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Ex-Dewey Partners Asked to Forgo Half of Salary; Backdate Checks
Jurors at the criminal trial of three former Dewey & LeBoeuf executives facing fraud and conspiracy charges heard vivid descriptions of some of the drama that precipitated the firm's bankruptcy filing in May 2012 from former litigation partner Ralph Ferrara, whose testimony continued late last month.
Though Ferrara was called to the stand by the prosecution, the veteran securities and white-collar criminal defense lawyer often came across as sympathetic to the defense. After praising the defendants ' former chair Steven Davis, former executive director Stephen DiCarmine and ex-CFO Joel Sanders ' for their leadership capabilities, Ferrara spent time describing a tense meeting with all of Dewey & LeBoeuf's top earners.
The meeting was convened on Feb. 13, 2012, so that Davis could ask the group of about 17 partners to forgo 50% of their salaries that year so the 1,400-lawyer firm could pay off its debts. The group had already agreed to let the firm keep 20% of their salaries until 2013, but Ferrara testified that by the time of the meeting, the firm's top executives did not feel that would be enough financial relief.
“The session quickly erupted into a challenge of Steve Davis' stewardship,” said Ferrara, under cross-examination by Davis' lawyer, Elkan Abramowitz of New York's Morvillo Abramowitz Grand Iason & Anello. “A significant number were carping at Steve that over the course of his stewardship, the firm was reduced to people being asked to give up 50% of their salaries.”
Ferrara testified Davis was a temperate person and that he only witnessed the firm's former chairman lose his temper once. This was that time.
“All of a sudden Steve erupted,” Ferrara said, noting Davis was particularly rankled by comments from Gordon Warnke, a tax partner who had come from legacy firm Dewey Ballantine.
“You lied to me about the financial condition of the firm,” Davis yelled at the partners, according to Ferrara. The firm's former chairman went on to say he was deceived about Dewey Ballantine's pension structure, partner compensation and bonuses that were guaranteed to associates when the firm engaged in merger talks with LeBoeuf Lamb in 2007. “I took all of that on,” Davis said.
Ferrara later agreed, under questioning from DiCarmine's lawyer, Austin Campriello of Bryan Cave, that before the merger in 2007, LeBoeuf Lamb was a financially solid firm, while he understood that Dewey Ballantine was having financial difficulties.
Within weeks of the meeting, some of the partners who had been in attendance left Dewey & LeBoeuf, including a key insurance group lead by partners Alexander Dye, Michael Groll and John Schwolsky, who decamped for Willkie Farr & Gallagher in March 2012.
“It was the momentum created by those departures that really precipitated the demise and decline of the firm,” Ferrara said. He described a feeling of fear among partners that was accentuated by “the constant door-banging from headhunters.”
During his direct examination, Ferrara testified that he became a vice chairman at Dewey & LeBoeuf against his wishes. Throughout his testimony, Ferrara had made it clear that per his wishes, as a salaried partner he did not have equity in Dewey & LeBoeuf, had not made a capital contribution and was not on any committees.
“On March 8, an announcement comes out within the firm that Mort Pierce and Ralph Ferrara had been made vice chairs,” said Ferrara, noting that he was surprised not to have received advance notice about his new role.
“I'm embarrassed to say my ego overcame my good judgment,” Ferrara told the jury, explaining why he did not immediately object to the vice chair title. Once the announcement went out, Ferrara said he received many congratulatory notes and comments from fellow lawyers, and he decided to let it go.
But that meant that his name was on a note offering that Dewey & LeBoeuf issued in 2010, which led to insurance companies investing $150 million in the firm. Ferrara said that although he was vice chairman in name, he was not aware of the deal's specifics until after the firm filed for bankruptcy two years later.
Backdating Checks
A former Dewey client relations manager told the jury that partners at the now-defunct firm knew she was looking for backdated checks in order to meet year-end collections targets, but that few questioned the activity.
Suzanna Sanchez, then a 27-year-old staffer in charge of collections at the firm, testified in the criminal fraud trial of Davis, DiCarmine and Joel Sanders.
Sanchez said she wrote an e-mail dated Jan. 4, 2010, to former Dewey partner Joseph Pari asking him to press for payment from NBC and GE; the e-mail was projected on a screen for jurors. Former partner John Salmon was copied on the e-mail.
“Did you ever get a response from Mr. Pari that this is totally inappropriate to be doing in the New Year?” asked Elkan Abramowitz, a partner at Morvillo Abramowitz Grand Iason & Anello, who is representing Davis.
“Not that I recall,” Sanchez responded. She further testified that Salmon did not pose any objections to the practice, nor did most of the other partners who received an e-mail from Sanders, Davis' codefendant, asking for checks from clients dated Dec. 31, 2009. Sanders' e-mail was sent in January 2010.
Pari did respond to Sanchez's e-mail, however, that it would be “virtually impossible for me to get that paid now.”
Some partners did raise direct questions about the backdated checks, Sanchez said.
She said that she got a call from a female partner, whose name she could not recall, expressing concern over whether the practice was appropriate. Sanchez said she brought this up with former finance director Frank Canellas, who told her it was not a big deal.
Manhattan Assistant District Attorney Christopher Conroy projected another e-mail, dated Jan. 4, 2010, during his redirect that showed that former partner Ferrara also objected to dating a check Dec. 31. Ferrara further testified that he objected to the practice of asking clients to backdate checks. When he was asked to do so in early 2010, he refused.
“You'd have to be sleepwalking not to understand why they need a check backdated,” Ferrara, who said that during his time at Dewey & LeBoeuf he contributed $184 million in total billings to the now-defunct firm, said. “When this was presented to me obviously I rebuffed. That was the end of it as far as I was concerned.”
Perhaps the most amusing part of Sanchez's testimony was an e-mail exchange between the witness and former Dewey partner John Altorelli, whom she agreed was a big producer for the firm. The e-mails went up on the screen during the cross examination by Bryan Cave partner Austin Campriello, who is representing DiCarmine, the third defendant.
“You are one of 71 partners who missed your original September target by at least $100k,” Sanchez wrote to Altorelli in an e-mail dated Oct. 2, 2009. “This contributed to a $40M 3rd quarter collection loss firmwide.” She went on to ask him when and how much she can expect he'll collect by the following week.
“I will stop collecting any more money this year until the rest of the 300 partners have collected as much as I have,” Altorelli responded. “Don't ever send me an e-mail like this again.”
Sanchez was not deterred.
“Listen, my apologies for upsetting you, but I have you on my list and I even have a confirmed note that Capmark was going to wire $1.6M today,” she wrote. After explaining she was just doing her job trying to help Sanders meet his projections, she added, “I know you are a big shot, but I need the money.”
That did not seem to help.
“I am the reason you have a job,” responded Altorelli. At this point, some jurors' jaws dropped and others stifled laughs. “You obviously have no clue about what is appropriate.”
Altorelli went on to say that Sanchez's targets are meaningless and instructed her never to speak to him again. He then threatened to have her fired.
Sanchez, who at the time of the e-mail exchange had just a few months on the job, testified that she and Altorelli were able to get past these e-mails and that their relationship later improved.
During direct examination, Sanchez painted a riveting picture of the extreme level of stress within the firm's finance department as it became clearer that collections in 2009 would be weaker than expected.
The collections target, she noted, had already been lowered from $865 million earlier in the year to $805 million by the fall. But in October, she said, the shortfall was severe, prompting Sanders to order her not to communicate with partners about collections data.
Things grew markedly tense on New Year's Eve in 2009, when it became clear that the firm wouldn't hit even the reduced target. That tension spilled over in a meeting between Sanders, Canellas and Sanchez where she broke the news that her collections department wouldn't make the $805 million target.
“[Sanders] said, 'you shit the bed,'” Sanchez recalled. “He said, 'this is a disaster' and that I could have bankrupted the firm.” His tone, she testified, was “angry, upset, frazzled” and “very loud.”
Following that outburst, Sanders and Canellas drafted a form letter ' with Sanchez assigned as note-taker ' aimed at partners who hadn't hit their own targets for collections. The letter, e-mailed to 31 partners in the first few days of January 2010, requested that those partners ask their clients “to send us a check dated 12/31 for the amount” still owed for 2009.
Tying the backdating letter to the other two defendants, the prosecution projected a series of e-mails from Sanchez to Davis and DiCarmine in which the two approved the letter requesting partners to essentially ask clients for backdated checks.
Things got strange again in March 2011, Sanchez testified, when she began noticing that big bills that had been written off a year or two earlier had suddenly been resurrected as collectible invoices, which, she testified, didn't “look right” to her. Sanchez said she was fired two months after complaining to her supervisor that the new invoices didn't seem legitimate.
The Ernst & Young Audit
Under direction examination from assistant district attorney Peirce Moser, Anthony Kolasa, a former partner at Ernst & Young who was involved in the audit of Dewey & LeBoeuf's 2008 financials, testified that it was the responsibility of firm management to provide the global accounting giant with the financial information so it could issue an opinion on that information.
Kolasa was at the end of his career with Ernst & Young in 2009 and had been assured that this would be his only time working with Dewey & LeBoeuf. For that reason, he said, he did not meet with anyone at the firm during the audit.
During Abramowitz's cross-examination, a portion of Ernst & Young's report was projected on a screen to jurors showing that a $6.68 million bill from a client was received on Jan. 2, 2009, but counted in 2008 for tax purposes. A back-and-forth ensued between Abramowitz and Moser over whether this note indicated that the auditors were sanctioning a common practice at Dewey & LeBoeuf or one that pertained only to this client.
Jurors at the criminal trial of three former
Though Ferrara was called to the stand by the prosecution, the veteran securities and white-collar criminal defense lawyer often came across as sympathetic to the defense. After praising the defendants ' former chair Steven Davis, former executive director Stephen DiCarmine and ex-CFO Joel Sanders ' for their leadership capabilities, Ferrara spent time describing a tense meeting with all of
The meeting was convened on Feb. 13, 2012, so that Davis could ask the group of about 17 partners to forgo 50% of their salaries that year so the 1,400-lawyer firm could pay off its debts. The group had already agreed to let the firm keep 20% of their salaries until 2013, but Ferrara testified that by the time of the meeting, the firm's top executives did not feel that would be enough financial relief.
“The session quickly erupted into a challenge of Steve Davis' stewardship,” said Ferrara, under cross-examination by Davis' lawyer, Elkan Abramowitz of
Ferrara testified Davis was a temperate person and that he only witnessed the firm's former chairman lose his temper once. This was that time.
“All of a sudden Steve erupted,” Ferrara said, noting Davis was particularly rankled by comments from Gordon Warnke, a tax partner who had come from legacy firm Dewey Ballantine.
“You lied to me about the financial condition of the firm,” Davis yelled at the partners, according to Ferrara. The firm's former chairman went on to say he was deceived about Dewey Ballantine's pension structure, partner compensation and bonuses that were guaranteed to associates when the firm engaged in merger talks with LeBoeuf Lamb in 2007. “I took all of that on,” Davis said.
Ferrara later agreed, under questioning from DiCarmine's lawyer, Austin Campriello of
Within weeks of the meeting, some of the partners who had been in attendance left
“It was the momentum created by those departures that really precipitated the demise and decline of the firm,” Ferrara said. He described a feeling of fear among partners that was accentuated by “the constant door-banging from headhunters.”
During his direct examination, Ferrara testified that he became a vice chairman at
“On March 8, an announcement comes out within the firm that Mort Pierce and Ralph Ferrara had been made vice chairs,” said Ferrara, noting that he was surprised not to have received advance notice about his new role.
“I'm embarrassed to say my ego overcame my good judgment,” Ferrara told the jury, explaining why he did not immediately object to the vice chair title. Once the announcement went out, Ferrara said he received many congratulatory notes and comments from fellow lawyers, and he decided to let it go.
But that meant that his name was on a note offering that
Backdating Checks
A former Dewey client relations manager told the jury that partners at the now-defunct firm knew she was looking for backdated checks in order to meet year-end collections targets, but that few questioned the activity.
Suzanna Sanchez, then a 27-year-old staffer in charge of collections at the firm, testified in the criminal fraud trial of Davis, DiCarmine and Joel Sanders.
Sanchez said she wrote an e-mail dated Jan. 4, 2010, to former Dewey partner Joseph Pari asking him to press for payment from NBC and GE; the e-mail was projected on a screen for jurors. Former partner John Salmon was copied on the e-mail.
“Did you ever get a response from Mr. Pari that this is totally inappropriate to be doing in the New Year?” asked Elkan Abramowitz, a partner at
“Not that I recall,” Sanchez responded. She further testified that Salmon did not pose any objections to the practice, nor did most of the other partners who received an e-mail from Sanders, Davis' codefendant, asking for checks from clients dated Dec. 31, 2009. Sanders' e-mail was sent in January 2010.
Pari did respond to Sanchez's e-mail, however, that it would be “virtually impossible for me to get that paid now.”
Some partners did raise direct questions about the backdated checks, Sanchez said.
She said that she got a call from a female partner, whose name she could not recall, expressing concern over whether the practice was appropriate. Sanchez said she brought this up with former finance director Frank Canellas, who told her it was not a big deal.
Manhattan Assistant District Attorney Christopher Conroy projected another e-mail, dated Jan. 4, 2010, during his redirect that showed that former partner Ferrara also objected to dating a check Dec. 31. Ferrara further testified that he objected to the practice of asking clients to backdate checks. When he was asked to do so in early 2010, he refused.
“You'd have to be sleepwalking not to understand why they need a check backdated,” Ferrara, who said that during his time at
Perhaps the most amusing part of Sanchez's testimony was an e-mail exchange between the witness and former Dewey partner John Altorelli, whom she agreed was a big producer for the firm. The e-mails went up on the screen during the cross examination by
“You are one of 71 partners who missed your original September target by at least $100k,” Sanchez wrote to Altorelli in an e-mail dated Oct. 2, 2009. “This contributed to a $40M 3rd quarter collection loss firmwide.” She went on to ask him when and how much she can expect he'll collect by the following week.
“I will stop collecting any more money this year until the rest of the 300 partners have collected as much as I have,” Altorelli responded. “Don't ever send me an e-mail like this again.”
Sanchez was not deterred.
“Listen, my apologies for upsetting you, but I have you on my list and I even have a confirmed note that Capmark was going to wire $1.6M today,” she wrote. After explaining she was just doing her job trying to help Sanders meet his projections, she added, “I know you are a big shot, but I need the money.”
That did not seem to help.
“I am the reason you have a job,” responded Altorelli. At this point, some jurors' jaws dropped and others stifled laughs. “You obviously have no clue about what is appropriate.”
Altorelli went on to say that Sanchez's targets are meaningless and instructed her never to speak to him again. He then threatened to have her fired.
Sanchez, who at the time of the e-mail exchange had just a few months on the job, testified that she and Altorelli were able to get past these e-mails and that their relationship later improved.
During direct examination, Sanchez painted a riveting picture of the extreme level of stress within the firm's finance department as it became clearer that collections in 2009 would be weaker than expected.
The collections target, she noted, had already been lowered from $865 million earlier in the year to $805 million by the fall. But in October, she said, the shortfall was severe, prompting Sanders to order her not to communicate with partners about collections data.
Things grew markedly tense on New Year's Eve in 2009, when it became clear that the firm wouldn't hit even the reduced target. That tension spilled over in a meeting between Sanders, Canellas and Sanchez where she broke the news that her collections department wouldn't make the $805 million target.
“[Sanders] said, 'you shit the bed,'” Sanchez recalled. “He said, 'this is a disaster' and that I could have bankrupted the firm.” His tone, she testified, was “angry, upset, frazzled” and “very loud.”
Following that outburst, Sanders and Canellas drafted a form letter ' with Sanchez assigned as note-taker ' aimed at partners who hadn't hit their own targets for collections. The letter, e-mailed to 31 partners in the first few days of January 2010, requested that those partners ask their clients “to send us a check dated 12/31 for the amount” still owed for 2009.
Tying the backdating letter to the other two defendants, the prosecution projected a series of e-mails from Sanchez to Davis and DiCarmine in which the two approved the letter requesting partners to essentially ask clients for backdated checks.
Things got strange again in March 2011, Sanchez testified, when she began noticing that big bills that had been written off a year or two earlier had suddenly been resurrected as collectible invoices, which, she testified, didn't “look right” to her. Sanchez said she was fired two months after complaining to her supervisor that the new invoices didn't seem legitimate.
The
Under direction examination from assistant district attorney Peirce Moser, Anthony Kolasa, a former partner at
Kolasa was at the end of his career with
During Abramowitz's cross-examination, a portion of
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