Former Dewey & LeBoeuf finance director Francis Canellas outside the firm's Manhattan offices in May 2012.
Former Dewey & LeBoeuf finance director Francis Canellas outside the firm’s Manhattan offices in May 2012. (NYLJ/Rick Kopstein)

In the first criminal trial over the collapse of Dewey & LeBoeuf, testimony from star government witness Francis Canellas wasn’t enough to secure convictions against the firm’s former leaders. Will prosecutors fare better this time?

Canellas, Dewey’s 37-year-old former finance director, took the stand Thursday in the Manhattan district attorney’s criminal case against former Dewey executive director Stephen DiCarmine and former CFO Joel Sanders. In a retrial that began last month, prosecutors accuse the executives of duping creditors about their firm’s true finances before it finally spiraled into bankruptcy in 2012.

Under direct questioning Thursday by Assistant District Attorney Peirce Moser, Canellas—a cooperating witness in the prosecution’s case—began to describe Dewey’s financial struggles in late 2008—the first full year of operation following a 2007 merger of legacy law firms Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae.

As he had testified during the first trial in 2015, Canellas told jurors he had significant concerns that the firm would not meet cash-flow requirements under a pair of revolving lines of credit worth roughly $100 million.

“I was concerned that collections would not be sufficient for the firm to meet its cash flow covenant,” Canellas said. “Clearly, breaking the cash flow covenant was something that could have a significant impact on the firm.”

He testified that he shared those concerns with Sanders, who was Canellas’ supervisor at the time. Canellas also testified that he had committed a crime during his time at Dewey, and that he had done so with others.

The retrial comes after the initial case against DiCarmine, Sanders and former Dewey chairman Steven Davis ended in a mistrial in October 2015. That jury weighed about 50 counts against each defendant, but prosecutors have pared back their case to just three charges each against DiCarmine and Sanders: scheme to defraud, securities fraud under New York’s Martin Act and conspiracy. Davis, who inked a deferred prosecution agreement after the mistrial, is no longer a defendant.

At the first trial, Canellas also testified about the firm’s financial difficulties at the end of 2008. He went on to describe discussions he had with Sanders about accounting adjustments, some of which Canellas said were not legitimate.

DiCarmine’s lead defense lawyer, Rita Glavin of Seward & Kissel, pressed the court Thursday to block prosecutors from asking Canellas whether various Dewey accounting adjustments were “legitimate” or “false,” citing the way they framed their questions in the first trial. Instead, Glavin suggested, the state could ask whether a given adjustment was “appropriate,” and then ask Canellas to explain why or why not.

The judge demurred.

“We’re in a criminal case,” said acting Manhattan Supreme Court Justice Robert Stolz. “We’re not talking about appropriate.”

Earlier in the proceedings, Stolz had told the two sides that he would give the defense “wide latitude” when it came to questioning Canellas about an amended plea deal with prosecutors. Canellas testified Thursday that under the amended agreement, he withdrew an earlier plea for grand larceny and instead entered a guilty plea to a lesser charge of scheme to defraud.

Glavin represents DiCarmine after he dropped his defense lawyer from the first trial, Austin Campriello of Bryan Cave. Sanders’ defense counsel from the first trial, Andrew Frisch, also leads his defense in the second trial.

Canellas is expected to continue his testimony on Friday and is likely to remain on the stand next week.

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