The result of that 2008 meeting, a prosecutor told jurors on Tuesday, was a document called the “Master Plan.” It spelled out the accounting adjustments that could help the firm to appear to meet crucial covenants on its bank debt.
Prosecutors say that document led to falsely reducing expenses, falsely increasing revenue, and falsifying invoices, among other improper adjustments.
Prosecutors allege that ex-Chief Financial Officer Joel Sanders, who they said attended that dinner at Del Frisco’s Steakhouse, worked together with ex-Chairman Steven Davisand ex-Executive Director Stephen DiCarmine to oversee a yearslong ploy to mask the true nature of the now-defunct law firm’s finances.
Rather than accusing the leaders of manipulating the firm’s books directly, prosecutors alleged the trio directed lower-level employees to make tens of millions of dollars in false accounting adjustments.
Messrs. Davis, DiCarmine and Sanders schemed to “make it appear to those inside the firm and outside the firm that Dewey & LeBoeuf’s financial performance was far better than reality,” Assistant District Attorney Steve Pilnyak told jurors in his two-hour opening arguments.
“The defendants engaged in this scheme year after year after year after year,” he said.
His comments kicked off what is expected to be a four-to-six-month trial in which Manhattan District Attorney Cyrus Vance Jr.’s office will seek to show that Dewey’s former leaders deceived banks and insurance companies into lending more than $250 million that ultimately didn’t prevent Dewey’s 2012 collapse.
Dewey’s bankruptcy filing, which marked the largest law-firm failure in U.S. history, showed that creditors, including those banks and insurance companies, were owed hundreds of millions of dollars.
The fraud started in full force after that Dec. 30, 2008, dinner, Mr. Pilnyak told jurors. One of the other attendees, Francis Canellas, will be one of seven cooperating witnesses expected to testify at trial on behalf of the government.
The third person at the dinner, former client-relations manager Zachary Warren, was indicted by prosecutors but is expected to face a separate trial. Mr. Warren has denied any wrongdoing.
Messrs. Davis, DiCarmine and Sanders deny the charges, which include grand larceny, falsifying business records, scheme to defraud, conspiracy and securities fraud. If convicted, they could face between 8 and 25 years in prison.
The prosecutor’s openings laid out more than a dozen examples of false accounting adjustments allegedly made, such as using a new partner’s equity contribution to pay a client bill and reclassifying money paid to terminate office leases to make expenses appear lower.
The prosecution gave few potential reasons behind the alleged conspiracy apart from mentioning that Mr. Davis, the architect of a 2007 merger that created Dewey & LeBoeuf, worked “to keep his vision of running a global law firm alive.”
Attorneys for Messrs. Davis and DiCarmine countered in separate opening arguments that their clients didn’t know about any manipulation of the firm’s books and that such accounting adjustments had nothing to do with the firm’s downfall.
The reality, according to Mr. Davis’s counsel, Elkan Abramowitz, is that the firm was crippled by the financial crisis and by “a group of greedy partners” who left as the firm faced financial setbacks. “They left these defendants holding the bag,” Mr. Abramowitz said.
Mr. Abramowitz said that Mr. Davis “is being prosecuted for who he was at the firm and not for what he did,” later adding that he “was pilloried as if he were the captain of the Titanic.”
Mr. DiCarmine, meanwhile, went from living the American dream to being in a nightmare, his lawyer, Austin Campriello, said. “Steve is the victim of an ill-conceived quest.”
Mr. Sanders’s attorney will give opening arguments Wednesday morning.
More than 50 onlookers watched the openings Tuesday, including former Dewey employees, relatives of the defendants, and friends of ex-Dewey partners. During breaks, the defendants mingled with the crowd, at times thanking those they knew for coming.
In a hint of witnesses to appear at the trial, Mr. Pilnyak said former Dewey partner John Altorelli will tell the jurors about being asked to request a backdated check from a client that could be attributed to revenue in 2009 instead of 2010.
Though the check was for just $200,000, “every single penny counted,” Mr. Pilnyak said. Mr. Altorelli hasn’t been accused of wrongdoing.
Mr. Pilnyak said the seven cooperating witnesses will relate at trial how they got “their hands dirty” and made sure “the defendants’ directions were carried out.”
Mr. Pilnyak said the three defendants “were just as successful in concealing their fraud as they were at committing it,” hiding the false entries from auditors, banks and 13 insurance companies that bought into a $150 million bond offering in 2010.
Mr. Davis authorized multimillion-dollar salaries for his codefendants, prosecutors say.
“Even in times of famine for some,” Mr. Pilnyak said, “these defendants feasted.”