June 1 (Bloomberg) -- Arkansas class-action attorney Steven Eugene Cauley pleaded guilty to federal charges that he stole more than $9 million from client escrow accounts he controlled.

Cauley, 41, pleaded guilty today to fraud and criminal contempt before U.S. District Judge Paul Crotty in New York.

Cauley, formerly of Little Rock’s Cauley Bowman Carney & Williams PLLC, joins other attorneys who’ve pleaded guilty to felonies. Marc Dreier, founder of New York’s Dreier LLP, admitted on May 12 that he sold $700 million in phony promissory notes. Ex-Milberg Weiss Bershad & Shulman partners Mel Weiss, Bill Lerach, David Bershad and Steven Schulman were sent to prison in a kickback scheme.

“I always made a good deal of money in my law practice,” Cauley told the judge. “When I had some extra money coming in, I took a shortcut.”

He also pleaded guilty to wire fraud and criminal contempt and was released on $5 million bond. Sentencing is scheduled for Sept. 10. Under federal guidelines, Cauley faces 78 to 97 months in prison.

In a May 14 petition to surrender his law license, Cauley told the Arkansas Supreme Court that he held in escrow the $66.5 million in proceeds of class-action lawsuit against The BYSIS Group Inc., a Roseland, New Jersey-based insurance-services firm that services insurance companies. Cauley’s firm was among the lead attorneys in the 2004 class-action, or group, lawsuit.

False Statements

“I failed to safely hold the last approximately $9.3 million of those funds and pay over when required to do so,” Cauley said in his petition. “I made false statements to others to explain my failure to pay over these funds, which I had used for other and unauthorized purposes.”

Prosecutors said Cauley used the money to finance his firm’s overhead and some real-estate transactions.

Cauley said in his petition that he faces “issues of depression.” He was admitted to practice law in 1994. His firm has served as lead attorney in other class-action lawsuits, including one against bookseller Barnes & Noble Inc.

The suit against BYSIS, which is now a unit of Citigroup Inc., alleged that it misled investors about its financial condition and settled in 2006. Lawyers were awarded legal fees of $19.7 million out of the settlement.

The Northwest Arkansas Business Journal reported on May 8 that Cauley’s partners alerted U.S. District Judge Jed Rakoff, who is presiding over the BYSIS case, of the missing funds in April.

The BYSIS case is In re Bisys Securities Litigation, 04-cv- 3840, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in U.S. District Court in New York at dglovin@bloomberg.net.

Last Updated: June 1, 2009 15:08 EDT