(Photo by Maggie Soladay)
In pursuing their case against four men accused of engineering a massive accounting fraud that helped hasten Dewey & LeBoeuf’s collapse, prosecutors appear to have a powerful weapon at their disposal: email messages in which the alleged schemers and at least two unnamed colleagues use such potentially damaging terms as “fake income,” “accounting tricks,” “cooking the books” and “clueless auditor.” As damning as that evidence may be, witnesses who took part in the email exchanges will need to testify about what it means and the circumstances under which it occurred if the four Dewey defendants are to be convicted at trial, say several former prosecutors now in private practice. So who might those witnesses be? The most likely candidates, according to the white-collar defense lawyers interviewed by The Am Law Daily, include any of the seven people from whom Manhattan District Attorney Cyrus Vance Jr. has already obtained guilty pleas in connection with his office’s Dewey investigation. The names of those individuals remain under seal. Winnowing the field further, these experts note that two former high-level Dewey employees not named in the 106-count indictment against Steven Davis, Stephen DiCarmine, Joel Sanders and Zachary Warren [PDF] are identified in a parallel Securities and Exchange Commission civil complaint as being in the thick of the alleged accounting trickery at the heart of the criminal case: former finance director Frank Canellas and former controller Thomas Mullikin. Indeed, the 32-page SEC complaint [PDF]—which is focused on the circumstances surrounding Dewey’s $150 million bond offering in 2010—states flatly: “Dewey’s accounting fraud was orchestrated by the firm’s senior-most finance professionals, most notably Joel Sanders (CFO), Frank Canellas (Director of Finance) and Thomas Mullikin (Controller).” Elsewhere, the SEC complaint says, “Canellas and Sanders … hatched a scheme at the very end of 2008 to falsify numerous entries in Dewey’s books and records in order to increase the firm’s net profit.” After detailing a strategy to accomplish that goal in a spreadsheet, the SEC alleges, Canellas directed staffers, including Mullikin, “to carry out these fraudulent adjustments, and to devise other improper adjustments to artificially boost Dewey’s net profits.” Canellas is identified as being on the receiving end of several of the potentially incriminating emails that are also cited in the criminal indictment, which identifies the recipient of those messages instead as “Employee C.” In one message quoted in the SEC complaint, “a distressed Canellas emailed Mullikin: ‘We are short on the covenant. I really need your help with some ideas. We need to hit it. Start thinking and let’s talk sometime this morning.’” (The covenant in question involved Dewey’s revenue obligations to its bank lenders.) Mullikin, meanwhile, is captured in potentially incriminating correspondence of his own in the SEC complaint, which shows him repeatedly being asked for his expert opinion on how best to disguise improper accounting moves—and, in some instances, responding. After allegedly being asked by Canellas in early 2009 how to convert a write-off tied to Sanders’ American Express bill into a pending billable matter, for example, the complaint says Mullikin answered, “That would be less visible.” Michael Miller, a Steptoe & Johnson litigation partner, and Goodwin Procter litigation partner Derek Cohen, both of whom worked in the Manhattan district attorney’s office in the 1990s, say there are various reasons that prosecutors may have chosen not to pursue criminal charges against Canellas and Mullikin. Both, however, see one likely explanation. “It usually means that this is somebody who’s made some sort of disposition with the government either to plead guilty to some charge or to cooperate and they are not being prosecuted,” Cohen says. Miller agrees. “It says that someone’s made the decision that there doesn’t need to be a further criminal prosecution of these unnamed coconspirators,” he says, “because the prosecution has either decided that they’ve committed no crime, or that they did and other arrangements have been made.” Miller says he would expect Mullikin and Canellas to play critical roles at trial. He adds that others not named in the indictment could also be called to testify—regardless of whether they have chosen to cooperate. Under New York state law, he and Cohen note, prosecutors have to show intent to deprive someone of their property to prove grand larceny. To do that, Cohen says, they “have to have insiders who can put all the email evidence into a proper context.” SEC allegations aside, both Mullikin and Canellas certainly qualify as Dewey insiders. Mullikin, 53, joined predecessor firm Dewey Ballantine as an accountant in 1993 from Cleary Gottlieb Steen & Hamilton, where he had held the same title for three years. A resident of Little Ferry, N.J., he holds a bachelor’s degree in accounting from Missouri State University, according to his LinkedIn biography. Six months after allegedly writing the email expressing concern about fooling Dewey’s auditors again, Mullikin left the firm. He became controller at Paul, Weiss, Rifkind, Wharton & Garrison in July 2011. A firm spokeswoman said Monday that he is currently on administrative leave. His lawyer, Kenneth Kaplan at white-collar defense boutique Kaplan & Katzberg, declined to comment on the SEC charges beyond saying his client had only learned of them the day before they were filed last week. As for the 34-year-old Canellas, he spent his entire career with the firm the SEC now accuses him of helping to destroy.
To view this content, please continue to Lexis Advance®.
Not a Lexis Advance® Subscriber? Subscribe Now
LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.
ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.
For questions call 1-877-256-2472 or contact us at firstname.lastname@example.org