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SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK – PART 72 – – – – – – – – – – – – – – – – – – – – – – – – – – – – x
: THE PEOPLE OF THE STATE OF NEW YORK, :
: :
-against- : : :
STEVEN DAVIS, STEPHEN DICARMINE, : and JOEL SANDERS :
: Defendants. :
:
Indictment Number 773/2014
– – – – – – – – – – – – – – – – – – – – – – – – – – – – x
MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT STEVEN DAVIS’S MOTION FOR A TRIAL ORDER OF DISMISSAL AND TO STRIKE EVIDENCE
ADMITTED AGAINST HIM SUBJECT TO CONNECTION
i
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ....................................................................................................... iii
INTRODUCTION ................................................................................................................... 1
STATEMENT OF FACTS ............................................................................................................1
I. THERE IS NO DIRECT EVIDENCE AGAINST MR. DAVIS TO SUSTAIN THE CHARGES AGAINST HIM .............................................................................2
II. THERE IS NO CIRCUMSTANTIAL EVIDENCE AGAINST MR. DAVIS TO SUSTAIN THE CHARGES AGAINST HIM ...........................................................4
A. December-dated Checks ................................................................................ 4
i. Alleged Requests for Backdated Checks—Emails Relating to ADWEA .................................................................................................. 9
ii. People’s Exhibits 21-171, 21-172 .......................................................... 11
B. Desire to Meet the Covenants ...................................................................... 12
C. Authorization of Letters of Credit for Mr. DiCarmine, Mr. Sanders and Mr. Canellas .......................................................................................... 15
D. People’s Exhibits 21-088 and 21-150 .......................................................... 17
E. “Fake Income”: People’s Exhibit 21-142 .................................................... 18
F. Meeting with Denise Pelli ............................................................................ 20
G. The List of Adjustments Brought to a December 22, 2011 Meeting .......... 21
H. Reclassification of Income as a Return of Capital ...................................... 22
i. Steve Davis Capital Reclassification ....................................................... 22
ii. January 3, 2012 Meeting ........................................................................ 23
I. Chrysler Retainer ........................................................................................... 27
J. Private Placement .......................................................................................... 28
i. Mr. Davis’s Minimal Involvement .......................................................... 28
ii. People’s Exhibit 21-239 ......................................................................... 29
ii
iii. The Overhang ........................................................................................ 29
iv. Article III and IV Payments to Former Partners ................................... 30
v. Khalid Al-Thebity ................................................................................... 31
III. THE PEOPLE HAVE FAILED TO PROVE THAT ANY OF THE ACCOUNTING ADJUSTMENTS MADE TO THE FIRM’S BOOKS WERE, IN FACT, IMPROPER ...............................................................................31
ARGUMENT ......................................................................................................................... 35
I. THE TRIAL EVIDENCE IS INSUFFICIENT TO ESTABLISH ANY OF THE CRIMES CHARGED AGAINST MR. DAVIS ..............................................35
A. The People’s Failure to Call an Expert Witness Warrants Dismissal of All Charges Against Mr. Davis ............................................................... 35
B. The Trial Evidence is Insufficient to Establish the Charge of Conspiracy in the Fifth Degree and the Co-Conspirator Hearsay Admitted Subject to Connection Should Be Stricken ................................. 36
i. The trial evidence is insufficient to make a prima facie case that Mr. Davis was a knowing member of an illicit agreement ........... 39
ii. There is insufficient evidence to make a prima facie case of Mr. Davis’s intent ................................................................................. 40
C. The Trial Evidence is Insufficient to Establish the Charge of Scheme to Defraud in the First Degree ..................................................................... 41
D. The Trial Evidence is Insufficient to Establish the Charge of Grand Larceny in the First Degree ......................................................................... 43
E. The Trial Evidence is Insufficient to Establish the Charges of Falsifying Business Records in the First Degree ......................................... 44
F. The Trial Evidence is Insufficient to Establish the Martin Act Charge ...... 46
CONCLUSION...................................................................................................................... 47
iii
TABLE OF AUTHORITIES
Page
CASES
Direct Sales Co. v. United States, 319 U.S. 703 (1943) .................................................................................................................. 40
Hineman v. Brodrick,
99 F. Supp. 582 (D. Kan. 1951) ............................................................................................ 8, 38 Kunze v. C.I.R.,
19 T.C. 29 (1952) .................................................................................................................. 7, 38 Maley v. Del Global Techs. Corp.,
186 F. Supp. 2d 358 (S.D.N.Y. 2002) ....................................................................................... 36 People v. Austin,
9 A.D.3d 369 (2d Dep't 2004) ................................................................................................... 39 People v. Bac Tran,
80 N.Y.2d 170 (1992) ............................................................................................................... 39 People v. Berkowitz,
50 N.Y.2d 333 (1980) ............................................................................................................... 43 People v. Caban,
5 N.Y.3d 143 (2005) ................................................................................................................. 37 People v. Danielson,
9 N.Y.3d 342 (2007) ................................................................................................................. 35 People v. Delamota,
18 N.Y.3d 107 (2011) ............................................................................................................... 35 People v. Evangelista,
88 A.D.2d 804 (1st Dep't 1982) ................................................................................................ 40 People v. Grossman,
124 A.D.2d 974 (4th Dep't 1986) .............................................................................................. 35 People v. Jeffries,
180 A.D.2d 554 (1st Dep't 1992) ................................................................................................ 1
iv
People v. Kenny,
30 N.Y.2d 154 (1972) ............................................................................................................... 35 People v. Kisina,
14 N.Y.3d 153 (2010) ............................................................................................................... 45 People v. McGee,
49 N.Y.2d 48 (1979) ................................................................................................................. 42 People v. Ozarowski,
38 N.Y.2d 481 (1976) ......................................................................................................... 40, 41 People v. Parks,
53 A.D.3d 688 (3d Dep't 2008) ................................................................................................. 45 People v. Reyes,
69 A.D.3d 537 (1st Dep't 2010) ................................................................................................ 46 People v. Sala,
258 A.D.2d 182 (3d Dep't 1999) ............................................................................................... 47 People v. Taveras,
12 N.Y.3d 21 (2009) ................................................................................................................. 45 People v. White,
101 A.D.2d 1037 (2d Dep't 1984) ............................................................................................. 42 People v. Wolf,
284 A.D.2d 102 (1st Dep't 2001), ............................................................................................. 42 Robinson v. Snyder,
259 A.D.2d 280 (1st Dep't 1999) .............................................................................................. 39 Romine v. C.I.R.
25 T.C. 859 (1956) ................................................................................................................ 8, 38
STATUTES
Criminal Procedure Law § 70.10(1) ......................................................................................... 36 Criminal Procedure Law § 290.10 ........................................................................................ 1, 48
v
Gen. Bus. Law § 352-c(5).............................................................................................................46 N.Y.U.C.C. § 3-114(2).............................................................................................................. 8, 39 Penal Law § 15.10........................................................................................................................45 Penal Law § 105.05(1)..................................................................................................................36 Penal Law § 155.00(3)..................................................................................................................43 Penal Law § 155.05.......................................................................................................................43 Penal Law § 175.05(1)..................................................................................................................44 Penal Law § 175.10......................................................................................................................45 Penal Law § 190.65(1)(b).................................................................................................36, 41, 42 U.C.C. § 3-114(2) ................................................................................................................ 8, 39
REGULATIONS
Treas. Reg. § 1.446-1(c)(i) ........................................................................................................ 7, 39 Treas. Reg. § 1.451-2(a) ........................................................................................................... 7, 39
OTHER AUTHORITIES
6 N.Y. Prac. Criminal Law § 12:5 (3d ed.) ................................................................................... 43
INTRODUCTION
Pursuant to CPL § 290.10, defendant Steven Davis moves for a trial order of dismissal of
all of the charges against him and to strike all of the evidence that was admitted against him
“subject to connection.”
In the People’s opening statement nearly three months ago, ADA Pilnyak argued to the
jury: “[T]hese three defendants directed their employees to make tens of millions of dollars of
fraudulent adjustments to Dewey & LeBoeuf’s accounting records.” Trial Transcript (hereinafter,
“Tr.”) at 103:6-8. At the close of the People’s case, the People have failed to introduce any
evidence whatsoever that Mr. Davis directed any employee to make any fraudulent adjustments
or that he acted with an intent to defraud.
The paltry evidence upon which the People rely is insufficient to establish Mr. Davis’s
guilt; the inferences the People would ask the jury to draw from the scant and ambiguous
evidence against Mr. Davis only amount to rank speculation upon which a guilty verdict cannot
be based as a matter of law. After drawing all reasonable inferences in favor of the People, the
inferences of innocence are stronger than, or at least equal to inferences of guilt, compelling a
verdict of not guilty. People v. Jeffries, 180 A.D.2d 554, 555 (1st Dep’t 1992) (“[D]efendant
would be entitled to an inference of ‘non-guilt’ where two inferences of equal strength could be
drawn from the evidence.”). As the details below will show, all charges against Mr. Davis should
be dismissed.
STATEMENT OF FACTS
ADA Pilnyak assured the jury in his opening statement: “The evidence will show the
reason that Dewey & LeBoeuf’s financial statements contained intentionally false financial
information is because these three defendants directed this be done.” Tr. at 97:18-21 (emphasis
added). The evidence presented at trial has shown just the opposite. The only evidence of any
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direction given by Mr. Davis relating to the firm’s books and records were his instructions that
employees “record and report all data and information accurately and honestly,” that the firm
“must comply with accepted accounting practices and controls as established by our outside
accountants at all times,” and that “[n]o false or artificial entries will be made in the books,
records or accounts of the firm for any reason, and no partner or employee will engage in any
arrangement that results in prohibited entries.” Defendants’ Exhibit (hereinafter, “DX”) 325,
DX 326. There has been no evidence presented at trial that Mr. Davis ever directed anyone to
make fraudulent accounting adjustments to the firm’s books and records. Indeed, there has been
no evidence presented at trial from which a reasonable inference could be drawn that Mr. Davis
was even aware of any accounting fraud.
I. THERE IS NO DIRECT EVIDENCE AGAINST MR. DAVIS TO SUSTAIN THE CHARGES AGAINST HIM.
The People have been unable to elicit from any of their witnesses any direct evidence
whatsoever that Mr. Davis knew that the firm was making fraudulent accounting adjustments.
Frank Canellas testified that he had never had any conversation with Mr. Davis about
whether any of the accounting adjustments were inappropriate:
Q You never had a conversation, a direct conversation with Mr. Davis about whether these adjustments were inappropriate?
A No, sir. Q No sir meaning you never had such a conversation, am I right? A Yes.
Tr. at 4843:3-9. Mr. Canellas instead testified about conversations he had with Mr. Sanders in
which Mr. Sanders conveyed that Mr. Davis and Mr. DiCarmine had told Mr. Sanders that the
firm had to meet its covenants. Tr. at 4842:1-19. However, Mr. Canellas conceded that the
chairman of a firm should want the firm to meet its covenants, and that he would have been
3
alarmed if he had been told that Mr. Davis did not want the firm to meet its covenants with the
banks:
Q As a general proposition, Mr. Canellas, would you agree with me that the chairman of a firm should want the firm to meet its covenants?
A Yes sir. …
Q Would you have been alarmed, Mr. Canellas, if Mr. Sanders or anyone ever said to you that Mr. Davis did not want the firm to meet its covenants with the bank?
A Yes, I would have.
Tr. at 4843:10-4844:1 (emphasis added).
Similarly, David Rodriguez testified only that he “thought [Davis] knew” that the firm
made adjustments that were fraudulent. Tr. at 2408:11-17 (emphasis added). But absent from Mr.
Rodriguez’s testimony was any indication that he had been told by Mr. Davis, or had even heard
anything that was said in Mr. Davis’s presence, to provide any basis for his assumption. Rather,
he testified that the only basis for his belief that Mr. Davis knew that the adjustments were
fraudulent was his feeling that Mr. Canellas was “protected” by the three defendants. Tr. at
2405:18-24. Notably, Mr. Rodriguez testified that he interacted with Mr. Davis “very
infrequently” and that he never received direction directly from Mr. Davis:
Q How frequently did you interact with the defendant Davis during your time at Dewey & LeBoeuf?
A Very infrequently. Q Did you ever receive direction directly from defendant Davis? A Not that I can recall.
Tr. at 2074:21-2075:1.
The other five cooperators testified that they had never even met Steven Davis or had
simply said hello to him in passing:
Dianne Cascino:
Q And how frequently did you interact with [Steven Davis]? A Never.
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Tr. at 6832:8-9.
Thomas Mullikin:
Q How often did you interact with Steven Davis, the chairman? A I didn't interact with him at all, I never met him.
Tr. at 1707:20-22.
Victoria Harrington:
Q Do you know Steve Davis? A I know of his name but I have never interacted with him.
Tr. at 5701:13-15.
Lourdes Rodriguez:
Q Did you interact with [Steven Davis] much at Dewey & LeBoeuf? A No.
Tr. at 6224:23-24.
Ilya Alter:
Q Now, approximately, how frequently did you interact with defendant Davis over time at Dewey & LeBoeuf?
A Very infrequently. Mostly in passing. Hello, and so I saw him a couple of times make presentations to admin staff or to the partnership.
Tr. at 3833:24-3834:3.
II. THERE IS NO CIRCUMSTANTIAL EVIDENCE AGAINST MR. DAVIS TO SUSTAIN THE CHARGES AGAINST HIM.
The People seem to believe that the key pieces of circumstantial evidence against Mr.
Davis are the following:
A. December-dated Checks1
The People have tried to prove that Mr. Davis directed others at D&L to have clients
1 There is no evidence that Mr. Davis had any involvement whatsoever with the single backdated check alleged in the indictment, requested by John Altorelli from the client Garda (Count 30).
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backdate checks, knowing that as a result, the income resulting from those checks, along with
other checks received by the firm in January but dated in December, would be reported
improperly in the prior year. However, the jury has seen no evidence—testimonial or
documentary—that anyone ever told or even suggested to Mr. Davis that it was improper for
Dewey & LeBoeuf to include in revenues for the prior year 1) checks received by the firm in
January, written by the client in December, and dated December 31st of the prior year
(hereinafter “checks in the mail”), or 2) checks received by the firm in January, written by the
client in January, and dated December 31st of the prior year. With regard to “checks in the mail,”
the evidence shows that Mr. Davis sent an e-mail to the global partnership—around 300 partners,
including tax lawyers, former federal prosecutors and attorneys with CPA licenses—on January
4, 2011, stating, “Because we continue to receive checks this week that qualify as receipts for
calendar year 2010, we do not yet have final year-end revenue figures.” Tr. at 716:5-717:21, DX
248. Mr. Canellas testified that not one of these 300 attorneys ever contacted him—the Director
of Finance—to say that they thought this treatment was inappropriate. Tr. at 4935:16-4937:25.
And no evidence has been introduced showing that any of these partners, or anyone else for that
matter, told Mr. Davis that they thought this treatment was inappropriate.2
The People have similarly failed to introduce any evidence that any partner, or anyone
else, told Mr. Davis that they believed that including in the prior year’s revenues a check written
in January and dated December 31st, for work performed, billed and invoiced in the prior year,
2 In People’s Exhibit (hereinafter, “PX”) 21-072, Mr. Davis and a group of the firm’s partners were told by Mr. Sanders on December 31, 2008 that “We're still expecting some checks in next week so I plan to close the year by the end of next week.” In DX 56, both James Woods and Jeffrey Kessler responded, saying that the results were “outstanding” and “Joel and his team clearly did a great job.” Not one of the recipients responded to Mr. Sanders’ e-mail questioning whether this treatment was appropriate. And in PX 21-180, Mr. Davis wrote to Martin Bienenstock, a partner at D&L, on January 5, 2010: “We do not have final numbers—the books close on Friday, January 8 and we are still booking checks that were mailed last week.” Again, no evidence has been introduced by the People showing that Mr. Davis believed, or was told, that this treatment was in any way inappropriate.
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was improper. Richard Shutran, a former Dewey & LeBoeuf partner, testified that he himself had
asked another partner, Betty Cerini, to ask a client to date a check in December 2008 and sign it
within the first couple of days of January 2009 so that it could be booked as 2008 revenue. Tr. at
3695:14-3698:1, DX 205. John Salmon, a former Dewey & LeBoeuf tax partner and former
General Counsel for the House Ways and Means Committee, also testified that he was involved
with requests for December-dated checks in December of 2007, and conceded that an e-mail he
wrote (DX 96) was broadly worded and could be read to include requests for backdated checks.
On December 29, 2007, Mr. Salmon wrote to a group of partners as a “last push” to collect for
2007: “Remember our goals are (1) to have good funds wired to the Firm for crediting on
Monday the 31st; or (2) to have client checks dated 12/31/07 delivered to the firm or picked up
by us, not later than [January] 3rd.” Tr. at 1028:22-1030:5, DX 96. Mr. Salmon conceded that if
a representative from Dewey & LeBoeuf went to a client and picked up a check dated December
31st on January 3rd, that person would have no way of knowing whether that check was written
on December 31st or in January. Tr. at 971:5-10. Mr. Salmon went on to explain his language in
the e-mail:
We had some clients where the finance department of the company is closed between Christmas and New Year's or a lot of people are on vacation. And partners say we will cut the check. We haven't got it. The finance department is closed. So when you have a calendar year close, you run into a combination of a lot of people being on vacation, and the year-end can, at least the holiday can, New Year's Day – that email was fairly, broadly worded.
Tr. at 972:1-8 (emphasis added). Mr. Salmon also testified that he never raised a question as to
whether the practice of booking in the prior year December-dated checks received in January,
whether written by the client in December or January, was appropriate or not. Tr. at 972:14-17.
7
In the absence of any proof whatsoever that Mr. Davis believed that it was improper to
include December-dated checks received in January in revenues for the prior year, the People
appear to maintain that it is self-evident that one cannot properly include in the prior year’s
revenues a check written in January and dated December 31st, even if the work was performed in
the prior year, the work was billed and invoiced in the prior year and the client committed to pay
in the prior year.
However, the notion that it is self-evident that a check written in January, dated in
December, cannot be included in the prior year’s revenues is entirely unsupported by law, by
documentary evidence, and by the testimony, expert or otherwise, provided to the jury. First, the
People’s argument about what is self-evident is contradicted by the law relating to the proper tax
treatment of antedated (i.e., backdated) checks. Under the relevant treasury regulations, Dewey
& LeBoeuf was required to include any items constituting gross income in “the taxable year in
which they were actually or constructively received.” Treas. Reg. § 1.446-1(c)(i) (emphasis
added). Constructive receipt refers to “the taxable year during which it is credited to his account,
set apart for him, or otherwise made available so that he may draw upon it at any time, or so that
he could have drawn upon it during the taxable year if notice of intention to withdraw had been
given.” Treas. Reg. § 1.451-2(a) (emphasis added).
Federal tax case law also supports the proposition that an antedated payment is
constructively received as of the date on the instrument. Where a taxpayer has a matured right to
income based on services rendered in the previous year, the income is constructively received at
the time he could have obtained such income, or at the time the funds could have been made
available to him. Kunze v. C.I.R., 19 T.C. 29, 31 (1952) (a dividend declared and made payable
in the earlier year but received through the mail in the next year was constructively received in
8
the earlier year and includible in income for the earlier year); Romine v. C.I.R., 25 T.C. 859,
873–75 (1956) (where taxpayer did not actually collect funds until January of the next year for a
sale that occurred in December, the income was constructively received in the prior year); see
also Hineman v. Brodrick, 99 F. Supp. 582, 583 (D. Kan. 1951) (holding that plaintiff
constructively received payment in 1947 though plaintiff actually received payment in 1949,
because the goods in question were sold and delivered in 1947).
In addition, the New York Uniform Commercial Code expressly provides that “[w]here
an instrument is antedated or postdated[,] the time when it is payable is determined by the stated
date if the instrument is payable on demand or at a fixed period after date.” N.Y.U.C.C. § 3-
114(2); see also U.C.C. § 3-114(2). At a minimum, even when viewed in a light most favorable
to the People, Federal tax law and negotiable instruments law make clear that it is not per se
illegal to count antedated checks as revenue in the prior year.
The People’s argument about what is self-evident is also contradicted by the testimony of
their own witnesses, including Mr. Canellas, former D&L partners and a tax partner from Ernst
& Young. Mr. Canellas, on cross-examination, specifically disagreed with the People’s theory of
what was self-evident about the law relating to backdating and constructive receipt:
A I believe that constructive receipt requires you to have access. Q Would you think that if a client promised that it would pay by the end of the year,
that money, Dewey & LeBoeuf could say they had access to it and they are in control of it because of the promise made by the client?
A I don’t know. …
Q But would you agree reasonable people could differ about that? A I guess so.
Tr. at 5205:18-5206:18. Richard Shutran, a former Dewey & LeBoeuf partner, testified that he
understood that constructive receipt allows revenues to be constructively received on a date
earlier than the date they were actually received:
9
Q And do you know the difference between actual receipts and constructive receipts?
A In a very general way. Q Can you tell the jury what you understood the difference to be? A Well, actual receipt is when you actually receive money. Constructive receipt, my
understanding is that there could be money received on a date, but effectively received for tax purposes on an earlier date when perhaps a check was written or mailed.
Tr. at 3689:1-11. In addition, an Ernst & Young Tax Market Leader, Jacob Weichholz, who held
a CPA license, an MBA in accounting and finance and an advanced professional certificate in
federal taxation, was consulted by Dewey & LeBoeuf and the Ernst & Young audit team for tax-
related issues through 2009. He agreed that the law relating to proper tax treatment of antedated
checks was not a black and white issue:
Q Let me ask you a question in general. If a client committed to pay by December 31st, committed to the law firm, said, yes, we acknowledge the debt, you have earned this income, you can have this payment, and does not send the check until the next year, would you say that could be a constructive receipt?
A I would need more facts. Q Not a black and white answer; is that correct? A Correct.
Tr. at 5611:7-15.
In sum, the People’s argument that it is self-evident that one cannot properly include in
the prior year’s revenues a check written in January and dated December 31st, even if the work
was performed in the prior year, the work was billed and invoiced in the prior year and the client
committed to pay in the prior year, is contradicted by the law, the testimony of the People’s own
witnesses and the lack of expert testimony on this issue.
i. Alleged Requests for Backdated Checks—E-mails Relating to ADWEA
The People read into the record PX 21-050Z, PX 21-067, PX 21-074 and PX 21-082,
involving correspondence among Dewey & LeBoeuf partner Jim Simpson and others, discussing
10
payment from Mr. Simpson’s client, ADWEA, the Abu Dhabi Water and Electricity Authority,
around year-end 2008.
In PX 21-050Z, dated December 29, 2008, Mr. Davis writes to Mr. Simpson: “Hi Jim,
Hope you had a good Christmas and are getting ready for a nice New Years celebration. I
thought I would touch base to see if there had been any progress on remaining ADWEA
collections. If you have a chance, please shoot me an email. Many thanks and Happy New
Year!” Mr. Simpson responds on the same day, “I will continue to work on this, and will keep
you posted.”
In PX 21-067, dated December 31, 2008, Mr. Sanders writes to Mr. Simpson, copying
Mr. Davis and Mr. DiCarmine: “We need you to reach out to ADWEA and take all appropriate
action necessary to generate a wire today or a check dated December 31 for $1.7M.” Mr.
Simpson responds on the same day to Mr. Sanders, copying Mr. Davis and Mr. DiCarmine,
stating that a) he had discussed with the General Counsel at ADWEA the “check approach” on
December 31, 2008, b) the General Counsel at ADWEA was “perfectly fine with this approach”
and would “push for this” if D&L did not receive the payment by December 31st, and c) he had
told the General Counsel that “(1) they [ADWEA] had committed to pay this year and (2) all
approvals have been obtained.” PX 21-067.
In PX 21-074, Mr. Simpson asks Mr. Davis, on January 2, 2009, to drop a short e-mail to
ADWEA’s General Counsel regarding the payment situation. And finally, in PX 21-082, Mr.
Davis writes to Mr. Simpson on January 7, 2009, “I wouldn’t worry too much about the check at
this point. We are closing today. Let’s try to get a wire asap.”
Nowhere in any of these e-mails does Mr. Simpson ever indicate to Mr. Davis that he, or
his client, believed that “the check approach” was improper in any way. To the contrary, in these
11
e-mails, Mr. Simpson represents that the client had committed to pay in 2008, all approvals had
been maintained in 2008 and the client was “perfectly fine” with the check approach.
Finally, PX 21-082 clearly shows that the payment in question was not even included in
the firm’s 2008 revenue figures.3
ii. People’s Exhibits 21-171, 21-172
The People also focused on a chain of e-mails from early 2010 in which Mr. Davis made
changes to a draft e-mail that was to be sent to some of the firm’s partners, asking these partners
to contact their clients and request payment of outstanding bills. See PX 21-171, PX 21-172, Tr.
at 1007:15-1013:5, 1035:1-1036:14, 2448:7-2454:20, 2494:1-18, 2525:17-2529:4, 2546:25-
2549:25:, 2560:10-2561:24.
The final draft e-mail approved by Mr. Davis did not ask the partners who received the e-
mail to ask their clients to date the checks December 31st. Rather, it asked the partners to contact
their clients on January 4th, and pointed out that “payments through checks dated December 31
will be included in revenues for 2009.” PX 21-172. In this connection, Mr. Salmon testified,
“There is nothing in this e-mail [PX 21-172], the words in this e-mail, that could—would force
one to conclude that they were asking [for a backdated check].” Tr. at 980:2-9. Suzanna Sanchez
similarly testified on cross-examination:
Q Now, you see unlike the language you had drafted, there is nothing in Mr. Davis’s revisions that suggests asking for a backdated check?
A I can see that, yes sir. Q He never uses the expression earlier dated either, is that correct? A He never uses the expression earlier dated.
Tr. at 2547:24-2548:5. On re-direct, Ms. Sanchez went on to testify:
Q Ms. Sanchez, what was your understanding of this sentence even with the change defendant Davis put into the comment?
3 The People, who have the burden of proof, did not call Mr. Simpson, even though Mr. Simpson was on the People’s witness list and was interviewed by the District Attorney’s Office on September 18, 2014.
12
A Well, as I recall at the time, I didn't think a whole lot of the wording, but I understand that what Mr. Davis was writing was that he was just clarifying that if we received a check with a December—with a—dated December 31st, it would be included in 2009 revenues.
Tr. at 2560:20-2561:2 (emphasis added).4
In sum, the People’s argument that this particular e-mail suggests that Mr. Davis was
knowingly participating in a fraudulent transaction is unsupported, and even contradicted, by the
relevant legal authority, testimony and documentary evidence.
B. Desire to Meet the Covenants
In addition to the hearsay testimony admitted subject to connection that Mr. Canellas was
told by Mr. Sanders that Mr. Davis and Mr. DiCarmine said to Mr. Sanders that Dewey &
LeBoeuf had to comply with its covenants, the People also point to two e-mails. In the first, PX
21-063, Mr. Sanders writes to Mr. Davis on December 30, 2008, “We need $50M tomorrow to
meet our covenant,” to which Mr. Davis replies, “Ugh.” This one-word response fails to speak to
Mr. Davis’s motive or intent. In the second, PX 21-047, Mr. Davis forwards an e-mail from
D&L Partner James Fallon, in which Mr. Fallon writes on December 22, 2008, “pushing to get
more money in by year end…problem you may be seeing from other clients as well is they want
to retain cash thru 12/31 for loan covenant purposes since banks are looking for excuses to
terminate/reduce credit lines or ask for equity infusions.” Mr. Sanders responds, “That’s
precisely what I’m concerned about. The banks will pull our lines in a heartbeat if we don’t
4 As stated supra at pages 4-9, even if the revised e-mail could be viewed as a request for some of the firm’s partners to contact clients on January 4, 2010 and ask for a December-dated check, that interpretation would not demonstrate any awareness by Mr. Davis that there was anything improper about asking a client in January to write a check dated December 31st, when the client had acknowledged in December its obligation to the firm for work performed before January. Not one witness testified that Mr. Davis was aware that such an accounting treatment was improper, and not one witness testified that he or she told Mr. Davis that he or she believed such an accounting treatment was improper. Furthermore, all of these emails were sent to Mr. Sanders, the head of the Finance Department, on whom Mr. Davis was entitled to rely for all issues concerning appropriate revenue recognition.
13
satisfy our covenants.” Mr. Davis replies to Mr. Sanders, “[T]hat’s what I told him [Mr.
Fallon].”5 It is entirely unclear which portion of Mr. Sanders’ e-mail Mr. Davis was referring to
when he wrote, “[T]hat’s what I told him,” and when read in the context of the trial testimony,
this e-mail does not show that Mr. Davis was at all concerned that the bank would pull the lines
if the firm did not satisfy its covenants. The witnesses at trial universally testified that it was not
a foregone conclusion that if Dewey & LeBoeuf did not satisfy its covenants, the banks would
pull the lines of credit in a heartbeat. Several representatives of the various banks stated that in
2009, when the firm was in danger of breaching its cash flow covenant, Mr. Sanders came to the
banks and preemptively requested a waiver, which was an unsurprising and common request that
was ultimately granted:
Q Now, so you testified that it would, that the loans were a little bit riskier towards the end of—towards 2009, correct?
A In '07, '08, and '09, it was impacted by the downturn from '07, the financial meltdown, as it were.
THE COURT: I am sorry. You are talking about the banking industry or law firm? THE WITNESS: The law firm industry was riskier, yes. Q Now, it was that backdrop, that the firm through Joel requested a waiver of the
cash flow covenant in 2009? A Agreed, yes. Q And that did not come as a big shock to you? A No.
Testimony of Richard Walden (J.P. Morgan), Tr. at 1545:9-22.
Andrew Johnman (Barclays), Naomi Hasegawa (Bank of America) and Robert Tolan
(Wells Fargo) similarly testified that Mr. Sanders or Mr. Canellas came to them to request a
waiver, or additional flexibility in the agreement, in 2009. Tr. at 2795:25-2796:21, 6671:9-17,
5 In an attempt to mislead the court and the jury by selectively offering evidence, the People elected not to introduce the e-mail in which Mr. Davis actually responds to Mr. Fallon, before he responds to Mr. Sanders, writing, “Thanks John. Continued pushing would be great—we have our own covenants to meet and I suspect the sheik is still better off than most! Best regards. Steve.” DL-DA 0786007. Contrary to what the People want the jury to unreasonably infer, Mr. Davis did not tell Mr. Fallon that “[t]he banks will pull our lines in a heartbeat if we don’t satisfy our covenants.” Rather, he conveyed to Mr. Fallon that the firm, like its clients, had its own covenants to meet.
14
7512:14-24. These representatives of the banks also testified that a covenant breach would not
necessarily result in the banks pulling the loans:
A The covenants aren't flexible, but if someone breaches the covenant a response to it can have a range of responses from amendment, to taking some action that's permitted under the documents.
Q And so, what you encouraged your client to do was to come to you before there is going to be a breach, right?
A Correct. Q And what you want them to do is come to you to give you a heads up that there is
a problem? A That is correct. Q Because you are not looking to bankrupt your customers, right? A That's correct. Q You are looking to work with them to come up with a solution to the problem? A That's correct. Q And would you agree with me that all of your customers, the customers that you
deal with directly, that is made crystal clear to them? A That is correct.
Testimony of Richard Walden at Tr. 1537:19-1538:13;
Q . . . Why did you want to get advance notice? A So that we could issue a waiver, if necessary, or make whatever changes or
preparations need to be made to deal with the fact that they are about to potentially breach.
Testimony of Andrew Johnman, Tr. at 2793:14-18.
Q Or if they need a modification or waiver the bank wants a heads up as to that potential?
A Absolutely. It's very helpful. Q That would enable you, the bank, to perhaps amend it or you wave a covenant
completely in a particular context? A Perhaps. It depends on the situation; but, certainly, any sort of preemptive
discussion would be helpful.
Testimony of Naomi Hasegawa, Tr. at 6670:5-11.
Q Does that refresh your recollection that you told the District Attorney's Office in December of 2013 that you frequently amend covenants?
A Yes. Q And does it also refresh your recollection that you told them that you do it all the
time?
15
A Yes. Q That it is not the end of the world if a customer tells the bank it is going to miss a
covenant? A Yes. Q Would you also agree with me that waivers and or modifications were frequent in
your business? I'll take that back, in 2008, 2009 and 2010 during the recession? A I would say there were more waivers or amendments because of the impact of the
financial crisis, yes.
Testimony of Robert Tolan, Tr. at 7511:3-17. It was made “crystal clear” to Dewey & LeBoeuf
that the banks were not inclined to pull the loans if the firm breached its covenants; rather, the
banks were looking to work with the firm to come up with a workable solution. Tr. at 1537:19-
1538:16.
The fact that the firm disclosed breaches of the covenants without severe consequences
from the banks belies the People’s theory that Mr. Davis sanctioned the preparation of false
financial information to make it appear that the firm was in compliance with the covenants.
C. Authorization of Letters of Credit for Mr. DiCarmine, Mr. Sanders and Mr. Canellas
The People allege that Mr. Davis’s authorization of letters of credit was somehow
improper, arguing that “members of the Executive Committee were kept in the dark regarding
the extent of the compensation that defendant Davis authorized for defendants DiCarmine and
Sanders.” Tr. at 141:17-20 (People’s opening statement). However, the testimony of the
People’s own witnesses disproves this allegation. Jane Boisseau, a former Dewey & LeBoeuf
partner, testified that “it was understood that the chairman had discretion over certain parts of
their [Mr. Sanders’ and Mr. DiCarmine’s] compensation.” Tr. at 563:3-5. Ms. Boisseau also
testified that the Partnership Agreement did not prevent Mr. Davis from setting the appropriate
compensation for Mr. Sanders and Mr. DiCarmine:
Q In any event, in all the time that you were on the executive committee, were you aware that Mr. DiCarmine was doing what he was doing and Mr. Sanders was
16
doing what he was doing, you were aware that Mr. Davis was the one that was setting their compensation; is that correct?
A. Yes. … Q And are you aware of any provision in the partnership agreement, or other—from
any other agreement that you may be aware of involving Dewey & LeBoeuf, that prevented Mr. Davis from setting the appropriate compensation for Mr. Sanders and Mr. DiCarmine?
A No.
Tr. at 564:23-566:11.
Ms. Boisseau further testified that neither she, nor any other member of the Executive
Committee, to her knowledge, complained that Mr. Davis was withholding this information from
the Executive Committee. Tr. at 565:4-566:5. Not only was Mr. Davis given full authority under
the Partnership Agreement to authorize compensation for the non-legal executive and
administrative staff, including letters of credit, but the letters of credit also contained a provision
for invalidation if the employee was fired for committing a fraud or a criminal act against Dewey
& LeBoeuf:
Q So according to this language, you get paid if you are let go or fired unless you are fired for cause, which means committing a fraud or a criminal act against Dewey & LeBoeuf, correct?
A Yes.
Cross-examination of Frank Canellas, Tr. at 4730:14-18. Finally, Richard Walden testified that
the letters of credit were disclosed to the banks. Tr. at 1619:18-19. Mr. Davis was fully
authorized to approve letters of credit for the non-legal executive and administrative staff, and
his exercise of this authority in no way shows that Mr. Davis acted with fraudulent intent.6
6 The People also argue that Mr. Davis authorized a change in Berge Setrakian’s status from an equity partner to a salaried partner without obtaining approval from the Executive Committee. Mr. Davis’s authorization of a change in Mr. Setrakian’s status is entirely irrelevant to the charges against him. The change in Mr. Setrakian’s status had no impact on the firm’s financial statements, the disclosures made to the banks and insurance companies, or the compensation provided to the firm’s other partners, nor did it have any connection whatsoever to the allegedly fraudulent accounting adjustments.
17
D. People’s Exhibits 21-088 and 21-150
On January 8, 2009, Mr. Davis was sent an e-mail by Miriam Masego (assistant to Mr.
Sanders) setting forth various year-end accounting adjustments. PX 21-088. Eleven months later,
on December 9, 2009, Mr. Davis and Mr. DiCarmine were sent an e-mail by Joel Sanders, in
which Mr. Sanders wrote, “I can probably come through with enough ‘adjustments’ to get us to
miss the covenant by $50M-$60M and get the points to $10k but that pretty much wipes out any
possible cushion we may have had for next year which was slim at best.” PX 21-150.
The People read these e-mails into the record presumably so they could argue that, by
virtue of these e-mails, Mr. Davis was put on notice that fraudulent accounting adjustments were
made to the firm’s books for year-end 2008 and 2009. However, the fact that Mr. Davis was put
on notice that accounting adjustments were made generally in no way indicates that he was put
on notice that fraudulent accounting adjustments were made to the firm’s books. To the contrary,
the jury has heard from multiple witnesses that year-end accounting adjustments are made by
virtually all businesses, and the fact that the firm made year-end accounting adjustments should
not have been a red flag.
For example, on cross-examination, Frank Canellas stated:
Q Now, based on your accounting degree and experience, there is nothing per se inappropriate about the term accounting adjustments, right?
A No sir. Q Standing alone, the term accounting adjustments is not a red flag for any improper
activity, is it? A No sir.
Tr. at 4888:5-11. Ilya Alter similarly testified: Q Even though you are neither an accountant or a CPA, you know from your
education and professional experience that one of the things that accountants do is make year-end adjustments, is that so?
A Yes.
18
Q Accountants go over the books essentially line by line to determine what adjustments to make, is that so?
A Yes. Q Even if something was reported in a particular way during the calendar year,
accountants sit down at the end of the year and review what adjustments to make, true?
A Yes. Q In and of itself, there is nothing wrong with that, right? A Correct.
Tr. at 4066:23-4067:12. And finally, Anthony Kolasa, the Ernst & Young partner who oversaw
Dewey & LeBoeuf’s 2009 audit, testified that as a general matter, auditors recommend that
certain adjustments be made to a given company’s books:
Q So sometimes, the auditor recommends adjustments, I think you testified a while ago, correct?
A Yes.
Tr. at 3051:1-3.
Absent any evidence that Mr. Davis was aware that any of these adjustments were
fraudulent—which the People have failed to provide—PX 21-088 and PX 21-150 do not show
that Mr. Davis was aware of any fraud connected to the adjustments.
E. “Fake Income”: People’s Exhibit 21-142
The People rely on an e-mail dated November 10, 2009, in which Mr. Sanders wrote to
Mr. Davis, Mr. DiCarmine and Mr. D’Alessandro, copying Mr. Canellas: “If we bring $850M in
the door (real collections - no accounting adjustments including constructive receipt or reclassing
disbursements) we can get really aggressive and push the envelope to $14k per point. Keep in
mind though that at these levels we will not have the cash to pay the partners by Jan. 31 since
$25M is fake income.” The People argue that Mr. Davis was thereby put on notice that
fraudulent accounting adjustments had been made to the firm’s books. To support that theory,
Mr. Canellas testified that he understood “fake income” to refer to “the adjustments.” Tr. at
19
4447:22-24. But Mr. Canellas also testified that he had never had any conversation with Mr.
Davis about whether any of the accounting adjustments were inappropriate, so the notion that
Mr. Davis would make the same assumption that Mr. Canellas made is untenable:
Q You never had a conversation, a direct conversation with Mr. Davis about whether these adjustments were inappropriate?
A No, sir. Q No sir meaning you never had such a conversation, am I right? A Yes.
Tr. at 4843:3-9. Mr. Canellas further testified that while he had heard Mr. Sanders use the term
“phantom income” at Dewey & LeBoeuf, he never heard “phantom income” referred to as “fake
income.” Tr. at 4448:9-11. Greg Sincoff of PwC testified that he had never heard of fake income,
but on cross-examination agreed that phantom income was “not real cash.” Tr. at 1235:16-20,
1302:15-19.
The People would have the Court conclude that Mr. Davis must have known when he
received PX 21-142, that the reference to “fake income” was tantamount to false accounting
adjustments. This is simply another argument by the People that the meaning of some word or
phrase is self-evident—in this case, that it is self-evident that “fake income” can only refer to
false accounting adjustments. However, given the context in which the phrase “fake income”
was used in PX 21-142, the People’s argument fails.
PX 21-142, dated November 10, 2009, discussed Dewey & LeBoeuf’s potential cash
position for early 2010 in an effort to predict whether the firm would have enough cash to pay its
partners what they expected to receive in early 2010. Mr. Sanders was comparing the firm’s cash
positon in late 2009 with the firm’s cash position in late 2008, and was making the point that if
the firm was comparing cash flow in 2009 with cash flow in 2008, the firm would have to take
into account that some income in 2008 was non-cash income (i.e., phantom income). Thus, when
20
put in context, the People’s argument that “fake income” obviously meant fraudulent income
simply stretches credulity and fails to establish that Mr. Davis intentionally engaged in fraud.
F. Meeting with Denise Pelli
The People have also sought to make much of a meeting attended by Ernst & Young
audit partner Denise Pelli, Mr. Canellas, Mr. Davis and Mr. Sanders. According to Mr. Canellas
(Ms. Pelli did not testify at trial), the meeting took place in September 2011, months after the
Ernst & Young’s 2010 year-end audit had concluded with no material negative findings. Tr. at
4963:16-4964:4. While Mr. Canellas first testified at trial that Mr. Davis appeared nervous at the
beginning of the meeting, he later admitted: “It appeared to me to be nervousness. I can’t tell
you for sure what it was . . . .” Tr. at 4980:11-12. Of course, the fact that the meeting took place
months after Ernst & Young gave Dewey & LeBoeuf a clean audit meant that there would have
been no reason for Mr. Davis to have been nervous.
Likely realizing that there would have been no reason for Mr. Davis to have been nervous
at the September 2011 meeting, the People attempted to submit evidence that the meeting Mr.
Canellas recalled really took place in June 2010. However, as hard as the People tried, Mr.
Canellas did not adopt the People’s speculation, concluding that the only meeting he recalled
took place in September 2011. Tr. at 5212:13-21.
Mr. Canellas also testified that during the meeting, Ms. Pelli said that “the audit went
well and that the books were in good shape.” Tr. at 4439:24-25. According to Mr. Canellas’s
testimony, following the meeting, Mr. Davis told Mr. Sanders “to keep up the great work,
keeping the firm’s books in such great order… It was sarcastic.” Tr. at 4440:8-17. The People
have argued that Mr. Davis’s sarcastic tone was evidence that Mr. Davis was aware of the
fraudulent adjusting entries. See People’s Memorandum in Support of Motion in Limine at 11.
21
However, such a vague and insubstantial observation of someone’s tone of speech is too thin a
reed on which to base any reasonable inference of guilt.
G. The List of Adjustments Brought to a December 22, 2011 Meeting
The People also rely on Mr. Canellas’s testimony that, at a meeting on December 22,
2011, Mr. Canellas brought a list to Mr. Davis—a list which has not been produced or entered
into evidence—containing both inappropriate and appropriate adjustments. Tr. at 4659:20-
4660:15. Mr. Canellas also testified that Mr. Rodriguez attended the beginning of this meeting.
Tr. at 4657:15-18. Oddly, however, the People did not ask Mr. Rodriguez any questions about
this meeting.
Mr. Canellas initially testified that he brought the list to the meeting, that Mr. Sanders
showed the list to Mr. Davis, then gave Mr. Davis “a brief update on where we were at the
moment, and with the adjustments where we could end up at the end of the year.” Tr. at 4660:21-
24. However, Mr. Canellas later walked back even from this innocuous testimony, stating that he
did not recall if any adjustments on the list were discussed at that meeting. Tr. at 4892:16-18. He
said the list was similar to the Master Plan in that “it had net income, a list of adjustments and
where it would take us.”7 Tr. at 4890:19-20. However, when shown the Master Plan, Mr.
Canellas conceded that virtually none of the adjustments listed on the Master Plan could have
been on the list he supposedly brought to the December 22, 2011 meeting with Mr. Davis. Tr. at
4889:7-4891:11. He conceded that the reverse premium for One London Wall, the Austin buyout
lease, the reclassification of Saudi disbursement retainer as fees, the UK nonresident tax and the
Houston abandonment were all irrelevant in 2011 and therefore could not have been on the list
brought to the December 22, 2011 meeting. Tr. at 4889:1-4890:24. Moreover, Mr. Canellas
7 There is no evidence that Mr. Davis was ever sent the so-called “Master Plan.”
22
added that the accounting adjustments on the list were “not communicated in that meeting with
Mr. Davis” and that he does not know what fraudulent adjustments were on any list that he
showed to Mr. Davis. Tr. at 4891:2-4892:18.
H. Reclassification of Income as a Return of Capital
i. Steve Davis Capital Reclassification
The People allege as one of the false business entries the reclassification of Mr. Davis’s
income payments as a return of capital (Count 45). Despite their efforts to mislead the jury into
believing that Mr. Davis knew about this adjustment or was somehow involved, David
Rodriguez, who made or directed Brian Ng-Qui-Sang to make the adjustment, testified that 1) he
never told Mr. Davis about the adjustment; 2) he was specifically directed not to tell Mr. Davis
about the adjustment; and 3) no one else, to his knowledge, told Mr. Davis about the adjustment:
Q You testified you didn't tell Mr. Davis anything about this; is that right? A Correct. Q In your conversations with Mr. Canellas, he made it clear to you that you were
not to tell Mr. Davis anything about it; is that right? A That is correct.
Tr. at 2340:18-24.
Q Do you know whether anybody ever told Mr. Davis about the adjustments about which you testified?
A Not to my knowledge. Tr. at 2344:19-21.
The People failed to introduce any evidence that Mr. Davis had any knowledge that this
adjustment had been made and subsequently reversed. Mr. Rodriguez also explained that Mr.
Davis’s capital was never actually refunded to him; therefore, Mr. Davis had no reason to believe
any adjustment had been made relating to his capital:
Q Now, you spent a great deal of time on your direct testimony talking about a particular transaction involving Mr. Davis's capital account?
23
A Yes sir. Q Am I right in saying that after all is said and done, Mr. Davis's capital was never
in fact refunded to him? A Correct, never physically refunded to him.
Tr. at 2311:16-22.
Mr. Rodriguez’s testimony relating to the reclassification of Mr. Davis’s income
payments as a return of capital highlights a glaring inconsistency in his testimony: namely, if
Mr. Rodriguez intentionally hid from Mr. Davis the fact that he made an allegedly fraudulent
adjustment reclassifying Mr. Davis’s income payments, it cannot be true that Mr. Rodriguez
“thought [Mr. Davis] knew” that the firm made adjustments that were fraudulent. Tr. at
2340:18-24, 2408:11-17. Mr. Rodriguez failed to explain—because he could not—why he would
intentionally hide from Mr. Davis the very fraud that he assumed Mr. Davis was in on.
Moreover, Mr. Rodriguez testified that Mr. Canellas directed Mr. Rodriguez to hide the
allegedly fraudulent activity from Mr. Davis, telling Mr. Rodriguez “not to tell Mr. Davis
anything about it,” entirely undermining Mr. Canellas’s testimony that he too assumed that Mr.
Davis knew about the fraudulent activity. Tr. at 2340:21-23, 5194:11-21. Not only did Mr.
Rodriguez’s testimony make it unmistakably clear that Mr. Davis had no involvement
whatsoever with the adjustment reclassifying his income as a return of capital, and no knowledge
that it had ever occurred, but it also exposed that Mr. Rodriguez and Mr. Canellas could not have
actually believed that Mr. Davis knew about the fraudulent activity, as they were careful to
ensure that the alleged fraud remained hidden from Mr. Davis.
ii. January 3, 2012 Meeting
The People also rely on PX 21-385, an e-mail dated January 3, 2012, followed by a
meeting on the same day, allegedly attended by Mr. Davis, Mr. Sanders, Mr. Canellas and David
Rodriguez. Mr. Rodriguez allegedly brought PX 21-385—a table showing a potential
24
reclassification of $5,481,858.07—to the meeting. Mr. Rodriguez testified on direct that he was
“absolutely sure” that the meeting occurred on January 3, 2012. Tr. at 2368:24-2369:1. However,
after being shown irrefutable proof that Mr. Davis was in Brazil on January 3, 2012, on re-direct,
Mr. Rodriguez had no choice but to change his testimony to: “It’s definitely possible. I could be
wrong about the date.” Tr. at 2371:17-20.
The People argue that because Mr. Davis was allegedly given this list, he was on notice
of the improper reclassification of payments. However, apart from the fact that Mr. Davis was
not present on the date identified by Mr. Rodriguez, Mr. Rodriguez did not testify as to what, if
anything, was said at the meeting.8 He testified only that “I dropped off the packages, the emails,
excuse me, the schedules.” Tr. at 2216:14-15. There is no testimony or documentary evidence
that shows that Mr. Davis actually saw the schedule in PX 21-385, and even if he did, the
document simply makes reference to a “potential reclass” with no indication that this
reclassification could be improper.
Moreover, the jury has seen multiple pieces of evidence and heard voluminous testimony
that the reclassification of income payments as a return of capital was entirely proper, permitted
under the Partnership Agreement, and approved by E&Y and the banks. On January 30, 2012,
representatives from Dewey & LeBoeuf, along with David Pauker of Goldin Associates, met
with representatives from J.P. Morgan and explained to J.P. Morgan that Paul Weiss had
concluded that the Partnership Agreement allows for reclassification when necessary. See DX
240. In addition, the Ernst & Young audit team concluded, based upon discussions with E&Y
Tax, that amounts paid to partners in excess of income could be considered a return of capital for
tax purposes and not a distribution. See DX 243 (Denise Pelli writes to Joel Sanders on January
8 Mr. Canellas did not mention this meeting in his testimony at trial, even though Mr. Rodriguez testified that Mr. Canellas was at the meeting.
25
31, 2012: “As discussed earlier, based on discussions with E&Y Tax, we have concluded that
amounts paid to partners in excess of income would be considered a return of capital for tax
purposes.”). Ernst & Young’s opinion authorizing the reclassification of distribution payments as
a return of capital was then forwarded to J.P. Morgan, HSBC, Bank of America and Citibank.
See DX 243, DX 250, DX 251, DX 245.
Several witnesses have also testified that the Partnership Agreement authorizes the Firm
to accelerate the return of capital to partners. Mr. Salmon, a tax lawyer and the former general
counsel for the House Ways and Means Committee, testified as follows:
Q What do you understand provided however, that the chairman at his discretion shall have the right to alter the foregoing payment schedule to accelerate the payments, any payments due thereunder, what does accelerated mean?
A I would assume it means what it says, he can pay them more quickly. Q So, would you say when you got your return of capital in one payment, that
violated the partnership agreement? A Reading the section, no sir, I would not say it would.
Tr. at 859:25-860:8. Richard Walden of J.P. Morgan, who testified that J.P. Morgan received a
copy of the Partnership Agreement in advance of the 2010 refinancing, agreed that the
Partnership Agreement authorized the firm to accelerate the return of capital. Tr. at 1645:1-4.
Richard Shutran, who was instrumental in orchestrating the private placement, testified:
Q Are you aware in the partnership agreement there is a provision that permits the chairman to accelerate the repayment of capital?
A Yes. Q And that partnership agreement was available to the investors, is that correct? A Yes, it was.
Tr. at 3794:23-3795:4.
David Rodriguez was similarly aware that the Partnership Agreement allowed the firm to
return capital more quickly than over a three-year period. Tr. at 2356:23-2357:3. Mr. Canellas
26
went so far as to change his testimony and agree that the Partnership Agreement permitted the
firm to advance the return of capital:
Q As you read these three lines, would you say that advancing return of capital might be permitted by the partnership agreement under certain circumstances?
A Yes. Q Do you want to change your testimony about whether you thought that it was
impermissible for the firm to return capital to partners in 2009 and 10? A Under the partnership agreement? Q Under the partnership agreement? A Under the partnership agreement it appears it was permissible. Q You testified that it was not permissible yesterday. I'm asking you whether you
want to change your testimony? A Based on what I'm reading now, it appears that under the partnership agreement
the chairman had discretion to accelerate the payments.
Tr. at 4848:3-18. And finally, Christian Covello, who worked in the HSBC commercial banking
group, testified that the Partnership Agreement permitted the firm to advance the return of capital
and this was disclosed to the banks:
Q You do know that the partnership agreement has provisions related to making payments sooner than three years, right, for capital refund?
A Yes. …
Q The information that in fact they had been made sooner than the three years was information provided to your bank by the firm; is that right?
A Yes. …
A That is customary, yes. I mean that is in my experience relating to law firms. That is giving the firm, regardless of what the partnership agreement might say, giving the firm some more time to operate their business and make some decisions and for whatever specific reasons in the interest of the firm, can accelerate or extend such payments.
Tr. at 6094:3-6096:7. Mr. Davis did not believe, and had no reason to believe, that the
reclassification of income as a return of capital was improper. Indeed, that treatment was
ultimately ratified by Paul Weiss, Ernst & Young and J.P. Morgan, and disclosed to the other
banks.
27
I. Chrysler Retainer
The People have read into the record two e-mails relating to the allegedly improper
treatment of a fee retainer returned to Chrysler Financial. The firm returned a $5 million fee
retainer to Chrysler Financial and accounted for this return on the books by amortizing the return
$1 million per month over five months. The funds were returned to Chrysler Financial without
incident.
In PX 21-199Z, on January 24, 2010, Mr. Davis wrote the following question to his CFO,
Mr. Sanders: “Also, I was thinking about the Chrysler Financial refund. I know we already
made it so it is not a cash issue, but I was wondering whether we could amortize it for income
purposes on a monthly basis over this calendar year. Crazy idea?” Mr. Sanders responded,
“That's exactly what I was thinking of doing. I was planning on taking a million a month for 5
months.” Of course, for Mr. Davis to ask his CFO for accounting advice was perfectly proper
and understandable, particularly because Mr. Davis had no accounting background. The People
have also read into the record PX 21-257, in which Mr. Sanders writes to Mr. Davis on July 2,
2010, simply referencing the amortized retainer refund: “part of the revenue shortage is that we
had to back out $5M for the Chrysler retainer refund . . .” These e-mails completely fail to
establish that Mr. Davis intentionally engaged in fraud. The People have offered no evidence that
Mr. Davis thought that this treatment was improper, that he would want this treatment to be used
if it was in any way improper, or that he directed that this treatment be used.
Indeed, the People have failed to offer any evidence that this treatment was in fact
improper. Dianne Cascino, the person who made the adjustment in the firm’s books relating to
Chrysler, and who spent thirty-four years working in law firm accounting departments and
28
graduated with a degree in business, testified that she did not believe that amortizing the Chrysler
refund was improper:
Q. And at the very first meeting with the prosecutors in March of 2013, do you recall telling Mr. Moser regarding the Chrysler retainer that not applying return of fees to the current month did not concern you if it was not at year's end. Do you recall saying that?
A. Yes, I do. Q. At the very first meeting do you recall telling Mr. Moser regarding the Chrysler
retainer that you did not think that moving expense from month to month mattered if it was all the same year. Do you recall that?
A. In reference to the retainer? Q. In reference to Chrysler. A. Yes, I still believe that.
Tr. at 6813:19-23, 6814:3-12, 7281:6-19.
J. Private Placement
i. Mr. Davis’s Minimal Involvement
The People have presented no evidence showing that Mr. Davis had any involvement in
drafting or reviewing the Private Placement Memorandum9 or showing that he signed any of the
private placement agreement documentation. A review of the entire trial record shows that Mr.
Davis’s involvement with the private placement was limited to the following instances: 1) Mr.
Davis attended a dinner on April 6, 2010, 2) Mr. Davis may have attended a portion of a due
diligence meeting on April 7, 2010, 3) Mr. Davis attended an Executive Committee meeting on
April 14, 2010 to consider the firm’s entry into the private placement and credit agreement,
along with several partners of the firm, and 4) Mr. Davis recommended reallocating the debt
between the private placement and the revolving line of credit such that the total debt the firm
9 Mr. Sanders sent an e-mail on March 1, 2010 to Lori Pollicino, Frank Canellas, Thomas Mullikin and Migdalia Torres, copying Jennifer Turner and Alexandria Coari, in a discussion of the Private Placement Memorandum, stating: “I just gave a copy to the Chairman for a review.” PX 21-217. The People have presented no evidence, however, that the Chairman ever reviewed the memorandum.
29
would take on would remain exactly the same. See Tr. at 2656:23-2657:8, 4571:19-4572:11, PX
13-035, PX 21-239.
ii. People’s Exhibit 21-239
In PX 21-239, Mr. Davis wrote to Mr. Shutran on March 18, 2010, “After you left the
office, Joel called and I made an ‘executive’ decision regarding the amount of the PP. I told him
to go for the full $150 mm and to cut back our use of the revolvers. My sense is that we have less
risk exposure if we lock in current low rates for a period of time. Joel said you were not
comfortable and wanted to stay with the $125 mm level and am happy to discuss. Please let me
know when you might have a chance to catch up.” Mr. Shutran suggested an allocation of $125
million for the credit facility and $125 million for the private placement, for a total of $250
million, whereas Mr. Davis suggested an allocation of $100 million for the credit facility and
$150 million for the private placement, for the same total of $250 million. The mere fact that Mr.
Davis decided to reallocate the debt between the private placement and the revolving line of
credit in no way shows any involvement in the firm’s disclosures to the investors, that he was
involved in any fraudulent activity or had fraudulent intent.
iii. The Overhang
The Court will recall that on a few occasions, the People sought to establish that the so-
called “overhang” should have been disclosed to the investors during the re-financing in April
2010. See Tr. at 492:1-8. However, in addition to there being no evidence that Mr. Davis was
ever informed that there was a disclosure issue relating to the overhang, there has been no
evidence showing that the overhang should have been disclosed in the refinancing documents.
Mr. Canellas testified that he did not know the disclosure rules relating to the overhang. Tr. at
4961:13-17. Mr. Shutran, who was instrumental in the private placement process, testified that
30
he knew about the overhang at the time of the refinancing and, in his judgment, the overhang
was not disclosable debt.10 Tr. at 3619:10-15. Like Mr. Shutran, every member of the Executive
Committee, which authorized the private placement by resolution, was well aware of the
overhang, as were other partners such as John Schwolsky, who testified that he also reviewed the
Private Placement Memorandum. See Tr. at 3315:10-21, 3357:9-22, PX 13-033 at 5-6.
Furthermore, Christian Covello, a representative of HSBC, testified that the firm had the
authority to adjust the level of distributions in order to service the firm’s debt obligations, and in
any given year, the firm could distribute more or less income to the partners and could decide for
itself the compensation among its partners. Tr. at 6096:15-6097:22. The People’s assumption
that the overhang should have been disclosed is entirely unsupported by the record; and
regardless, there is no evidence that Mr. Davis was ever informed of any disclosure issues
relating to the overhang.
iv. Article III and IV Payments to Former Partners
The People have introduced a handful of e-mails against Mr. Davis relating to Article III
and IV payments to former partners. See PX 21-102, PX 21-209, PX 21-366, PX 21-367. These
e-mails simply show that Mr. Davis was aware that these payments were being negotiated;
however, they in no way demonstrate that Mr. Davis had any idea that that there was a disclosure
issue relating to the Article III and IV payments. In addition, while the People have presented e-
mails that Mr. Davis was aware that payments were being negotiated with former partners, the
testimony the People have elicited regarding the firm’s failure to pay Barclays addresses conduct
10 Mr. Shutran similarly testified that the firm’s guaranteed payments to partners were not a disclosable debt. Tr. at 3619:2-9 (“Q Mr. Shutran, I just wanted to circle back for a moment to something that we did not touch on, and that is that you knew at the time of the private placement that some of your colleagues had guaranteed payments, is that true? A Yes. Q Was that, in your judgment at the time, a disclosable debt? A No, I didn't believe so.”).
31
that occurred several years after the date of these e-mails, and there has been no evidence
presented that gives any indication that Mr. Davis had knowledge of, or was involved with, the
later issue with Barclays. Moreover, Mr. Shutran testified that payments to former partners were
not a disclosable debt:
Q [W]ere the payments to former partners a disclosable debt in your judgment at the time?
A No.
Tr. at 3619:10-13.
v. Khalid Al-Thebity
The People have introduced a handful of e-mails against Mr. Davis that relate to a
purported loan from a partner in Dewey & LeBoeuf’s Riyadh office, Khalid Al-Thebity. See PX
21-286, PX 21-145, PX 21-195Z, PX 21-257. These e-mails merely show that Mr. Davis was
aware of a purported loan, but the e-mails in no way demonstrate—nor does any other evidence
or testimony presented at trial—that Mr. Davis had any awareness of how it would be accounted
for on the firm’s books or disclosed to the firm’s investors. Moreover, like the “overhang,” there
has been no evidence that the purported loan from Mr. Al-Thebity should have been disclosed to
the private placement investors or that Mr. Davis was put on notice of any potential disclosure
issue in this regard.
III. THE PEOPLE HAVE FAILED TO PROVE THAT ANY OF THE ACCOUNTING ADJUSTMENTS MADE TO THE FIRM’S BOOKS WERE, IN FACT, IMPROPER
The People elected not to call an expert to testify as to whether the alleged accounting
improprieties were, in fact, improper, forcing the jury to speculate as to whether the various
accounting adjustments were actually improper or simply aggressive treatments that were
appropriate. The People have relied entirely on the testimony of the cooperators, most of whom
are not certified public accountants, to provide their personal opinions on whether the chosen
32
treatment was “wrong,” “false,” or legitimate. The shifting, inconsistent testimony from non-
expert witnesses entirely unqualified to opine on the propriety of the accounting treatments used
by the firm has left the jury with a picture that is entirely unclear. In addition, the cooperators
have disagreed with each other in their analyses, with one cooperator stating that a certain
treatment was “false” while another testified that it was perfectly appropriate. For example, with
respect to the Chrysler retainer, Mr. Canellas claimed that the amortization of the retainer was
false:
Q And what was the appropriate treatment on the firm's books when that retainer was returned?
A The appropriate treatment would have been to reduce fees. Q And in reducing fees what would happen to net income? A Net income would have been reduced as well. Q And do you know if that procedure was followed with respect to the return of the
Chrysler retainer? A It was not. Q What was done instead? A It was left as a fee retainer and reduced over time. Q And was that a legitimate or false accounting treatment? A It was false.
Tr. at 4582:19-4583:7. Ms. Cascino, on the other hand, testified that she did not believe that
amortizing the Chrysler refund was improper:
Q. And at the very first meeting with the prosecutors in March of 2013, do you recall telling Mr. Moser regarding the Chrysler retainer that not applying return of fees to the current month did not concern you if it was not at year's end. Do you recall saying that?
A. Yes, I do. Q. At the very first meeting do you recall telling Mr. Moser regarding the Chrysler
retainer that you did not think that moving expense from month to month mattered if it was all the same year. Do you recall that?
A. In reference to the retainer? Q. In reference to Chrysler. A. Yes, I still believe that.
Tr. at 7281:6-19.
33
Ms. Cascino and Mr. Canellas also disagreed on the proper treatment of checks in the
mail. Mr. Canellas testified that “if there was a record that the check even though dated
December was received in January, it would have to be recorded in January.” Tr. at 4600:12-14.
Ms. Cascino had a different opinion:
Q [I]f the check was dated December, if it came in in January during the period the books were still opened and even though deposited in January, they would be credited to the prior year, is that correct?
A That is correct. Q And as far as you knew, that was perfectly appropriate? A Yes.
Tr. at 7341:8-14. Some cooperators have even testified on direct that they believed that certain
accounting treatments were “false,” only to admit on cross-examination that the adjustments
were actually permissible under the Partnership Agreement. For example, on direct, Mr.
Canellas testified:
Q Were the capital reclass adjustments legitimate or false? A They were false.
Tr. at 4459:23-25. However, on cross, Mr. Canellas testified:
Q As you read these three lines, would you say that advancing return of capital might be permitted by the partnership agreement under certain circumstances?
A Yes. Q Do you want to change your testimony about whether you thought that it was
impermissible for the firm to return capital to partners in 2009 and 10? A Under the partnership agreement? Q Under the partnership agreement? A Under the partnership agreement it appears it was permissible. Q You testified that it was not permissible yesterday. I'm asking you whether you
want to change your testimony? A Based on what I'm reading now, it appears that under the partnership agreement
the chairman had discretion to accelerate the payments.
Tr. at 4848:3-18.
None of the cooperators was qualified as an expert in accounting. However, the People
apparently want to use their witnesses’ lay testimony to instruct the jury on complex accounting
34
issues that are central to the People’s case—in contradiction to Mr. Canellas’s testimony that, in
the accounting profession, “any—almost any accounting issue people can differ [i]n opinion on.”
Tr. at 4933:8-9. Jacob Weichholz, a certified CPA holding an MBA in accounting and finance
and an advanced professional certificate in federal taxation, similarly testified that reasonable
accountants could disagree with respect to the accounting issues on which he was questioned on
cross-examination:
Q. Would you agree with me that a lease termination fee might be properly capitalized if a lease is terminated as part of restructuring of the operation?
A. It would depend on a lot more facts. Q. You would need more facts because application of the rules requires
consideration of facts on the ground, correct? A. Yes. Q. Even then, even having all the facts on the ground even then, reasonable
accountants might disagree as to the answer, correct? A. Correct.
Tr. at 5601:16-5602:1.11 Thus, whenever a cooperator testified that the a given accounting
treatment was false or improper, that witness may have been mistaken in his or her opinion, as
even among certified public accountants, reasonable people can differ in opinion on almost any
accounting issue. The jury simply cannot determine the propriety of each of the accounting
treatments at issue without relying on expert testimony—which the People failed to produce
notwithstanding their hiring, before trial, an expert on the relevant accounting issues, furnishing
the defense with his reports and including him on the witness list.
11 Rather than asking the auditors to explain the propriety of the accounting treatments, and whether there was disagreement in the industry as to the propriety of these treatments, to the jury, the People merely offered the Ernst & Young witnesses in a pointless attempt to show that they were “clueless.”
35
ARGUMENT
I. THE TRIAL EVIDENCE IS INSUFFICIENT TO ESTABLISH ANY OF THE CRIMES CHARGED AGAINST MR. DAVIS.
On a motion for a trial order of dismissal, the standard to determine the legal sufficiency
of evidence is whether “there is any valid line of reasoning and permissible inferences that could
lead a rational person to conclude that every element of the charged crime has been proven
beyond a reasonable doubt . . . . The proof must be viewed in the light most favorable to the
prosecution and the People are entitled to all reasonable evidentiary inferences.” People v.
Delamota, 18 N.Y.3d 107, 113 (2011); see People v. Danielson, 9 N.Y.3d 342, 349 (2007).
The evidence presented at trial against Mr. Davis detailed in the Statement of Facts,
supra, falls fatally short of supporting any valid line of reasoning and permissible inferences that
could lead a rational person to conclude that every element of the charged crimes have been
proven beyond a reasonable doubt.
A. The People’s Failure to Call an Expert Witness Warrants Dismissal of All Charges Against Mr. Davis.
“[W]here the conclusions to be drawn from the facts depend upon professional or
scientific knowledge or skill not within the range of ordinary training or intelligence recourse
must be had to the knowledge of men whose experience or study enables them to speak with
authority.” People v. Kenny, 30 N.Y.2d 154, 157 (1972) (affirming reversal of conviction
because the prosecution failed to call an expert witness where one was required) (citations
omitted); People v. Grossman, 124 A.D.2d 974, 974 (4th Dep’t 1986) (reversing conviction for
reckless endangerment because the prosecution failed to call an expert witness where one was
required, explaining that “whether the actions of the defendant created a grave risk of death
[was] not within the common understanding of the average layperson, and expert testimony was
required to meet the People’s burden of proof”) (emphasis added).
36
Clearly, the conclusions to be drawn from the complex accounting adjustments at the
heart of this case are not within the common understanding of the average layperson—as shown
by the conflicting testimony provided at trial, the propriety of the various adjustments cannot
even be said to be within the understanding of the employees of Dewey & LeBoeuf’s finance
department. These accounting adjustments constitute exactly the type of facts which require
expert testimony for the People to meet their burden of proof. See Maley v. Del Global Techs.
Corp., 186 F. Supp. 2d 358, 362 (S.D.N.Y. 2002) (“[C]omplex accounting questions relating to
revenue recognition and inventory . . . would require proof through expert testimony concerning
such issues as proper accounting practices . . . .”).
B. The Trial Evidence Is Insufficient to Establish the Charge of Conspiracy in the Fifth Degree and the Co-Conspirator Hearsay Admitted Subject to Connection Should Be Stricken.
Mr. Davis was charged, along with Messrs. DiCarmine and Sanders, with the crime of
Conspiracy in the Fifth Degree, in violation of Penal Law § 105.05(1). See Indictment Count
106. The conspiracy count charges that Mr. Davis and his co-defendants conspired to commit
the crime of Scheme to Defraud in the First Degree. As relevant here,
[a] person is guilty of a scheme to defraud in the first degree when he or she . . . engages in a scheme constituting a systematic ongoing course of conduct with intent to defraud more than one person or to obtain property from more than one person by false or fraudulent pretenses, representations or promises, and so obtains property with a value in excess of one thousand dollars from one or more such persons.
Penal Law § 190.65(1)(b). Thus, to sustain a charge of conspiracy, the People must have
presented “competent evidence which, if accepted as true, would establish,” Criminal Procedure
Law § 70.10(1), that Mr. Davis “with intent that conduct constituting . . . [a scheme to defraud]
be performed . . . agree[d] with one or more persons to engage in or cause the performance of
such conduct[.]” Penal Law § 105.05(1).
37
Though the Court has admitted certain hearsay evidence from alleged co-conspirators
“subject to connection,” the People have failed to connect Mr. Davis to the alleged conspiracy
through independent, non-hearsay evidence; therefore, this hearsay evidence must be stricken.12
Though a statement of a co-conspirator in furtherance of a conspiracy is admissible against the
remaining conspirators who did not make the statement—an exception to the hearsay rule—such
statements may not be admitted to prove the conspiracy. Rather, a hearsay statement is
admissible against non-speakers only after it has been proven by independent, non-hearsay
evidence that the speaker and the person against whom the statement will be used were members
of the same conspiracy. See People v. Caban, 5 N.Y.3d 143, 148 (2005) (co-conspirator
“declarations may be admitted only when a prima facie case of conspiracy has been
established…the prima facie case of conspiracy must be made without recourse to the
declarations sought to be introduced”) (internal quotation marks and citation omitted).
Of the evidence outlined above, the non-hearsay testimony and documentary evidence
against Mr. Davis falls into a few discrete categories:
E-mails Referencing Accounting Adjustments. The non-hearsay testimony against Mr. Davis is limited to a handful of e-mails sent to Mr. Davis in which “accounting adjustments” generally were referenced. See PX 21-088, PX 21-142, PX 21-150. However, these e-mails in no way indicate that any of the referenced accounting adjustments were fraudulent, and the jury has heard from multiple witnesses that year-end accounting adjustments are made by virtually all businesses; therefore, the fact that the firm made year-end accounting adjustments should not have been a red flag. See Tr. at 3051:1-3, 4066:23-4067:12, 4888:5-11.
Desire to Meet the Covenants. The non-hearsay evidence against Mr. Davis on this subject is limited to two e-mails: PX 21-063, in which Mr. Davis writes a solo “ugh,” and PX 21-047, in which Mr. Davis relays to Mr. Sanders that he had responded to Mr. Fallon regarding the firm’s covenants. When read in the context of the trial testimony, these e-mails does not show that Mr. Davis was at all concerned that the bank would pull the lines if the firm did not satisfy its covenants.
12 A list of the documents admitted subject to connection as to Mr. Davis that should be stricken is appended hereto as Exhibit A. The Court must also strike any testimony of the cooperators involving conversations between and among them and the other defendants, which also constitutes hearsay as to Mr. Davis.
38
December 22, 2011 Meeting. Mr. Canellas testified that, at a meeting on December 22,
2011, Mr. Canellas brought a list to Mr. Davis—which he cannot find and which has not been produced or entered into evidence—containing both inappropriate and appropriate adjustments. Tr. at 4659:20-4660:15. Mr. Canellas testified that he did not recall if any adjustments on the list were talked about at that meeting. Tr. at 4892:16-18. Mr. Canellas added that the accounting adjustments on the list were “not communicated in that meeting with Mr. Davis,” that he does not know what fraudulent adjustments were on any list that he showed to Mr. Davis, and that the false adjustments, if any were even on the list, were not designated as false or in any way different from the legitimate adjustments. Tr. at 4891:2-4892:18.
Meeting with Denise Pelli of Ernst & Young. While Mr. Canellas initially testified at trial
that Mr. Davis appeared nervous at the beginning of the meeting, he later admitted: “It appeared to me to be nervousness. I can’t tell you for sure what it was.” Tr. at 4980:11-12. This meeting took place months after Ernst & Young gave Dewey & LeBoeuf a clean audit opinion—meaning that there would have been no reason for Mr. Davis to be nervous. Mr. Canellas also testified that during the meeting, Ms. Pelli said that “the audit went well and that the books were in good shape.” Tr. at 4439:24-25. According to Mr. Canellas’s testimony, following the meeting, Mr. Davis told Mr. Sanders “to keep up the great work, keeping the firm’s books in such great order,” and offering no explanation as to why, Mr. Canellas testified that he perceived this comment to be “sarcastic.” Tr. at 4440:8-17. The People’s theory that Mr. Davis’s alleged sarcastic tone is evidence that he knew the firm’s books were not in good order is too strained to be credited in the context of this motion.
Chrysler Retainer Refund. The People have read into the record two e-mails, both of
which fail to show any wrongful intent on the part of Mr. Davis. See PX 21-199Z and PX 21-257. The People have failed to elicit any testimony from any witness or offer any documents showing that Mr. Davis believed that the amortization was an improper treatment or had any wrongful intent with respect to the Chrysler refund, or that he directed anyone to amortize the refund.
December-dated Checks Received in January. The People point to e-mails relating to ADWEA, and an e-mail with proposed language intended to be sent to a collection of partners in early January of 2010, in which Mr. Davis changed the language to read: “payments through checks dated December 31 will be included in revenues for 2009.” See PX 21-050Z, PX 21-067, PX 21-074, PX 21-082, PX 21-171, PX 21-172. The People have introduced no evidence that can show that Mr. Davis believed that it was improper for Dewey & LeBoeuf to include in revenues for the prior year 1) checks received by the firm in January, written by the client in December, dated December 31st of the prior year, or 2) checks received by the firm in January, written by the client in January, and dated December 31st of the prior year. In fact, the idea that such treatment is improper is directly contradicted by tax law and the testimony of several witnesses. See Treas. Reg. § 1.446-1(c)(i); Treas. Reg. § 1.451-2(a); Kunze v. C.I.R., 19 T.C. 29, 31 (1952); Romine v. C.I.R., 25 T.C. 859, 873–75 (1956); Hineman v. Brodrick, 99 F. Supp.
39
582, 583 (D. Kan. 1951); N.Y.U.C.C. § 3-114(2); U.C.C. § 3-114(2); Tr. at 3689:1-11, 5205:18-5206:18, 5611:7-15.
The Private Placement. Mr. Davis was minimally involved in the Private Placement, and
had no involvement with, or knowledge of, the decisions relating to disclosure or nondisclosure of the overhang, Article III and IV payments owed by the firm to retired partners, or the purported loan from Khalid Al-Thebity. In addition, Richard Shutran testified that the overhang and Article III and IV payments were not disclosable debt. Tr. at 3619:10-13.
Reclassification of Income as a Return of Capital. Mr. Rodriguez testified that he never
told Mr. Davis about the reclassification of Mr. Davis’s income as a return of capital, and that he was specifically directed by Mr. Canellas to hide the allegedly fraudulent activity from Mr. Davis, completely undermining Mr. Canellas’s and his own testimony that they believed Mr. Davis knew about the fraud. See Tr. at 2340:18-24, 2408:11-17, 5194:11-21. Moreover, the jury has heard voluminous testimony that the Partnership Agreement authorizes the Firm to accelerate the return of capital to partners, as confirmed by Paul Weiss, and Ernst & Young as well as the banks were notified that income was reclassified as a return of capital. See Tr. at 859:25-860:8, 2356:23-2357:12, 3794:23-3795:4, 4848:3-18, 6094:3-6096:7, DX 240, DX 243 DX 250, DX 251, DX 245.
Nothing about this evidence—taken as a whole and in the light most favorable to the People—is
sufficient to establish a prima facie case of conspiracy. The People have presented no direct
evidence that Mr. Davis engaged in a conspiracy, and the circumstantial evidence, which is
wholly unpersuasive without the aid of rank speculation, is also insufficient to sustain the
conspiracy charge against Mr. Davis. People v. Bac Tran, 80 N.Y.2d 170, 180 (1992) (“Where
circumstantial evidence is weakly held together by subjective inferential links based on
probabilities of low grade or insufficient degree, a prima facie case will not be deemed
satisfied.”) (internal quotation marks and citation omitted).
i. The trial evidence is insufficient to make a prima facie case that Mr. Davis was a knowing member of an illicit agreement.
As an initial matter, “[t]he core of conspiracy is an illicit agreement.” People v. Austin, 9
A.D.3d 369, 371 (2d Dep’t 2004); Matter of Robinson v. Snyder, 259 A.D.2d 280, 281 (1st Dep’t
1999) (“The essence of the offense is an agreement to cause a specific crime to be committed
40
together with the actual commission of an overt act by one of the conspirators in furtherance of
the conspiracy.” (internal citations omitted)). Without a demonstration by competent evidence
that Mr. Davis entered into an illicit agreement intending that a scheme to defraud be undertaken,
the conspiracy conviction cannot be sustained. But here, the only independent, non-hearsay
evidence that might remotely support the idea that Mr. Davis had agreed with others to
intentionally embark on a scheme to defraud, outlined above, fails to prove that Mr. Davis had
agreed with others to intentionally embark on a scheme to defraud, as not a single witness
testified that Mr. Davis ever knew that inappropriate accounting adjustments were being made to
the firm’s books. People v. Evangelista, 88 A.D.2d 804, 806 (1st Dep’t 1982) (“[M]ere
vagueness and suspicion do not rise to the level of evidence, and these conversations do not rise
to the level of the proof required to permit the submission of these questions to a jury.” (internal
quotation marks omitted, alteration in original)).
ii. There is insufficient evidence to make a prima facie case of Mr. Davis’s intent.
The conspiracy charge also fails for lack of proof against Mr. Davis on the issue of intent.
The Court must be presented with competent non-hearsay evidence that Mr. Davis intentionally
engaged in a scheme to defraud. The Court must “scrutinize the record for evidence of such
intent with special care in a conspiracy case for . . . ‘charges of conspiracy are not to be made out
by piling inference upon inference, thus fashioning . . . a dragnet to draw in all substantive
crimes.’” People v. Ozarowski, 38 N.Y.2d 481, 489 (1976) (quoting Direct Sales Co. v. United
States, 319 U.S. 703, 711 (1943)).
The People’s proof against Mr. Davis cannot withstand such scrutiny because simple
awareness of the use of general “accounting adjustments,” appearing “nervous” to one
individual, or sounding “sarcastic” are not sufficient to demonstrate Mr. Davis’s intent. Mr.
41
Davis—who at all times included and relied on the opinion of the Finance Department—openly
shared with the partnership the firm’s revenue recognition policy with respect to checks dated
December 31st and had no conversations with anyone in which he was told, or told others, that
this policy was in any way improper. Mr. Davis had no involvement with putting together the
Private Placement Memorandum for the firm’s 2010 refinancing, and the People have provided
no non-hearsay evidence showing that Mr. Davis believed the firm’s financial statements were
anything but accurate. In all of the non-hearsay evidence that the People have presented, there is
absolutely no evidence of Mr. Davis’s fraudulent intent.
Moreover, the jury cannot infer Mr. Davis’s intent from the criminal acts of any of his
alleged co-conspirators. People v. Ozarowski, 38 N.Y.2d at 490-91 (“[W]hile the ultimate act of
violence may be used by the trier of facts in making the inference of intent as to the defendant
who actually struck the blow, that act is not determinative of the intent of the other conspirators .
. . .”). That is to say, even if the jury could properly conclude that any victims were ultimately
defrauded as a result of any of the accounting methods at issue, and even if the jury could infer
wrongful intent on the part of Mr. Davis’s alleged co-conspirators, no such intent can be inferred
on the part of Mr. Davis based on the acts of his alleged co-conspirators.
C. The Trial Evidence Is Insufficient to Establish the Charge of Scheme to Defraud in the First Degree.
“A person is guilty of a scheme to defraud in the first degree when he or she . . . engages
in a scheme constituting a systematic ongoing course of conduct with intent to defraud more than
one person or to obtain property from more than one person by false or fraudulent pretenses,
representations or promises, and so obtains property with a value in excess of one thousand
dollars from one or more such persons.” Penal Law § 190.65(1)(b).
42
Here, no evidence—even including the co-conspirator hearsay evidence against Mr.
Davis admitted subject to connection—has been presented that would sustain a finding that Mr.
Davis had intent either to defraud or “to obtain property . . . by false or fraudulent pretenses,
representations or promises.” Penal Law § 190.65(1)(b); see People v. Wolf, 284 A.D.2d 102,
103 (1st Dep’t 2001), modified on other grounds 98 N.Y.2d 105 (2002). No evidence before the
jury demonstrated that Mr. Davis knew the accounting methods at issue were inappropriate,
much less that he intended that these methods be used to defraud anyone. Put differently, there is
no evidence that anything Mr. Davis knew or did vis-à-vis the firm’s lenders and investors was
“reasonably calculated [by him] to deceive persons of ordinary prudence and comprehension.”
People v. White, 101 A.D.2d 1037, 1038 (2d Dep’t 1984) (internal quotation mark omitted).
Similarly, there was no evidence before the jury that Mr. Davis intended that the financial
statements or the private placement defraud anyone, because there was no competent evidence
before the jury demonstrating that he believed the firm’s financial statements contained
inappropriate adjustments. Thus he cannot be said to have demonstrated an intent to “defraud.”
Nor can it be said that Mr. Davis intended to obtain property by “false or fraudulent pretenses”
because the evidence demonstrates Mr. Davis did not believe that he or anyone else was making
any false or fraudulent pretense or representation.
It bears noting here that even if this Court determined that the conspiracy count against
Mr. Davis should be sustained—which, as explained above, the evidence does not support—
criminal liability for conspiracy does not necessarily give rise to criminal liability for substantive
offenses committed in furtherance of a conspiracy. See People v. McGee, 49 N.Y.2d 48, 58
(1979) (rejecting the Pinkerton rule and holding “it is repugnant to our system of jurisprudence,
where guilt is generally personal to the defendant, to impose punishment, not for the socially
43
harmful agreement to which the defendant is a party, but for substantive offenses in which he did
not participate” (internal citation omitted)); People v. Berkowitz, 50 N.Y.2d 333, 341 (1980)
(“[T]he mere fact that one is a coconspirator does not in and of itself support the imputation of
criminal liability for the object crime.”).
Accordingly, the scheme to defraud count against Mr. Davis must be dismissed.
D. The Trial Evidence Is Insufficient to Establish the Charges of Grand Larceny in the First Degree.
The indictment alleges that in April 2010, D&L refinanced its debts with a $150 million
private placement of securities with thirteen insurance companies (Counts 2 through 14) and a
$100 million line of credit with two banks (Counts 15 and 16). Counts 2 through 16 accuse the
defendants of grand larceny in the first degree and are based on alleged thefts from those
insurance companies and banks.
“A person steals property and commits larceny when, with intent to deprive another of
property or to appropriate the same to himself or to a third person, he wrongfully takes, obtains
or withholds such property from an owner thereof.” Penal Law § 155.05. “Unlike the ‘taking’
element, which is satisfied by the temporary exercise of dominion and control over property, the
intent required for larceny is to bring about a permanent, or virtually permanent, change in the
control of or benefit from the property.” 6 N.Y. Prac. Criminal Law § 12:5 (3d ed.). The statute
defines to “deprive” property as:
(a) to withhold it or cause it to be withheld from him permanently or for so extended a period of time or under such circumstances that the major portion of its economic value or benefit is lost to him, or (b) to dispose of the property in such manner or under such circumstances as to render it unlikely that the owner will recover such property.
Penal Law § 155.00(3).
44
The evidence before the jury—even including the co-conspirator hearsay evidence
admitted subject to connection—could not possibly satisfy the intent element of grand larceny,
and therefore the Court should dismiss these counts. The People have failed to introduce any
evidence that Mr. Davis stole property with the intent to cause the property to be withheld
permanently or for so extended a period of time or under such circumstances that the major
portion of its economic value or benefit would be lost. The People have failed to put forth any
evidence that demonstrates that Mr. Davis intended that the money would not be repaid with
interest when due. Moreover, the People have presented absolutely no evidence establishing that
Mr. Davis believed the firm’s financials to be inaccurate at the time D&L received the private
placement funds.
Accordingly, the grand larceny counts as alleged against Mr. Davis must be dismissed.
E. The Trial Evidence Is Insufficient to Establish the Charges of Falsifying Business Records in the First Degree.
A person is guilty of falsifying business records when, with intent to defraud, he
“[m]akes or causes a false entry in the business records of an enterprise . . . .” Penal Law §
175.05(1). To constitute this offense in the First Degree, the “intent to defraud [must] include[]
an intent to commit another crime or to aid or conceal the commission thereof.” Penal Law §
175.10.
Setting aside momentarily the complete lack of evidence of Mr. Davis’s intent to defraud,
it is apparent that all of the counts charging Mr. Davis with making and causing false entries in
Dewey’s books (Counts 17 through 26, 28 through 30, 33 through 50 and 62 through 71) fail for
the simple fact that there is no evidence Mr. Davis did anything to make or cause false entries to
be made in those books. Even assuming the entries at issue were in fact “false,” the evidence
before the jury could not demonstrate that Mr. Davis either made or caused the entries to be
45
made. Even viewing the evidence in the light most favorable to the People, and drawing all
reasonable evidentiary inferences in favor of the People, the evidence is simply insufficient for
the jury to conclude that Mr. Davis himself made the entries, directed someone else to do so, or
undertook activities which caused the firm to book false entries.13
Without evidence that Mr. Davis made or caused false entries to be made at Dewey,
Counts 17 through 26, 28 through 30, 33 through 50 and 62 through 71 must fail. See People v.
Parks, 53 A.D.3d 688, 691 (3d Dep’t 2008) (reversing conviction for falsifying business records
based on false check notation where “no proof was elicited establishing that defendant made out,
endorsed or cashed that bail account check”); see also People v. Kisina, 14 N.Y.3d 153, 158
(2010) (to prove falsification of business records in the first degree “[t]he ‘person’ must act with
an ‘intent to defraud,’ which includes ‘an intent to commit another crime or to aid or conceal the
commission thereof’” (emphasis added)); People v. Taveras, 12 N.Y.3d 21, 26 (2009) (“The
relevant actus reus is the creation of a false entry in a business record.”); Penal Law § 15.10
(“The minimal requirement for criminal liability is the performance by a person of conduct . . .
.”).
Moreover, even if these falsification of business records counts had a sufficient actus
reus predicate, all fail for reasons of lack of proof of criminal intent. Where there is no evidence
before the jury from which it could reasonably find that “these ‘adjustments’ fell within [the
defendant’s] area of responsibility or understanding,” and where no “e-mails or other
communications sent or received by [the defendant] evidenc[e] his knowledge of their falsity or
13 The only backdated check entry alleged in the indictment is referenced in Count 30, and is a check from Garda requested by John Altorelli, with which the People have not alleged, or supplied any evidence of, Mr. Davis’s involvement.
46
any effort to conceal them,” the charges should be dismissed.14 See People v. Davis, et al.,
including Zachary Warren, Decision and Order of Justice Stolz, November 7, 2014 at 11. As
demonstrated in these papers, there is no evidence that Mr. Davis committed or conspired to
commit any other crime. Without evidence of such intent, the falsifying business records counts
against Mr. Davis must be dismissed.15
F. The Trial Evidence Is Insufficient to Establish the Martin Act Charge.
The Martin Act makes it unlawful to:
intentionally engage[] in any scheme constituting a systematic ongoing course of conduct with intent to defraud ten or more persons or to obtain property from ten or more persons by false or fraudulent pretenses, representations or promises, and so obtain[] property from one or more of such persons while engaged in inducing or promoting the issuance, distribution, exchange, sale, negotiation or purchase of any securities or commodities . . . .
Gen. Bus. Law § 352-c(5) (emphasis added). Subsection c(5) expressly provides that fraudulent
acts must be done with “intent to defraud.” The People have put forth no evidence whatsoever
that Mr. Davis acted with intent to defraud, as they have been unable to show that he believed
that the firm’s financials were inaccurate.
14 All of the false business records charges against Mr. Davis should be dismissed for these reasons. See Decision and Order on the Motion to Dismiss at page 11 (discussion of dismissal of Counts 3 and 4 against Zachary Warren). At minimum, for the same reasons that the charges against Mr. Warren that concern the accounting treatment of Dewey’s disposition of two leases it held for properties in London, England and Austin, Texas, were dismissed, the same charges (Counts 22 and 23) should be dismissed as to Mr. Davis. 15 Mr. Davis also lacks the generalized intent to defraud that would warrant this Court reducing the falsifying business records counts to the second degree. People v. Reyes, 69 A.D.3d 537, 538-39 (1st Dep’t 2010) (finding only a first degree falsifying business records charge should have been submitted to the jury because “either defendant’s intent was to conceal . . . [another crime], or he had no fraudulent intent at all”). There is simply no evidence whatsoever that Mr. Davis intended to cheat anyone, either by means of the accounting adjustments and entries charged by the indictment or by means of the management representation letters that he signed. Dismissal of the falsification of business records counts is thus warranted.
47
Moreover, in order to sustain the Martin Act charge, the People must prove “that the
defendant committed an intentional act constituting fraud, which under the Martin Act ‘includes
all deceitful practices contrary to the plain rules of common honesty and all acts tending to
deceive or mislead the public.’” People v. Sala, 258 A.D.2d 182, 193 (3d Dep’t 1999) aff'd, 95
N.Y.2d 254 (2000) (emphasis added). There has been no evidence presented that Mr. Davis
committed any act constituting fraud in connection with the private placement. The record shows
that Mr. Davis’s involvement in the private placement process was exceedingly minimal—no
evidence has been presented that can show that Mr. Davis even reviewed the Private Placement
Memorandum or that he signed any of the private placement documentation.16
The People have put forth no evidence that Mr. Davis acted with intent to defraud, or that
he ever committed an intentional act constituting fraud, or engaged in the private placement
process in any meaningful way. The Martin Act count against Mr. Davis must be dismissed.
CONCLUSION
After more than three months of trial, the People have failed to live up the promises they
made in their opening statement to prove that Mr. Davis agreed with and caused others to
defraud lenders, partners and vendors. The inferences pointing to guilt that the People would
have the jury make are not rational inferences, but rank speculation. There is no evidence from
which the jury could reasonably infer that Mr. Davis “stole” anything, caused others to make
false business records, conspired with anyone or engaged in a scheme to defraud anyone.
16 While Mr. Davis’s signature is on some of the credit agreement documentation, the credit agreement is not governed by the Martin Act, as it is not a sale of a security. See People’s Memorandum of Law in Opposition to Defendants’ Motion to Dismiss at 60 (“Count 105 charges a specific Martin Act scheme to defraud under the General Business Law only for the defendants' conduct in promoting and selling the securities in the April 2010 offering.”); id. at 63 (“Thus, the proof for Count 105 must show at least eight additional victims, and it must show that the fraud occurred during a transaction in securities, the private placement.”) (emphasis added).
Because the People have failed to establish a prima facie case of conspiracy against Mr.
Davis, the Court should dismiss the conspiracy count pursuant to CPL § 290.10, and thereby
strike all of the evidence that was admitted subject to connection. And because the People have
also failed to provide any evidence to support any valid line of reasoning and permissible
inferences that could lead a rational person to conclude that every element of the charged crimes
have been proven beyond a reasonable doubt as to Mr. Davis on all of the other counts, with or
without resort to the evidence admitted subject to connection, all of the other counts should
likewise be dismissed pursuant to CPL § 290.10.
Dated: August 27, 2015 New York, New York
By:
Lawrence S. Bader Jasmine Juteau Priya Raghavan
Attorneys for Steven Davis MORVILLO ABRAMOWITZ GRAND IASON &
ANELLO P.C. 565 Fifth A venue New York, New York 10017 (212) 856-9600
48
Exhibit A
1
The following exhibits have been admitted against Mr. Davis subject to connection and must be stricken:
21-001
21-009
21-009A
21-009B
21-009C
21-035
21-037
21-038
21-039
21-042
21-042A
21-046
21-048
21-051Z
21-053
21-055
21-056
21-057
21-058
21-058A
21-059
21-060
21-060A
21-061
21-068
21-069
2
21-069A
21-070
21-071
21-073
21-075
21-075A
21-076
21-077
21-077A
21-078
21-079
21-080
21-081
21-083
21-084
21-084A
21-086
21-086A
21-089
21-090
21-093
21-094
21-094A
21-095
21-096
21-097
21-098
21-099
3
21-100
21-103
21-103A
21-104
21-107
21-108
21-109
21-110
21-112
21-112A
21-113
21-114
21-115Z
21-117
21-117A
21-118
21-118A
21-119
21-120
21-120A
21-123
21-125
21-126
21-129
21-130
21-136
21-137
21-140
4
21-144
21-148
21-151
21-153
21-155
21-158
21-159
21-160
12-162
21-165
21-168
21-172
21-176
21-177
21-177A
21-181
21-184
21-186
21-188
21-188A
21-189
21-190
21-191
21-192
21-193
21-193A
21-194
21-201
5
21-201A
21-201B
21-201C
21-201D
21-201E
21-201F
21-201G
21-201H
21-201I
21-201J
21-201K
21-202
21-203
21-204
21-204A
21-205
21-206
21-206A
21-214
21-215
21-217
21-218
21-220
21-220A
21-221
21-221
21-221A
21-221B
6
21-221C
21-222
21-223
21-224
21-224A
21-225
21-226
21-227
21-229
21-229A
21-230
21-230A
21-231
21-232
21-232A
21-233
21-235
21-236
21-237
21-238
21-241
21-242
21-243
21-244
21-246
21-249
21-252
21-256
7
21-263
21-263
21-263A
21-265
21-266
21-267
21-269
21-270
21-272
21-274
21-277
21-278
21-279
21-279A
21-280
21-281
21-282
21-285
21-286
21-287
21-288
21-288A
21-289
21-291
21-295
21-295A
21-297
21-298
8
21-298A
21-301
21-304
21-306
21-307
21-308
21-309
21-311
21-313
21-315
21-316
21-316A
21-321
21-322
21-327
21-327A
21-327B
21-330
21-330A
21-337
21-339
21-340
21-343
21-344
21-346
21-349
21-350
21-351
9
21-354
21-357
21-357A
21-358
21-359
21-359A
21-359B
21-360
21-361
21-362
21-362A
21-363
21-364
21-364A
21-364B
21-373
21-375
21-376A
21-381
21-383
21-385
21-386
21-387
21-393
21-394
21-404
21-406A
21-410
10
21-411
21-411
21-411A
21-412
21-412A
21-417
21-419
21-422
21-424
21-425
21-427
21-428
21-430
21-430A
21-432
21-433
21-434
21-453
89-002
90-018
90-019
90-020
90-025
90-035
90-045
90-057
90-058
90-059
11
90-060
90-061
90-062
90-063
90-064