(Photo by Rick Kopstein)
Four former Dewey & LeBoeuf executives filed new motions late last week asking the New York State Supreme Court to throw out charges of grand larceny and fraud linked to the firm’s 2012 collapse, claiming Manhattan prosecutors failed to produce evidence of criminal intent and incorrectly instructed a grand jury about accounting rules the men are accused of abusing.
Dewey former chairman Steven Davis, former executive director Stephen DiCarmine, former chief financial officer Joel Sanders and former client relations manager Zachary Warren filed their motions on Friday following the Manhattan district attorney’s response to their previous motions to dismiss the indictment.
Lawyers for Davis, DiCarmine and Sanders wrote that “despite somewhere between 1 [million] and 2 million emails and apparently almost 4,000 pages of grand jury testimony, the prosecutors and the grand jury have no direct evidence of these defendants’ larcenous intent.”
Both the Manhattan district attorney’s criminal case and a parallel civil lawsuit filed by the U.S. Securities and Exchange Commission stem from the events leading up to Dewey’s bankruptcy in May 2012. Both cases accuse the former executives of committing fraud by trying to hide the true financial condition of the failing firm from lenders and investors.
The Manhattan district attorney’s case was brought in March, charging Davis, DiCarmine and Sanders with grand larceny, scheme to defraud, securities fraud, falsifying business records and conspiracy. Warren was charged with scheme to defraud, falsifying business records and conspiracy.
In the court documents filed Friday, the former Dewey executives accused the district attorney’s office of failing to properly instruct the grand jury about accounting rules at the heart of the case, saying “the duty of fair dealing required the prosecutor to instruct the grand jury fairly on the differing accounting standards and laws that determine whether the underlying accounting methods were fraudulent or permissible, as the determination of the defendants’ guilt hinges upon these instructions.”
But Manhattan Assistant District Attorney Peirce Moser told the court on Aug. 15 that the evidence supports the grand jury indictment, as reported by sister publication The New York Law Journal.
Among the issues in dispute is the backdating of checks, which prosecutors contend was an attempt by Dewey executives to mislead lenders and investors about the true financial health of the firm, and which the defense asserts was appropriate under accepted tax rules.
Prosecutors charge that for at least two years between 2008 and 2011, Dewey executives backdated checks from their clients so that revenue received at the beginning of one year was made to look as if it had been collected at the end of the previous year, which had the effect of falsely inflating the firm’s revenue in the previous year, prosecutors say.
But lawyers for the defendants contend that the grand jury should have been instructed “based on the doctrine of constructive receipt” that “federal tax law allows checks to be constructively received as to the date of the instrument.” They contend that the firm’s clients were asked to antedate their checks to match the year the services had been rendered and in which the clients had agreed to pay.
In their reply motion filed Friday, Davis’ lawyers at Morvillo Abramowitz Grand Iason & Anello wrote, “This indictment, at least as it applies to Mr. Davis, is so fundamentally flawed and ill-conceived that we urge this court to take that unusual and rare step” of dismissing the indictment early in the proceedings.
A phone call and emails by The Am Law Daily to Morvillo Abramowitz seeking comment were not returned.
Warren, the youngest defendant in the case, asked the judge to dismiss charges of falsifying business documents for lack of evidence, saying that prosecutors “could not possibly have presented sufficient evidence that Mr. Warren made or caused to be made the allegedly false entries that form the basis for the five falsifying business record counts” because he didn’t make the entries nor direct anyone else to make them, and he didn’t know the entries were false.
Warren contends he did nothing more than “stand by” while former finance director Frank Canellas, a defendant in the parallel SEC case, prepared the accounting entries now in question.
Warren’s attorneys at Zuckerman Spaeder also argued that he “had nothing to do with the private placement of debt securities, the refinancing of the firm’s lending structure or the firm’s eventual demise.” They contend the prosecutors’ case against Warren, whom they described as “an extraordinarily accomplished young man,” seemed colored by personal animus.
“The character assassination in the people’s opposition is disappointing,” Warren’s attorneys wrote in their Friday filing. “It can and should be remedied by an order of this court dismissing the charges against him.”