DA Vance: 3 Executives At Once-Premier Law Firm Helped 'Cook The Books' Amid Economic Collapse

NEW YORK (CBSNewYork/AP) - Three former executives conspired to hide a law firm's snowballing financial problems from auditors and even their own partners as it headed toward collapse in the nation's biggest law firm bankruptcy, prosecutors said Thursday.

Dewey & LeBouef LLP ex-chairman Steven Davis, former chief executive Stephen DiCarmine and former chief financial officer Joel Sanders are accused of "concocting and overseeing a massive effort to cook the books,'' Manhattan District Attorney Cyrus R. Vance Jr. said as he unveiled fraud and other charges against them.

The former execs say they did nothing but strive - legally - to save a struggling firm from the vise of the 2008 financial meltdown.

"The defendants simply lied. They lied and masked the firm's financial shortfallings. This scheme, deceived lenders, investors and others into believing the firm was in far better financially condition than it actually was," Vance said Thursday.

As CBS 2's Tony Aiello reported, the case has echoes of Enron as millionaire big shots were busted for allegedly cooking the books.

But they weren't corporate titans. They ran what many considered the premier law firm in the city.

"The actions taken by Steven Davis when he was chairman of Dewey & LeBoeuf were taken in good faith, in an effort to make the firm a success,'' his lawyer, Elkan Abramowitz, said in a statement.

Davis, 60; DiCarmine, 57; and Sanders, 55, were awaiting arraignment Thursday.

The now-shuttered firm traced its roots to the early 1900s and later counted former Manhattan DA, New York governor and Republican presidential nominee Thomas E. Dewey among its partners.

Given the charges, he might be spinning in his grave, Aiello reported.

At its height, it employed nearly 3,000 people around the world and 1,000 in New York, and its 2012 implosion rocked the legal community, put thousands of employees out of work and left hundreds of millions of dollars in debt.

The problems began after two venerable New York corporate law firms, Dewey Ballantine LLP and LeBoeuf, Lamb, Greene & MacRae LLP, joined to create Dewey & LeBouef in 2007. The new firm boasted such clients as The Walt Disney Co. and Dallas Mavericks owner Mark Cuban, but its prospects quickly soured with the economy. By the end of 2008, the firm was more than $100 million in debt and unable to meet cash-reserve requirements set by its banks, Vance said.

So Dewey's leaders began doctoring records and devising accounting shenanigans to make expenses seem lower and revenue higher, deceiving auditors and even their own partners, said Vance's office and the FBI, which aided the investigation.

Vance used charts to outline the complicated alleged scheme that started as the 2008 financial crisis took a toll on the legal business.

"This is not a simple case of aggressive accounting, bad business judgment or poor management,'' but of "blatant account fraud and deceit,'' Vance said.

Many tactics involved accounting arcana, but some were as simple as asking clients for backdated checks to count the income in a prior year, the authorities said.

Another example, according to prosecutors, involved a $1 million loan from a partner that was booked as a big payment from a client.

The men sent emails celebrating their trickery, according to an indictment. After DiCarmine came up with one accounting maneuver in 2008, Sanders gushed: "That's why we get the extra 10 or 20% bonus. Tell (your wife), stick with me! We'll buy a ski house next,'' the indictment says.

Months later, the indictment says, Sanders wrote to another, unidentified employee: "Can you find another clueless auditor for next year?''

"That's the plan. Worked perfect this year,'' the employee wrote back.

DiCarmine's lawyer, Austin Campriello, said the indictment "spins some inartful emails into crimes.''

He and Sanders' lawyer, Edward Little, said authorities misunderstood law firm accounting.

"Despite what the district attorney's office apparently believes, the public does not need a scapegoat every time a financial disaster is reported in the media,'' Little said.

Seven ex-Dewey employees have pleaded guilty, and their cases were sealed, Vance said. That indicates those seven may testify against the firm leaders who were charged Thursday.

A former Dewey client relations manager was awaiting arraignment Wednesday on conspiracy charges.

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