Talk about creative accounting. When the government charged former leaders of now-defunct Dewey & LeBoeuf with fraud in March, the criminal indictment and SEC complaint included riveting details about the accounting gimmicks that Dewey management allegedly used to paint a misleading picture of the firm’s financial health. (The defendants deny the charges.) What to do about missed revenue targets, lagging collections, low cash flow and disappointing profits? Here’s how Dewey handled it, according to the Securities and Exchange Commission and the Manhattan district attorney’s office. (Don’t try this at home, kids.)
Treat nonequity partners as partners. By moving compensation for two salaried partners and three of counsel to an equity distribution account, Dewey allegedly cut its expenses and raised net profits by $14.5 million.
Never give up on uncollectible disbursements. In 2009, after first writing off client-related expenses deemed uncollectible, Dewey moved them back to the receivables column, increasing net profit by $3.8 million, the government claims.
Hide credit card charges. Although $2.5 million in American Express charges had already been written off, in 2009 Dewey allegedly reclassified the amount as an unbilled disbursement—that is, an asset related to unbilled client expenses—and did so again in 2010 and 2011.
Backdate checks. In early 2009, prosecutors say, Dewey management urged partners to ask their clients to backdate payments to 2008, in order to increase the previous year’s collections; at least one client obliged.
Be selective in what you tell lenders. In 2010, as Dewey raised $150 million in a private debt offering, it failed to mention in the prospectus that it had stopped making some pension payments to retired partners and that some had threatened to sue. The firm also did not reveal that it had made compensation guarantees to individual partners that totaled more than $33 million.
Book capital contributions as fees. At the end of 2009, Dewey allegedly applied a $1 million capital contribution from one partner as a fee payment for another partner’s client. Although the $1 million moved into the first partner’s capital account in 2010, at the end of the year the firm again used the money to raise its fee revenue, according to the government.
Brag about your work in email. “Can you find another clueless auditor for next year?” one Dewey manager allegedly emailed another, who responded, “That’s the plan. Worked perfect this year.”