The Securities and Exchange Commission (SEC) has charged five former executives of the now bankrupt international law firm Dewey & LeBoeuf with facilitating a fraudulent $150 million bond offering that was meant to pull the law firm pull through the financial crisis. The complaint names chairman Steven Davis, executive director Stephen DiCarmine, chief financial officer Joel Sanders, finance director Frank Canellas, and controller Tom Mullikin, and the Manhattan District Attorney’s Office has named Davis, DiCarmine, and Sanders in a related criminal suit.

SEC

Fraud allegedly began in 2008 and continued until the firm went bankrupt

“As Dewey & LeBoeuf’s revenue was falling and the firm was struggling to meet commitments, its top executives and finance professionals brazenly looked for ways to create fake income and retain their lucrative salaries and bonuses,” said SEC New York regional office director Andrew M. Calamari.

The complaint alleges that the former execs inflated the firm’s profitability by $36 million in 2008 through a number of accounting tricks, and then again misstated 2009 financial statements by $23 million. An internal document actually lists ‘Accounting Tricks’ as a $7.5 million line item reduction for the 2009 reports. The SEC also alleges that the quarterly certifications that were required as part of the note purchase agreement were all fraudulent.

SEC: Fake income discussed in company emails

While the investigation is still ongoing, the SEC has released some text from emails that it has already uncovered that will be difficult for the defendants to explain away.

At one point, Sanders wrote “I don’t want to cook the books anymore. We need to stop doing that,” in an email exchange with other employees talking about ways to show fake income. In a separate email, Sanders wrote, “We came up with a big one: Reclass the disbursements,” in an email to DiCarmine, who wrote back, “You always do in the last hours. That’s why we get the extra 10 or 20% bonus.”

Sanders replied: “I think we made the covenants and I’m shooting for 60%… Don’t even ask – you don’t want to know.”

The SEC is seeking financial penalties and permanent injunctions against all five former executives, officer and director bars against Davis, DiCarmine, and Sanders (who have to worry about additional penalties from the Manhattan DA’s case), as well as prohibiting Davis and DiCarmine from work as lawyers for any company regulated by the SEC.