Crooked lawyers? Who would have thunk it.

Former Top Leaders of Dewey & LeBoeuf Are Indicted

By MATTHEW GOLDSTEIN

Shannon Stapleton/ReutersThe charges against the former officials at Dewey & LeBoeuf are reminiscent of scandals that took place at companies like Enron, WorldCom and Tyco.

The former top leaders of Dewey & LeBoeuf have been indicted by a New York grand jury on charges that they used accounting gimmicks for nearly four years to deceive banks and investors as they sought tens of millions of dollars in financing to keep the law firm afloat.

In announcing the charges on Thursday, the Manhattan district attorney, Cyrus R. Vance Jr., painted a picture of a law firm that operated in a way that was reminiscent of the kind of accounting shenanigans that took place in scandals at Enron, WorldCom and Tyco.

The 106-count indictment against Steven Davis, the firm’s former chairman; Stephen DiCarmine, the executive director; Joel Sanders, the chief financial officer; and Zachary Warren, a client relations manager, comes roughly two years after Dewey collapsed in the largest law firm bankruptcy ever, resulting in claims from creditors totaling $550 million.

It is not uncommon for lawyers to be indicted on charges of bilking clients out of money or being involved in fraudulent schemes. But it is nearly unheard of for prosecutors to contend that the top brass of a law firm, especially a once-storied firm like Dewey, was effectively running a corrupt organization.

The specific counts in the 60-page indictment include grand larceny, conspiracy, scheme to defraud, falsifying business records and securities fraud.

Mr. Vance said the indictment of the four men came after his office had already secured guilty pleas from seven other people who once worked for Dewey and participated in a scheme to “cook the books.” Some of those who pleaded guilty are cooperating with the investigation, a person briefed on the matter said.

“Fraud is not an acceptable accounting practice,” Mr. Vance said at a news conference announcing the indictment, which the grand jury handed up on Wednesday. “Those at the top of the firm directed employees to hide the firm’s true financial condition from creditors, investors, auditors and even partners of the firm.”

The indictment, which contains excerpts from a number of incriminating emails, is a stunning coda to the collapse of a once-mighty firm that was created by the 2007 merger of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, two of New York’s most prestigious law firms. The firm once had 26 offices around the globe and employed 1,300 people in New York.

The stunning allegations in the the indictment may reverberate across the legal community, where working at a top tier firm like Dewey was once considered the pinnacle of success in the legal profession. It’s not lost on some that the lawyers at Dewey were done in by things they advise clients not to do.

“It is surprising that a top firm would engage in fraud and more surprising that its attorneys produced a trail of evidence that will make them look like con men to jurors,” said Erik Gordon, a professor of law at the University of Michigan. “Attorneys counsel clients against doing exactly what Dewey’s attorneys seem to have done.”

The charges also support the whispers of misconduct that had come from some lawyers at Dewey when the firm filed for bankruptcy, with several pointing a finger of blame at Mr. Davis.

The case against the four men centers on a 2010 private debt offering in which Dewey raised $150 million from 13 insurance companies that invested in the deal and an additional $100 million it obtained from a line of credit placed with several large banks. Prosecutors say that the law firm used the offering to refinance its existing credit lines and to mask the dire financial situation the law firm was in during the financial crisis.

The Securities and Exchange Commission also filed a civil complaint over the debt offering against Mr. Davis, Mr. DiCarmine and Mr. Sanders and two other former top executives at Dewey — Frank Canellas, the firm’s director of finance, and Thomas Mullikin, the controller. Mr. Warren wasn’t named as a defendant in the S.E.C. lawsuit.

The Federal Bureau of Investigation assisted in the investigation, deploying a team of agents on the case.

“I can’t say whether this is the Enron” of legal world, Mr. Vance said at a press conference. “Clearly this is the largest law firm bankruptcy that we know of in history.”

Prosecutors contend that the accounting games at Dewey began in November 2008, not long after the merger was completed and ran until March 7, 2012, a little before Dewey filed for bankruptcy two months later. The firm’s financial problems began when it found itself in violation of provisions in bank loans that required it to meet certain cash-flow provisions. Dewey couldn’t meet those provisions because its revenues had taken a hit from the financial crisis.

To make it appear as if Dewey was meeting those loan conditions, the  top executives schemed to make a series of fraudulent accounting entries,  the authorities said. The fraudulent accounting adjustments were made to make it appear that Dewey had either increased its revenues, decreased its expenses or reined in distribution payments to partners, including some all-star lawyers it had signed to lucrative multi-year contracts.

Some of the activities listed in the indictment involved backdating checks received from clients in January to make it appear the previous year’s revenues were higher. The defendants also made expenses look artificially low, prosecutors said. In one instance, a $2.4 million American Express bill for charges incurred by Mr. Sanders was improperly carried as an “unbilled client disbursement receivable.”

The accounting scheme was laid out in a document that authorities said the former Dewey executives called the “Master Plan.”

Lawyers for Mr. Davis and Mr. DiCarmine issued statements in response to the charges against their clients. Elkan Abramowitz, the lawyer for Mr. Davis, said that his client acted in “good faith in an effort to make the firm a success” and that the charges from Mr. Vance and the S.E.C. are “simply wrong.” Austin Campriello, the lawyer for Mr. DiCarmine, said his client “did not commit any crimes” and that the district attorney’s office “spins some inartful emails into crimes.”

Edward Little, the lawyer for Mr. Sanders, said his client broke no laws and that “despite what the district attorney’s office apparently believes, the public does not need a scapegoat every time a financial disaster is reported in the media.” He added that the charges reveal “a basic lack of understanding of financial accounting.”

Michael Armstrong, a lawyer for Mr. Warren, could not be immediately reached for comment

Both the criminal indictment and S.E.C. complaint rely on emails to detail how the leaders of Dewey orchestrated and carried out the suspected accounting fraud. In the criminal complaint, some of the people cited in emails are unidentified — presumably some of the seven people who have already pleaded guilty and may be cooperating with the investigation.

In one email exchange in December 2008 between Mr. Davis, Mr. Sanders and Mr. DiCarmine, the men are discussing the need to come up with $50 million to meet a loan covenant provision. Mr. Davis responds “ugh” in one of the emails. The answer to problems, the indictment suggests, was to come up with the “Master Plan” for fudging the firm’s accounting entries.

After the “Master Plan” is created, one unidentified employee at Dewey emails Mr. Warren to congratulate him on a job well done. In the email cited in the complaint, the employee says: “Great job dude. We kicked ass! Time to get paid.”

In another email exchange in June 2009, some of the defendants joke about the law firm’s outside auditor leaving to take a new job. Mr. Sanders reportedly remarks to a person at Dewey: “Can you find another clueless auditor for next year?”

Before the merger, Dewey’s long-time audit firm was Ernst & Young and after the two law firms combined, Ernst continued to aduit the firm’s financial statements. A filing by the liquidation trustee in the bankruptcy said Ernst audited the firm’s “financial statements and related statements of fees and expense, changes in partners’ accounts and cash flows.”

The defendants are expected to argue that because Ernst reviewed and blessed the firm’s financial records, the accusations that they doctored the books are erroneous.

Mr. Davis, Mr. DiCarmine and Mr. Sanders, charged with the most serious offenses, could be sentenced to a maximum penalty of 25 years in jail if convicted.