Deal Means No Fraud Retrial for Ex-Chairman of Dewey & LeBoeuf
By MATTHEW GOLDSTEIN The New York Times JAN. 8, 2016Steven H. Davis, the former chairman of Dewey & LeBoeuf, will not face another criminal trial over allegations of accounting fraud at the once mighty New York law firm, but he will remain in legal limbo for the next five years.
In a deal with Manhattan prosecutors that was formally approved on Friday, Mr. Davis agreed not to practice law in New York for five years as part of a deferred-prosecution agreement. The signing of the agreement, which was confirmed during an appearance in New York State Supreme Court in Manhattan, had been in the works for several weeks and was discussed in open court last month.
Negotiations began soon after a six-month trial of Mr. Davis and two co-defendants ended in a hung jury in October after the panel deadlocked on dozens of charges. The length of the prohibition against Mr. Davis’s practicing law in New York was something of a surprise, given that he has largely been out of work since Dewey crumbled and declared bankruptcy in spring 2010.
The criminal trial of Mr. Davis and two other former top executives at Dewey was one of the most significant white-collar cases brought by Cyrus R. Vance Jr., the Manhattan district attorney. In announcing the filing of criminal charges in March 2014, Mr. Vance said Mr. Davis and the other defendants had overseen a “massive effort to cook the books at Dewey & LeBoeuf” that defrauded bank lenders and investors in a debt offering at the height of the financial crisis.
Peirce Moser, an assistant prosecutor working for Mr. Vance who participated in the first trial, said in court that the criminal indictment against Mr. Davis, 62, would be dismissed after 60 months if he abides by the terms of the deal, which include committing no crimes. Prosecutors remain committed to retrying Mr. Davis’s co-defendants, Stephen DiCarmine, 59, and Joel Sanders, 57, after both men rejected plea deals.
A new trial for Mr. DiCarmine, the former executive director at Dewey, and Mr. Sanders, the firm’s former chief financial officer, is tentatively scheduled for September. The plea deals offered to both men would have required each to plead guilty to a felony charge. Mr. Sanders also would have had to serve a prison term. Austin Campriello, a lawyer for Mr. DiCarmine, said he told prosecutors his client was innocent but would agree to the terms of the same deferred-prosecution agreement offered to Mr. Davis.
Prosecutors rejected that offer. Zachary Warren, a fourth man charged in the fraudulent accounting scheme at Dewey, is scheduled to be tried in March. The case of Mr. Warren, a low-level employee at Dewey, was severed from that of Mr. Davis, Mr. DiCarmine and Mr. Sanders many months ago.
The decision by Mr. Vance and his prosecutorial team not to retry Mr. Davis reflects the fact that the evidence against him was far weaker than that against the other defendants and that jurors in interviews after the trial were largely sympathetic to him. The deferred-prosecution agreement notes that “the jury was deeply divided on some of the remaining counts” and a new trial could end with either an acquittal or another hung jury.
In a separate settlement with the Securities and Exchange Commission, Mr. Davis agreed not to act as an officer or director for a public company and not to appear as a lawyer before the regulatory agency. The S.E.C. filed a lawsuit against Mr. Davis and others over a debt offering that Dewey used to raise money from institutional investors.
The S.E.C. contends they misled investors about the financial situation of the law firm. In settling with the S.E.C., Mr. Davis neither admitted to nor denied the allegations in the complaint. By cutting a separate deal with Mr. Davis, prosecutors will have an easier time simplifying the trial of Mr. DiCarmine and Mr. Sanders, which got bogged down by a mountain of documentary evidence.
Prosecutors have already dismissed dozens of the charges the jury could not reach a verdict on in the first trial. Still to be decided are motions filed by lawyers for Mr. DiCarmine and Mr. Sanders to dismiss some other charges, including some of the grand larceny charges filed against them.
Justice Robert M. Stolz said he expected to rule on those motions by the time Mr. DiCarmine and Mr. Sanders are scheduled to appear in court on Feb. 26.
The first trial took a toll on jurors. A few fell sick during the 21 days of deliberations before Mr. Stolz declared a mistrial. One juror told the judge he dozed off in the jury room because he was not feeling well.
A juror from the first trial, who did not want to be identified, came to court on Friday to watch the talks between the lawyers and the judge. The juror said she would have voted to acquit all three men and was curious about how the case was proceeding. In response to reporters’ questions afterward, she said she remained sympathetic to the plight of all the defendants. “They have suffered enough,” she said. “They can’t get jobs.”
I am not sure what to say about that last comment by the former Juror except, really, no really? Ask that Juror if she would feel the same about a man selling singles outside a bodega who can't find work either. Or the woman who prostituted herself to feed her kids. Or the illegal alien who is deported after leaving a war torn country and desperate. Or what about Bill Cosby? I like to throw him in there as he is famous but he's black so does that cancel the celebrity part out or is it a double negative?
I have a friend who admits to hating rich people so there is no lack of bias there. I hate Lawyers so there is no question about my feelings. So again the Jury system of voir dire is utter bullshit and oddly it worked in some manner due to the mistrial, meaning there were Jurors who had a problem with the trial, the charges or the defendants. And the likelihood of a retrial after a mistrial drops enabling a plea bargain to actually occur. But in regular world blue collar trials this rarely happens and the club and the stick in which to beat down defendants come into play - largely money and exhaustion. The Lawyers in this case have no problem with either - they are in the profession of beating and sticking it to people all the time so the costs incurred are the States as they persue this. Funny in blue collar they do so even when the individual is innocent however and do little to change that except decades later when the payments are in the millions for the exoneration. Still the bill goes to the taxpayer and the Lawyers again those crumbs left both in money and life are given to the individual with and handshake and a kick in the ass. Another story of another payoff in an exoneration shows how big that bill really is.
The second agreement is in the case of Steven Cohen of the Wall Street Mafia Hedge Fund family. This story led to some of his Caporegime went down but the Consigliere managed to remain in his art covered chateau unscathed. Good thing as there is a major art sale scheduled this February. Those masters aren't going to hang themselves. Wonder what the Juror would have to say about this case.
In Insider Trading Settlement, Steven Cohen Will Be Free to Manage Outside Money in 2 Years
By MATTHEW GOLDSTEIN and ALEXANDRA STEVENSON The New York Times JAN. 8, 2016
Steven A. Cohen, the billionaire investor, is walking away largely unscathed from nearly a decade of investigations by federal prosecutors and securities regulators into accusations of insider trading at his former hedge fund.
On Friday, Mr. Cohen reached a deal with the Securities and Exchange Commission that will bar him from managing money for outside investors for the next two years. That is a far cry from the lifetime ban that securities regulators sought when they filed an administrative case against him more than two years ago. Lifetime bans from the industry are rare.
Nonetheless, the case against Mr. Cohen — accusing him of failing to adequately oversee an employee — was among the most prominent administrative actions brought by securities regulators in recent years. And he is not paying a fine in the settlement.
“It’s a huge victory for him not to get fined personally,” said Ross B. Intelisano, a securities lawyer at the law firm Rich, Intelisano & Katz. “In a ‘failure to supervise’ case, the S.E.C. is usually pretty aggressive in getting fines, so it seems like a hollow victory” for the S.E.C., he said. The settlement clears the way for Mr. Cohen, who is 59, to return to the hedge fund business, where his ability to mint money trading stocks has been envied for decades.
One of the richest men on Wall Street, Mr. Cohen is also an active art collector known for buying pieces by Damien Hirst and Jeff Koons. “Resolving the case gives us certainty and opens the path to raising outside capital,” Mr. Cohen wrote in a memo on Friday to his employees, which was reviewed by The New York Times.
The road back has come at a cost, however. During the years when his former firm, SAC Capital Advisors, was under investigation by prosecutors, some top traders left and legal costs mounted. Mr. Cohen’s reputation, on Wall Street and more widely, was tarnished as some questioned how he had outperformed the industry for so many years. In 2013, SAC Capital pleaded guilty to insider trading charges and paid a record $1.8 billion penalty.
In pleading guilty, the hedge fund had to return outside money to investors. Since then, Mr. Cohen has been managing largely his own $11 billion fortune. And his new “family office” firm in Stamford, Conn., Point72 Asset Management, has been on a tear. In 2015, the firm was highly profitable even in a year when many prominent hedge fund managers posted double-digit losses, said a person briefed on Point72’s performance but not authorized to speak publicly.
Some of Mr. Cohen’s former lieutenants have gone on to start successful hedge funds of their own. Gabriel Plotkin, a former manager at SAC, and his hedge fund Melvin Capital, was a top performer in the hedge fund industry in 2015. The stock-focused fund had gained almost 40 percent by the end of November.
Over the last year, Mr. Cohen has taken steps to increase compliance and oversight at Point72. Some on Wall Street have seen the moves as an effort by Mr. Cohen to gain the confidence of regulators and permit him to again manage money for outside investors.
Toward that end, he has sought to fill his new firm with former F.B.I agents and federal prosecutors. In May, Point72 hired Kevin J. O’Connor, a former United States attorney for Connecticut. The firm also hired a former federal prosecutor, Vincent Tortorella, in 2014.
“It would seem that he had already been moving in a direction to put himself in a circumstance where he may be able to be back in the industry in a very meaningful way,” said Rita Glavin, a lawyer who is co-head of the white-collar practice at Seward & Kissel. The settlement with the S.E.C. heads off a showdown before an administrative law judge that was scheduled to begin in April.
The agency had accused Mr. Cohen of failing to properly supervise Mathew Martoma, a former trader at SAC who was convicted on charges that he used inside information to generate profits and avoid losses totaling $275 million while working at the hedge fund.
The administrative proceeding had been delayed for several years at the request of federal prosecutors, who have all but wrapped up a nearly decade-long investigation into insider trading in the hedge fund industry and specifically at SAC. The S.E.C.’s hand was weakened in 2014, when a federal appeals court in 2014 overturned the criminal convictions of two hedge fund managers.
Following that decision and the Supreme Court’s refusal to take up the case, federal prosecutors in Manhattan dismissed the insider trading conviction of Michael Steinberg, a former SAC portfolio manager and a onetime confidant of Mr. Cohen. The S.E.C. then dropped its civil insider trading case against Mr. Steinberg. It also amended the failure-to-supervise action against Mr. Cohen to remove accusations concerning his supervision of Mr. Steinberg.
In the end, all that was left in the failure-to-supervise case was the claim that Mr. Cohen did not properly oversee Mr. Martoma, who was convicted in 2014 and is serving a nine-year sentence in federal prison. Mr. Cohen did not admit or deny any wrongdoing in the settlement. Still, the settlement order is striking for its strong words about Mr. Cohen.
The agency blamed him for ignoring red flags that should have prompted Mr. Cohen to question whether Mr. Martoma was engaging in insider trading. Mr. Martoma, the agency said, gave information to Mr. Cohen in 2008 that “should have caused a reasonable hedge fund manager to investigate” whether the employee had access to inside information.
If Mr. Cohen seeks to manage money for outside investors beginning in 2018, the settlement requires him to obtain an independent consultant through the end of 2019. Even before then, his family office will be subject to periodic examinations by the S.E.C. and must retain an independent consultant to monitor its activities.
“Before Cohen can handle outside money again, an independent consultant will ensure that there are legally sufficient policies, procedures and supervision mechanisms in place to detect and deter any insider trading,” said Andrew J. Ceresney, director of the S.E.C.’s division of enforcement. The independent consultant to monitor the activities of Point72 will either be Bart M. Schwartz of Guidepost Solutions, who was previously retained as a consultant as part of the SAC guilty plea, or some other person approved by the S.E.C.
A spokesman for Mr. Cohen declined to comment. In the memo sent to the more than 800 employees of Point72, Mr. Cohen said that after SAC pleaded guilty, he “vowed that what happened to SAC would never happen to Point72.”
The settlement “is notand cannot — be a reason to become complacent,” Mr. Cohen wrote, adding that the firm would become a leader in compliance.
The reality is that white collar crime is very different than blue collar crime. At times you see a Michael Miliken, a Martha Stewart or a Bernard Ebbers but they are few and far between. And it is easier to drive up to a prison in a Mercedes and leave in one.