Ex-Dewey Executive Canellas Cooperated With Vance Probe

Former Dewey & LeBoeuf LLP finance director Frank Canellas cooperated with a probe by Manhattan District Attorney Cyrus R. Vance Jr. into a “blatant” $200 million fraud that spurred the largest law firm bankruptcy in history, according to a plea agreement unsealed today.

Canellas said in the agreement that he decided, along with ex-Chief Financial Officer Joel Sanders, “which appropriate and inappropriate accounting adjustments to make” to help Dewey meet its financial obligations once it became apparent the firm was failing. The agreement filed in New York State Supreme Court in Manhattan, which called for Canellas to cooperate with the investigation, was partly redacted.

Sanders, ex-Chairman Steven Davis and Stephen DiCarmine, the former executive director, were accused this month in a 106-count indictment of using accounting gimmicks similar to those that sent top executives at WorldCom Inc. and Tyco International Ltd. to prison a decade ago. Vance’s office cited e-mails in which the men referred to “fake income,” “cooking the books” and “accounting tricks.”

Canellas, who also has been sued by the Securities and Exchange Commission, agreed to plead guilty to grand larceny in the second degree, according to the agreement. The charge carries a maximum penalty of 15 years in prison.

Vance will seek court permission tomorrow to unseal six other plea agreements in the case. He is asking a judge to deny a request by the New York Times to reveal their identities, saying he already plans to unseal most of the case papers.

Firm Merger

Dewey filed for bankruptcy in May 2012, owing creditors $245 million. The New York-based firm, the product of a 2007 merger between Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, fell apart within weeks after ousting Davis and watching virtually all its partners quit for competing firms.

According to papers laying out the case against Sanders, he and others schemed to falsify Dewey’s books to inflate its revenue. Dewey cut costs by mischaracterizing payments to salaried lawyers, reversing disbursements that had been written off, double-booking income, encouraging clients to backdate checks and delaying expenses, Vance’s office said.

“I don’t want to cook the books anymore,” Sanders said in a Dec. 4, 2008, e-mail, according to the SEC. “We need to stop doing that.”

In a June 27, 2009 e-mail, Sanders asked Canellas, “Can you find another clueless auditor?”

“That’s the plan,” Canellas responded. “Worked perfect this year.”

The criminal case is People v. Davis, 773-2014, New York State Supreme Court, New York County (Manhattan). The SEC case is SEC v. Davis, 14-cv-01528, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net

To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net Stephen Farr, Charles Carter

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