange for a promise to perform 50 hours of community service. Rodriguez is represented by Richard Ma, of Ma & Park Law.

• Cascino pleaded guilty to second-degree falsifying business records, a misdemeanor, and also agreed to perform 50 hours of community service in exchange for a recommendation by prosecutors that she be sentenced to conditional discharge. Her lawyer is Lawrence Carra, of Mineola, N.Y.

• Lourdes Rodriguez pleaded guilty to second-degree scheme to defraud. As with Alter, prosecutors have agreed to recommend unconditional discharge in exchange for her cooperation. She is represented by a former New York assistant district attorney and deputy bureau chief, Adam Miller of Bederow Miller.

• Harrington pleaded guilty to first-degree scheme to defraud, a felony; sentences under state guidelines can be as long as four years in prison, but prosecutors are recommending unconditional discharge in exchange for her cooperation. She has tapped Douglas Jensen with Park Jensen Bennett.

Should Davis, DiCarmine, Sanders and Warren go to trial, they could well see Canellas and the six others who have taken guilty pleas in court. The cooperation agreements signed by all seven state that if they “[fail] to testify truthfully at any proceeding as required by this office” they would be in violation of their deals and subject to seeing them voided. They are also required to “appear in court as directed.”

Taking Orders

However, the six allocutions made public Friday do not appear to add a great deal of ammunition to what Canellas provided prosecutors about Davis’ alleged role in the scheme. There was little in the plea agreements that implicated DiCarmine directly. The six former Dewey staffers claim to have had little contact with DiCarmine and none with Davis, asserting that they were directed to take the actions they did either by the people they reported to directly, who are identified at various times as Canellas, Mullikin, and Sanders. None of the six narratives mentioned the fourth defendant, Zachary Warren, while Canellas’ included just one brief mention.

In contrast, the actions of former CFO Sanders, who supervised several of those who have pleaded guilty to lesser crimes, was highlighted in several of the allocutions. In some cases, the former employees said Sanders demanded financial adjustments or put additional pressure on them to move money faster.

“I remember feeling a lot of pressure from Joel in 2011 to create some invoices that would not be sent to clients at the time that they were created. Sometimes, I received these sorts of instructions from Frank Canellas, but I usually received instructions directly from Joel,” Lourdes Rodriguez said in her allocution.

Alter, the former budget director, also claimed he took orders from Sanders as his direct supervisor. He is one of the only ones besides Canellas to mention DiCarmine even indirectly, claiming that Sanders asked him and Canellas in late 2008 to “come up with ideas to reduce the firm’s expenses” and wanted them to “present ideas to him and to Steve DiCarmine.”

“I knew the options we were considering were improper. We discussed these options with Sanders,” added Alter, who also claimed that he and Canellas helped prepare information on the adjustments’ effect on the firm’s budget that was shared with Sanders and DiCarmine. When revenue fell below budgeted amounts, Sanders would ask Canellas and Alter to come up with ideas to reduce expenses, Alter said.

Davis, the firm’s former chairman, came up in Alter’s allocution only obliquely. “As I understand from Sanders, DiCarmine and Steve Davis … were often unwilling to implement policies that would legitimately reduce expenses.”

Mullikin, by contrast, said he “dealt only infrequently with Sanders, and dealt even less frequently with Steve DiCarmine … I never met the firm’s chairman, Steve Davis.” He said he worked most closely with Canellas, taking direction from him with respect to the alleged scheme to misstate the firm’s financial performance.

While Mullikin said he did not actually enter the allegedly false accounting entries into the firm’s system, he said he instructed others to do so. Among the other actions he admits taking, Mullikin said he helped prepare a certification—signed by Canellas—to Dewey’s bank creditors in 2009 that made it appear the firm was in compliance with its debt covenants, even though he claimed he knew the underlying financial information submitted was false; that he lied to the firm’s external auditors at Ernst & Young that year and again in 2010, signing a letter that contained allegedly false statements; and when Dewey was trying to refinance its line of credit in 2010, he claimed that together with his assistant, Victoria Harrington, and at Canellas’ bidding, he prepared financial information for potential investors and creditors using the allegedly falsified 2008-2009 financial statements. (Along with Canellas, Davis, DiCarmine and Sanders, Mullikin is charged in a parallel civil complaint filed by U.S. Securities and Exchange Commission.)

Partner Salaries, Invoices

Sanders also appeared several times in David Rodriguez’s allocution. In one instance, Rodriguez said he overheard a speakerphone conversation between Canellas and Sanders in which the latter asked if they could do more salaried partner adjustments. Though he reported to Mullikin, Rodriguez said he interacted with Canellas frequently. He said he was originally hired at LeBoeuf Lamb Greene & MacRae in 1997 as a file clerk within the accounts payable and payroll departments before moving into the job of partner relations specialist in the finance department around 2005. After the merger, Rodriquez became partner relations manager.

In his allocution, David Rodriguez mentioned another potential witness in the case, Brian Ng-Qui-Sang, who reported to him and who, at his behest, assisted in making certain entries in late 2008 and early 2009 via which payments to salary partners were reclassified as equity partner distributions. In late 2009 and early 2010, he claimed, those reclassifications increased in number and kind to increase the firm’s net income.

Lourdes Rodriguez, who became Dewey’s director of billing after the merger, reported to Sanders and at times took direction from Canellas, according to her allocution. She said she was instructed by Sanders starting in 2008 to create invoices knowing that they would not be sent to clients, and that she instructed those who worked for her to create such invoices. Those invoices would be cancelled, although some of the time was eventually billed to clients. She recalled one instance in 2008 when Sanders told her to invoice $10 million of unbilled time that was more than six months old, though there was no intention to send the invoices to firm clients.

“I was often instructed by Joel to create invoices that I understood were being created to boost accounts receivable,” Lourdes Rodriguez said.

Dianne Cascino technically reported to Sanders but said she dealt most often with Canellas. She worked for LeBoeuf Lamb and then the merged firm for 36 years in a variety of jobs within the billing and collections department. As director of revenue support from 2010 on, her role, in her own words, was “supporting all related functions of the domestic and international billing and collections staff, monitoring firm wide rates and time entry and preparation of monthly management reports.” In that capacity, she managed billing and collection support, filing cash receipts.

In her plea and cooperation agreement, Cascino claimed that, beginning in 2008, she was asked by Canellas to make changes in the accounting system; to move entries that were write-offs connected to DiCarmine’s and Sanders’ American Express bills into different ledgers to falsely inflate revenues; to change the dates on invoices; and to apply partner capital payments to allegedly improper accounts, among other actions. She said she was sometimes told to make the changes by Canellas, but also by Sanders. Since August 2012, Cascino has worked as a billing and collections supervisor at Grassi & Co. in Long Island. She did not respond to a voicemail message Friday.

Lying to Auditors

Harrington reported to Mullikin, until he left Dewey in 2011, and then to Canellas, according to her characterization of her role. A licensed certified public accountant, she worked at Coopers & Lybrand, a biotech company, and a large advertising company in various accounting roles until 2001, when she joined LeBoeuf Lamb as a corporate accounting manager.

Harrington claimed she participated in falsifying accounting records starting in early 2009, under the direction of Mullikin and Canellas. When Dewey was audited by Ernst & Young, Harrington said the accounting firm asked her if she was aware of fraud or conduct that would result in misstatements. “I lied and told the auditors that I was unaware of any such fraud or conduct, even though I knew the firm’s financial statements were intentionally being falsified,” she said about audit years 2008 through 2010.

After Mullikin left Dewey, Harrington said she was asked to sign the management representations letter to Ernst & Young, along with Canellas, Sanders and Davis. “I was uncomfortable doing so, because I knew the firm’s accounting records were intentionally being falsified, but I signed it anyway,” she said.

According to the former employees who accepted guilty pleas, Dewey partners were deliberately kept out of the loop about the financial trickery. Alter said he knew that intentionally false financial information was provided to the firm’s executive committee and other partners. Lourdes Rodriguez claimed that “Joel [Sanders] also made clear that I needed to tell him if a partner questioned the practice of not writing-off certain amounts.”

Brafman, Alter’s attorney, declined to comment. Jensen, who represents Harrington, did not immediately respond to a request for comment. Lourdes Rodriguez’s attorney, Adam Miller, said, “Her guilty plea is what it is, and speaks for itself.”

Attorneys representing two of the men charged with engineering the scheme were dismissive of what the pleas unsealed Friday meant for their clients.

“None of the six people whose pleas were unsealed today implicates Steven Davis in any way,” said Davis’ attorney, Elkan Abramowitz, partner at Morvillo Abramowitz Grand Iason & Anello.

And Austin Campriello, who is defending DiCarmine, said the statements in the six allocutions “add nothing to any evidence about Steve DiCarmine. We continue to look forward to a trial.”

William Murphy, a Zuckerman Spaeder partner who is representing Zachary Warren, declined to comment.

Sanders’ attorney, Edward Little, a partner at Hughes, Hubbard & Reed, did not immediately respond to a request for comment.