Attorney Elkan Abramowitz questions Frank Canellas on the stand, July 20, 2015, as former Dewey chair Steven Davis, far right, looks on.
Attorney Elkan Abramowitz questions Frank Canellas on the stand, July 20, 2015, as former Dewey chair Steven Davis, far right, looks on. (Elizabeth Williams)

A defense lawyer for former Dewey & LeBoeuf chairman Steven Davis spent most of the day on Monday challenging the statements of former Dewey finance director Francis Canellas, whose testimony last week suggested that Davis knew about allegedly improper accounting adjustments at the firm.

Canellas is a key witness in the Manhattan district attorney’s case against Davis, former Dewey executive director Stephen DiCarmine and former firm CFO Joel Sanders. Prosecutors in the ongoing criminal trial in New York State Supreme Court claim that the trio fraudulently deceived lenders and investors about Dewey’s finances before the firm went under in 2012.

Bit by bit on Monday, Davis’ attorney, Elkan Abramowitz of Morvillo Abramowitz Grand Iason & Anello, sought to dismantle testimony that Canellas gave under questioning by New York County assistant district attorney Peirce Moser.

Canellas testified last week that the Dewey finance team had altered the firm’s books in order to avoid breaching agreements with its bank lenders. But Abramowitz sought to show that Davis was unaware of any illegal conduct.

Abramowitz questioned Canellas about a meeting that the witness said he attended in December 2011 with Davis and Sanders. The CFO had asked Canellas to bring a list of accounting adjustments he had devised to the meeting.

“There’s nothing per se inappropriate about the term ‘accounting adjustments,’ correct?” Abramowitz asked the witness.

“No, sir,” Canellas responded.

“Do you have the list that you say you showed Mr. Davis?” Abramowitz asked a few minutes later.

“No, sir,” Canellas responded again. He admitted he could not recall exactly what was on the list, adding that he had not even remembered the meeting until the Manhattan district attorney’s office showed him emails about it.

Abramowitz also pointed out that Canellas wasn’t able to detail exactly when or how the firm’s leaders allegedly learned about improper accounting.

“You did not pinpoint a moment or a meeting where you could say that you know that Steve and Steve knew about the false adjustments?” Abramowitz prodded. The witness agreed.

Canellas has pleaded guilty and agreed to cooperate with the DA’s case in exchange for a recommendation of a lighter sentence. He is one of seven such cooperating witnesses who worked at Dewey.

Abramowitz also tried Monday to show that the allegedly improper accounting adjustments at issue in the DA’s case, which were made between 2008 and 2012, were also used in previous years. He showed the jury an email that was sent to Canellas from the firm’s collection manager on Dec. 31, 2007—before the alleged conspiracy began—that included a list of “adjustments” that had the effect of increasing the firm’s net income from $188.5 million to $200 million.

Canellas said the 2007 adjustments were not false. He said he did not remember much about them, however.

Abramowitz also questioned Canellas about backdating checks—a practice the witness testified that the firm often undertook to make fees received in the new year count toward the previous year’s income.

At the end of 2007, Canellas and Sanders had discussions with auditors about this practice, according to emails shown to the jury on Monday. One email suggested that after having a conversation with an Ernst & Young auditor in 2007, Canellas believed it was OK for one of the firm’s clients to write a check dated Dec. 31, even if it was sent the following day.

Other emails showed that Dewey & LeBoeuf partners, including Davis, discussed checks that would come in at the start of 2008 and 2011, but be counted in the prior years. Canellas was copied on many of these emails.

Abramowitz asked Canellas if Davis’ email indicated that the firm could receive checks in the new year but count those checks for the previous year.

“Is the question whether it could do that, or was doing it?” Canellas asked.

“Both,” replied Abramowitz.

“It was doing that,” said Canellas. “Is that the appropriate accounting treatment? I don’t believe it is.”

Abramowitz also addressed Canellas’ claim last week that Davis was nervous before a meeting in either 2010 or 2011 with Dewey’s Ernst & Young auditor. The defense attorney showed the jury a 2010 audit report that gave a positive opinion of the firm’s books. The report had been submitted before the meeting, so Davis had no reason to be nervous, Abramowitz argued.

Austin Campriello, a Bryan Cave partner who is representing former Dewey executive director DiCarmine in the case, also took a turn cross-examining Canellas on Monday. Under Campriello’s questioning, Canellas said DiCarmine never instructed him to make false accounting entries. Canellas added that he never told DiCarmine about the improper adjustments.

Lawyers on both sides told Acting Supreme Court Justice Robert Stolz on Monday afternoon that they are still not sure if they will call expert witnesses to give an opinion on proper accounting practices. Abramowitz said he is in conversations with tax attorney Bryan Skarlatos, but that he had not been retained.

After the jury was dismissed, Abramowitz told reporters that he plans to ask the judge to dismiss the case against Davis. If the case isn’t dismissed, he’ll ask for all hearsay evidence against Davis to be thrown out so the former chairman can’t be implicated in a conspiracy, Abramowitz said.