(Photo by Maggie Soladay)
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 alleges was 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 had remained shrouded in mystery 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 in the case involving Canellas released.
Each plea deal includes a narrative, called an allocution, in which the cooperating witness accepts responsibility for what he or she did wrong in a detailed account that provides a general road map for the lawyers defending Davis, DiCarmine, Sanders and Warren, outlining the case prosecutors have built against the defendants.
In Canellas’ plea and allocution, he discusses 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 statement, Canellas also describes 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 in New York, 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 New York criminal defense boutique 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 New York’s 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 New York’s 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 other former Dewey staffers 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 will be in violation of their deals and subject to seeing them voided. They are also required to “appear in court as directed.”
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 is also very little in the plea agreements that implicates 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 unsealed Friday even mention the fourth defendant, Zachary Warren, while Canellas’ includes just one brief mention.
In contrast, the actions of former CFO Sanders, who supervised several of those who have pleaded guilty to lesser crimes, is highlighted in several of the allocutions. In some cases, the former employees say 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 says in her allocution.
Alter, the former budget director, also claims he took orders from Sanders as his direct supervisor. He is one of the only ones besides Canellas to mention DiCarmine even indirectly, claiming in his allocution 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,” adds Alter, who also claims 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 adds.
Davis, the firm’s former chairman, comes up in Alter’s allocution only very obliquely. “As I understand from Sanders, DiCarmine and Steve Davis … were often unwilling to implement policies that would legitimately reduce expenses.”
Mullikin, by contrast, says he “dealt only infrequently with Sanders, and dealt even less frequently with Steve DiCarmine … I never met the firm’s chairman, Steve Davis.” He says 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 claims he did not actually enter the allegedly false accounting entries into the firm’s system himself, he says he instructed others to do so. Among the other actions he admits taking, Mullikin says he helped prepare a certification—signed by Canellas—to Dewey’s bank creditors in 2009 that made it appear that the firm was in compliance with its debt covenants, even though he claims 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 claims that together with his assistant, Victoria Harrington, and at Canellas’ bidding, he prepared financial information for potential investors and creditors using the allegedly falsified 2008–09 financial statements. (Along with Canellas, Davis, DiCarmine and Sanders, Mullikin is charged in a parallel civil complaint filed by the U.S. Securities and Exchange Commission.)
Sanders also appears several times in David Rodriguez’s allocution. In one instance, Rodriguez claims 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 says he interacted with Canellas frequently. He says 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. Among other things, according to his LinkedIn page, Rodriquez maintained the firm’s partner capital loan program, prepared partners’ “target compensation” data book for review by the firm’s CFO, executive director and the executive committee and worked with Ernst & Young on the firm’s annual audits.
In his allocution, David Rodriguez mentions 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 claims, those reclassifications increased in number and kind in order 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 says she was instructed by Sanders beginning 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 canceled, although some of the time was eventually billed to clients. She recalls one instance in 2008 when Sanders told her to invoice $10 million of unbilled time that was more 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 claims.
Dianne Cascino technically reported to Sanders, but says 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 firmwide rates and time entry and preparation of monthly management reports.” In that capacity, she managed billing and collection support, filing cash receipts. Her “key accomplishments,” according to the cached version of her LinkedIn page, were restructuring the firm collection department “to gain efficiencies and improve performance” and implementing “firm lockbox to maximize cash availability and enhance reporting capabilities.” She says she never received a bonus for her work.
In her plea and cooperation agreement, Cascino claims 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 says she was sometimes told to make the changes by Canellas, but sometimes also by Sanders. She does not mention any interactions with DiCarmine or Davis. 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 yesterday.
Harrington reported to Mullikin, until he left Dewey in 2011, and then to Canellas, according to her characterization of her role in the alleged fraud. 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. Her resume says she was responsible for “supervising worldwide consolidated monthly closing process and worldwide annual budgeting and forecasting process” and also for the prep and review of monthly consolidated financial statements and supervising accounts payable.
Harrington claims 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 says, 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 says about audit years 2008 through 2010.
After Mullikin left Dewey, Harrington says 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 says.
According to the former employees who accepted guilty pleas, Dewey partners were deliberately kept out of the loop about the financial trickery that was going on at the firm. Alter says he knew that intentionally false financial information was provided to the firm’s executive committee and other partners. Lourdes Rodriguez claims 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 when contacted. Jensen, the Park Jensen Bennett partner representing Harrington, did not immediately respond to a request for comment. Lourdes Rodriguez’s attorney, Adam Miller of Bederow Miller, would only say, “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, Hughes, Hubbard & Reed partner Edward Little, did not immediately respond to a request for comment.
Christine Simmons is a reporter for Am Law Daily sibling publication the New York Law Journal.