Two Thoughts about Dewey LeBoeuf and Parallel Proceedings

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You’ve probably read about the Manhattan district attorney’s office’s indictment of executives at former Big Law giant Dewey LeBoeuf.  According to the WSJ  Law Blog, the crux is this:

“[F]ormer Dewey Chairman Steven Davis, former executive director Stephen DiCarmine, and former Chief Financial Officer Joel Sanders misrepresented expenses and falsely claimed revenue to hide a cash flow shortfall stemming from the financial crisis.  The scheme allegedly ran from November 2008 to early March 2012, shortly before Dewey fell into bankruptcy court and dissolved, and was designed to create the illusion that the firm had weathered the financial crisis and was set to grow, according to the indictment.  The three former leaders are charged with a number of crimes including grand larceny, securities fraud, conspiracy, and falsifying business records. A former client-relations manager at the firm, Zachary Warren, was also charged with crimes related to the alleged fraud.”

In a devastating New York Times story over the weekend, James Stewart zeroed in on that last sentence. Client relations manager?  Who? Apparently it wasn’t obvious to “longtime Dewey insiders” who Zachary Warren even is.

Warren graduated from Stanford in 2006, and applied to be a Dewey paralegal.  “Instead, he was offered a $40,000-a-year job helping partners collect client debts. His hard work so impressed his colleagues that he was promoted to “client relations manager” in June 2008, earning a salary of $100,000 a year.”  In 2009 he moved on to law school at Georgetown, and then to federal clerkships on the U.S. District Court in Baltimore and then the U.S. Court of Appeals for the Sixth Circuit, where he is currently working.  A job offer, apparently still open, awaits him at Williams & Connolly in Washington.

In the meantime, though, the SEC called and asked that he come to Washington, D.C., last November to discuss what he knew about the Commission’s investigation into a bond offering at Dewey LeBoeuf.  As Stewart writes:

In late October, an S.E.C. lawyer investigating the bond offering contacted him. Mr. Warren had had nothing to do with it and, because he had not been subpoenaed, was under no obligation to testify. But he wanted to be helpful and cooperative, and he agreed to take time off from work in Memphis and travel to Washington to provide what he continued to think was just background information in a civil investigation.

Then, in a subsequent call, an S.E.C. lawyer told him that a lawyer from the district attorney’s office would be sitting in. Did Mr. Warren mind?

Mr. Warren arrived at the S.E.C. offices on Nov. 15. After the S.E.C. lawyer asked some introductory questions, [Peirce] Moser, the assistant district attorney, took over. An F.B.I. agent was also present, and other prosecutors were listening from New York.

By all accounts, the interview was a disaster for Mr. Warren. He had trouble remembering details from his time at the firm, which prosecutors interpreted as evasion or, worse, lying. They showed him emails and documents, most of which he did not recall. He was not prepared for the hostile tone and became defensive. Prosecutors thought that Mr. Warren was arrogant, even that he was “playing them” by trying to ferret out what they knew, rather than offering to help the investigation.

At one point, it occurred to Mr. Warren that he might be a target, and he asked Mr. Moser if that was the case. The prosecutor did not answer directly, but said, “This is a serious matter.”

As Stewart acknowledges, this is Warren’s side of the story.  Maybe it happened differently.

Two Thoughts

But I have two quick thoughts here.  First, if this is what happened, I don’t think this is a great moment for the SEC’s Enforcement Division.  Calling a witness in for a voluntary interview and then later changing the terms by (1) asking if it would be okay for a criminal prosecutor to sit in, (2) allowing an FBI agent to sit in as well, (3) letting other prosecutors listen in from New York and (4) after an introduction, turning over the questions to the prosecutor, seems, I don’t know . . . unseemly if not unethical.  And yet, the SEC staff’s conduct here appears to have been legally defensible.  United States v. Stringer, 521 F.3d 1189 (9th Cir. 2008), is a decent guide for what is appropriate in parallel proceedings such as these.  The SEC appears not to have made any affirmative misrepresentations to Warren, and he was certainly aware at all points that a criminal investigation was ongoing as well.  It’s odd, though.  I don’t know what Warren could have added to the SEC’s investigation of the bond offering.  If the staff called Warren knowing that they were not interested in his information about that offering – and that they would merely be a vehicle to allow his questioning by criminal authorities – that is not a good practice.  Also, the SEC’s case against the Dewey executives was filed in the Southern District of New York and is being handled by staff in the SEC’s New York Regional Office.  Why was he being interviewed in the SEC’s Home Office in Washington?  He didn’t live there at the time.

Second, Stewart’s story quotes a spokesperson for the Manhattan D.A.’s office reacting to the notion that Warren was tricked into speaking to prosecutors without a lawyer.  Erin Duggan Kramer said, “The claim that an attorney with a federal clerkship could have any misunderstanding of what it means to speak with and agree to meet with the D.A.’s office is preposterous.”  Let me tell you a little secret.  Federal law clerks may know about the federal sentencing guidelines and Bluebooking and other law nerd things, but not many of them know anything useful about dealing with criminal investigations or SEC investigations.  They certainly don’t know much about the similarities and differences between the two.  The volumes of their ignorance would fill an ocean.  Kramer’s comment sounds like someone protesting too much to me.  I’ll be very interested to see how this plays out.

Topics:  Enforcement, Enforcement Actions, Parallel Claims, SEC

Published In: Criminal Law Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Brooks Pierce | Attorney Advertising

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