The U.S. Securities and Exchange Commission, on Thursday, charged five former executives and finance officials of failed law firm Dewey & LeBoeuf for accounting fraud and for making and facilitating a fraudulent bond offering worth $150 million.
The SEC’s complaint was filed in federal court in Manhattan and charged the law firm’s former chairman Steven Davis, executive director Stephen DiCarmine, chief financial officer Joel Sanders, finance director Frank Canellas, and controller Tom Mullikin.
Andrew J. Ceresney, director of the SEC’s Division of Enforcement said, “Investors were led to believe they were purchasing bonds issued by a prestigious law firm that had weathered the financial crisis and was poised for growth.”
Ceresney further added, “Dewey & LeBoeuf’s senior-most finance personnel used a grab bag of accounting gimmicks to create that illusion, and top executives green-lighted the decision to sell $150 million in bonds to investors as a desperate grasp for cash on the basis of blatantly falsified financial results.”
According to the allegations made by the SEC the executives of the law firm had engaged in accounting fraud when the firm needed to cover the steep costs of the merger that formed the law firm and also had to withstand the vagaries of the economic recession. In fear that lenders might cut off credit lines, the management and finance officials of Dewey & LeBoeuf found was to artificially inflate income and distort financial performance on its financial statements. Then, based on false financial statistics, the law firm turned to bond markets to raise cash through a private offering.
The complaint mentioned that the fraud went back to 2008, and the firm’s profitability was inflated on paper by approximately $36 million in its 2008 financial results by using tricks of accounting. According to the SEC the culture of accounting fraud was so deep rooted in the law firm that once Canellas sent Sanders an e-mail with a list of suggested cost savings to the budget, among which was a $7.5 million line item reduction titled “Accounting Tricks.”
Davis, DiCarmine and Sanders have also been charged with a 106-count indictment at Manhattan Criminal Court by Manhattan District Attorney Cyrus Vance.