DEWEY, THE D.A., AND SECRETS

“There aren’t too many secrets in this case,” said Judge Robert Stoltz on December 5. He was referring to the Dewey & LeBoeuf trial over which he presided. The multi-year effort to convict Steven Davis, Stephen DiCarmine, and Joel Sanders produced a raft of acquittals on many charges and a hung jury on the more serious offenses.

Actually, there are two big secrets in the case, but no one is talking about them.

Secret #1: Why Zachary Warren?

Former Dewey chairman Steven H. Davis won’t face a retrial. Assistant DA Peirce Moser has offered him a deferred prosecution agreement. As reported, he will not have to admit guilt and can continue practicing law. When my kids were young, they would have called this a “do-over.”

Judge Stoltz’s reference to secrets was in response to Moser’s suggestion that the retrial of executive director DiCarmine and finance director Sanders should precede the first trial of former low-level staffer Zachary Warren. The longer Warren dangled in a world of uncertainty, the more leverage it would give Moser in his relentless pursuit of someone who never should have been indicted in the first place. Appropriately, the judge denied Moser’s request.

That leads to secret number one: Why is the Manhattan DA’s office squandering its scarce resources to pursue Zachary Warren at all?

I’ve written extensively about Warren’s plight. At age 24, he worked at Dewey & LeBoeuf for about a year from mid-2008 to mid-2009 as a client relations specialist. His principal job was to pester Dewey & LeBoeuf partners into making sure clients paid their bills.

Apparently, his mistake of a lifetime came on December 30, 2008. That’s when he accepted an invitation to join 29-year-old finance director Frank Canellas and 53-year-old chief financial officer Sanders for dinner at Del Frisco’s steakhouse. There he allegedly witnessed the creation of what the DA’s office called a master plan of accounting fraud. As his price for that free dinner, Warren would get indicted five years later.

When Zachary Warren left Dewey & LeBoeuf in June 2009, did anyone in the world think that the firm was unlikely to repay its bills, much less collapse — ever? No.

In 2010, was Warren even at the firm as others worked on the bond offering at the center of the DA’s case? No, he was a one-L at Georgetown.

Even if obtained, would a conviction of Warren result in anything positive for anyone inside or outside our justice system? No.

Warren’s indictment was a travesty. The jury’s rejection of the DA’s case against his superiors is reason alone to drop the effort to prosecute him.

Unsatisfying Answers

So why is Moser so determined to try Zach Warren? One possibility is that the same phenomena contributing to Dewey & LeBoeuf’s downfall infects the DA’s office: hubris, ego, lack of accountability for mistakes, and an unwillingness to admit errors that would prompt thoughtful individuals to change course. Maybe it’s a lawyer personality thing.

Another possibility is the public servant manifestation of greed: the DA wants to put a Dewey & Le Boeuf notch — any Dewey & LeBoeuf notch — on its convictions holster. After Cyrus Vance, Jr. personally announced the indictments in a circus-like press conference on March 6, 2014, Moser suffered unambiguous defeat. In fact, even the plea agreements that the DA’s office squeezed from former firm staffers who later testified at trial now look silly. Unfortunately, the resulting penalties aren’t silly for those who are stuck with them.

To put the DA’s pursuit of Zachary Warren in context consider this. According to published reports, assistant DA Peirce Moser has offered him a plea deal, too. But it is more onerous than the DA’s deferred prosecution agreement with Davis.

There is no just world in which that makes any sense.

Secret #2: Where is the Money?

Prosecutors told the jury that it would not see a “smoking gun.” That’s because the DA didn’t know how to look for or describe it. But the gun was there. It was pervasive, insidious, and hiding in plain sight. It was the environment that caused staffers to fear for their jobs if powerful partners weren’t happy. That meant making sure they received millions more than the firm had available to distribute, even if it came from bank credit lines and outside investors in the firm’s 2010 bond offering.

That leads to secret number two: Why didn’t the DA follow the money?

The public could have reasonably expected Vance to direct the power of his office toward the most egregious offenders and offenses. That didn’t happen. Sure, Davis had a major responsibility for the strategy that brought the firm down. But the executive committee consisted of top partners who were supposed to be fiduciaries in running the firm for the benefit of all partners and the institution. Likewise, as most of the firm’s so-called leaders walked away with millions — far more than Davis, DiCarimine, Sanders, or Warren received — bankruptcy creditors got between five and fifteen cents for every dollar the firm owed them.

In a November 2012 bankruptcy court filing, Davis himself teed up what should have been the central issue in any attempt to assign blame for the firm’s problems:

“While ‘greed’ is a theme…, the litigation that eventually ensues will address the question of whose greed.”

The DA’s office never pursued that question.

Just Rewards

Shortly after Vance’s March 2014 press conference, assistant district attorney Peirce Moser received a promotion. He became chief of the tax crimes unit. The DA’s office announced that Moser’s new position would not preclude him from continuing to run the Dewey & LeBoeuf case. Based on his prominence at the most recent court hearing, it’s still Moser’s case.

If no good deed goes unpunished, sometimes it seems that no bad deed goes unrewarded.

THE DEWEY TRIAL: FOUR EXAMPLES OF NOT-SO-FUNNY COMIC RELIEF

The ongoing criminal trial against three former leaders of Dewey & LeBoeuf has consumed six weeks. Time flies when you’re having fun. For example:

#1: Funny, If It Weren’t So Sad

For a bunch of smart people, some senior partners did some dumb things. One of the prosecution’s first witnesses was a former member of Dewey’s executive committee who retired at the end of 2010. She had contributed more than $600,000 in capital to the firm and, upon retirement, expected to get it back. Although the partnership agreement permitted the firm to spread the payments to her over three annual installments, she testified that chairman Steve Davis had discretion to accelerate them.

Davis declined her request to do so. Instead, he encouraged her to get a bank loan from Barclays for the full amount and told her that over the subsequent three years the firm would repay the loan for her. She followed his recommendation and borrowed the money.

The firm failed to repay the Barclays loan. She remained on the hook and paid the full amount herself. Adding insult to injury, she lost again when the firm filed for bankruptcy and her $175,000 annual pension disappeared.

#2: Funny, If You Were Not a Fellow Partner

For a bunch of high-powered former Dewey partners who rose to the very top of the firm, titles typically associated with power didn’t mean leadership. Likewise, becoming a member of the firm’s governing structure apparently didn’t result in any duties or responsibilities that involved actual knowledge of the firm’s finances or operations.

For example, during the fifth week of trial, Ralph Ferrara testified that even though he had no equity stake in the firm, he held an impressive title — vice chairman — and had an agreement whereby the firm paid him a salary around $5 million a year. He told the jury that former chairman Steven Davis’ announcement that Ferrara would assume the vice-chairmanship became an offer that he couldn’t refuse.

“I’m embarrassed to say, my ego overcame my good judgment,” Ferrara, a former general counsel of the U.S. Securities and Exchange Commission, said on the witness stand.

That line could describe leaders of big law firms everywhere. But it’s a flimsy excuse for abdicating responsibilities that come with power. So is another of Ferrara’s quoted lines: “I’m a practicing lawyer. I’m not a law firm administrator.”

Dewey’s other vice-chairman was Mort Pierce. As the firm was failing and Pierce was jumping ship in 2012, he similarly disclaimed any leadership responsibilities associated with his title and position.

#3: Funny, For a Lawyer

For a bunch of lawyers who make a lot of money advising clients not to write stupid stuff, some of them sure wrote stupid stuff. As the trial plodded through its fifth week, the jury saw these colorful messages from former Dewey partner Alexander Dye:

“Fellas: Time to start spending Momma LeBoeuf’s money like its water.”

“Steve DiCarmine, if you are reading this, I’ll have your f-cking head on a stick.”

During week six, one former executive committee member, Richard Shutran, testified about his internal firm emails, including these nuggets:

“I spend most days bulls–ing people…”

“Do what I do. Work out a lot and do drugs…”

“If he calls me, I’ll kill him…”

A defense attorney for Dewey’s former chief financial officer Joel Sanders had Shutran explain that these were all jokes. Apparently, the strategy is to convince the jury that Shutran’s email jests were part of a culture producing defendants’ supposed email “jokes” about finding “a clueless auditor” and using “fake income” in crafting the firm’s financial statements. Good luck with that one.

#4: Funny, If You’re Not A Juror

At the end of week six, jurors listened as the presiding trial judge, Manhattan Supreme Court Justice Robert Stoltz, interrupted Stephen DiCarmine’s defense counsel in mid-question. He wanted counsel to explain a term he was using in cross-examining Dewey’s former budget and planning director:

“What does the phrase ‘unreconciled expense write-off’ mean?”

Riveting.

Only three more months to go.