3)

Explain how the fraud took place, why it took place, the effect it had on the
financial statements
The fraud in which Dewey & LeBeouf took place was cooking the books or
rather, making the companys financial statements look better than they did in
reality. The top officials of Dewey & LeBoeuf a prestigious global law firm located in
New York City that imploded in May 2012 after a series of partner defections. Dewey
& LeBeouf was accused of defrauding the firms lenders and bondholders by means
of a sophisticated accounting conspiracy. Fraud was carried out to obtain financing
and maintain debt contract. Tough financial times has led to desperate measures
with law firms such as Dewey to maintain good financial results. Steven H. Davis,
the firms former chairman; Stephen DiCarmine, the firms former executive
director; and Joel Sanders, its former chief financial officer, have been on trial in
Manhattan Criminal Court. These three men, the firms board of directors have been
accused of falsifying records to improve the companys financial outlook. Three
employees pleaded guilty to one felony each, including the prosecutions star
witness, Frank Canellas, the firms former finance director. Four low-level employees
pleaded guilty to misdemeanors. The company employees were not formally
charged because the prosecution has failed to obtain the necessary burden of proof.
The prosecution had rested its case last week due to the inability to obtain the
burden of proof.
Some of the accounting adjustments made to enhance Deweys fiscal
picture during and after the financial crisis may well have been improper. These
adjustments were more than likely a top-down method command from upper
management to make Dewey & LeBoeufs financial statements look as good as
possible during a difficult period for all law firms. 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. However, it is still isnt entirely clear
they believed they were committing crimes: several testified that at the time, they
didnt believe they were doing anything wrong. No one is accused of falsifying
revenue that did not exist. No one at the firm is accused of entering into sham
transactions for work that was never performed or for booking revenue that was
never paid. . No one is accused of falsifying revenue that did not exist. No one at
the firm is accused of entering into sham transactions for work that was never
performed or for booking revenue that was never paid. There was little evidence for
what the staff accountants were doing was committing fraud.
The Securities and Exchange Commons complaint, date back to late 2008
when senior financial officers began to conjure up fake revenue by manipulating
various entries in Dewey & LeBoeufs internal accounting system. The firms
profitability was inflated by roughly $36 million or 15 percent in its 2008 financial
results through this use of accounting tricks. For example, compensation for certain
personnel was falsely reclassified as an equity distribution in the amount of $13.8
million when they in fact those personnel had no equity in the firm. The incorrect
accounting also reversed millions of dollars of uncollectible disbursements,
mischaracterized millions of dollars of credit card debt owed by the firm as phony
disbursements owed by clients, and inaccurately accounted for significant lease
obligations held by the firm. All of these manipulations and shifts in accounting
policies have led to millions of dollars being represented as additional profit instead
of a loss. The SEC also stated Deweys 2009 financial statements, were also
misstated by $23 million. Accounting fraud was so common at the firm that
Canellas, the finance director, sent Sanders an e-mail with a schedule containing a
list of suggested cost savings to the budget. Among these was a $7.5 million line

item reduction entitled Accounting Tricks. Perhaps the most compelling evidence
was an email Sanders sent stating: I dont want to cook the books anymore. We
need to stop doing that.
Dewey and LeBeouf according to the SEC has violated section 7(a) of the
Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and
Rule 10b-5. The complaint alleges that DiCarmine, Sanders, Canellas, and Mullikin
violated Section 17(a) of the Securities Act and aided and abetted Dewey LeBoeufs
and Davis violations of Section 10(b) of the Exchange Act and Rule 10b-5(b)
pursuant to Section 20(e) of the Exchange Act. The SEC is seeking financial
penalties as well as permanent injunctions against all five defendants, and officer
and director bars against Davis, DiCarmine, and Sanders. The SEC also will
separately seek to prohibit Davis and DiCarmine from practicing as lawyers on
behalf of any publicly traded company or other entity regulated by the SEC.
Because of the allegations Dewey has been accused of, their case will be tried as a
criminal matter and not civil.
What everyone was charged with
The three men charged in the case were Sanders, Davis and DiCarmine. They were
each charged with conspiracy, fraud, violating New York's Martin Act, 15 counts of
grand larceny and more than 30 counts of falsifying business records. Each of these
defendants faced prison time if convicted. These charges resulted in the case being
criminal and not civil. Jurors acquitted the trio of falsifying business record counts,
but the executives still collectively faced more than 90 criminal charges, including
grand larceny. Andrew Frisch, Sanders defense lawyer stood by a previous request

he had made for a mistrial. His position was that forcing further deliberation would
be coercive.
Defenses of the defendants will include a main defense strategy to argue that they
did not intend to deceive investors and instead were doing everything possible to
prevent the collapse of the once mighty law firm during difficult economic times,
whose revenues plummeted during the financial crisis. The defendants will also
argue that the firm intended to pay all the investors back, which resulted in millions
of dollars in bonds being sold as collateral. Juror Shenequa Hopkins said the trial
was "just difficult" because it was so long. "It was complicated," she said, but added
that despite the feeling of being trapped, engaging in the process and meeting her
fellow jurors was a positive experience. Juror Rochelle McGowan said the case was
"too technical. The complicated nature of the case along with the lack of evidence
led to a mistrial. The prosecution claimed Dewey leaders sought backdated checks
from clients to inflate income for the prior year. But Wong said many jurors thought
there was nothing wrong with backdating checks, adding that people back-date
checks regularly in personal finances.

Read more: http://www.newyorklawjournal.com/id=1202740502584/Lawyers-JurorsAssess-DAs-Strategy-After-Dewey-Mistrial#ixzz3tPaNh9tV

a.

Fraud carried out to obtain financing, maintain debt contract

i.

cooked the books

ii.

Misclassified expenses and inflated revenue

iii.

Sold bonds for financing

b.

Men charged, Stephen Davis, Stephen Dicarmine, and Joel Sanders

i.

Falsified records

ii.

fake income clueless auditor emails

4). Explain the Court Case

Criminal case
Why is it criminal not civil?

Read more: http://www.newyorklawjournal.com/id=1202740283549/Dewey-JurorsPaint-a-Complicated-Picture-of-Lengthy-Deliberations#ixzz3tPTlpamd

Definition of these charges
a

Explain prosecution approach to the case

i Concentrated on incorrect entries

Focused on booking of revenue/expenses in wrong periods

Had former employees testify about falsifying accounting

records

Did not call any accounting experts or EY partner in

charge

Explain Deweys defense

i Blame EY
ii Lack of evidence
iii It was other partners who did in with the firm
iv Were adjustments illegal?

End Result: Mistrial

i Delays results and case
ii Jury Deadlocked
iii Some Charges thrown out