ANDREWM.

CALAMARI
REGIONALDIRECTOR
AttorneyforthePlaintiff
SECURITIESANDEXCHANGECOMMISSION
NewYorkRegionalOffice
200VeseyStreet,Suite400
NewYork,NY10281-1022
Tel:(212)336-0589(HowardA.Fischer,SeniorTrialCounsel)
Email:FischerH@SEC.Gov
UNITEDSTATESDISTRICTCOURT
SOUTHERNDISTRICTOFNEWYORK
SECURITIESANDEXCHANGECOMMISSION,
Plaintiff,
-against-
STEVENH.DAVIS,STEPHENDICARMINE,
JOELSANDERS,FRANCISCANELLAS,and
THOMASMULLIKIN,
Defendants.
14-CV- ( )
COMPLAINT
PlaintiffSecuritiesandExchangeCommission(the"Commission"),foritsComplaint
againstdefendants StevenH.Davis("Davis"),StephenDiCarmine("DiCarmine"),Joel Sanders
("Sanders"),FrancisCanellas("Canellas"),andThomasMullikin("Mullikin"),(collectively,the
"Defendants"), allegesas follows:
SUMMARYOFALLEGATIONS
1. Thiscaseinvolvesafraudulent bond offeringinApril2010(the"Bond
Offering"),byDewey& LeBoeufLLP ("Dewey"),anowdefunctinternationallawfirm.
1
Deweyhasfiled forChapter11 bankruptcyprotection. SeeInreDewey& LeBoeuf
Investors in the Bond Offering relied on Dewey' s fraudulent and materially misstated financial
results for 2008 and 2009, which were incorporated into the private placement memorandum
("PPM"), and provided to investors.
2. Unbeknownst to investors, the Defendants - a collection of Dewey's senior most
legal and business professionals - had orchestrated and executed a bold and long-running
accounting fraud intended to conceal the firm's precarious financial condition. Investors
believed they were purchasing bonds issued by a prestigious law firm that had weathered the
financial crisis and was poised for growth; in reality, the financial results disclosed in the PPM
were materially misstated.
3. The roots of the fraud date back to late 2008, when the Defendants first became
aware that Dewey's declining revenue might cause its lenders to cut off access to the firm's
credit lines. Dewey and the Defendants thereafter initiated a wide-ranging campaign to
manufacture fake revenue by manipulating various entries in Dewey's internal accounting
system.
4. In connection with closing out its 2008 financial results, Dewey inflated its
profitability - defined as the excess of fees collected over op.erating and non-operating expenses
- by approximately $36 million, or 15%, using several inappropriate accounting entries. Among
other gimmicks, the Defendants reclassified salaried partners' and of counsels ' compensation as
equity distributions in the amount of $13.8 million, improperly reversed millions of dollars of
uncollectible disbursements, mischaracterized millions of dollars of credit card debt owed by the
firm as bogus disbursements owed by clients, and improperly accounted for significant lease
obligations held by the finn.
LLP. , No 12-12321 (MG)(Bankr. S.D.N.Y. May 28, 2012).
2
5. Deweycontinuedusingtheseandotherfraudulent techniquesinpreparingits
2009financial statements,whichweremisstatedby$23 million. DeweyandDefendants
undertookawide-rangingcampaignoffraud anddeception. So pervasivewasthecultureof
financial chicaneryatDewey'stoplevelsthatitshighestrankingofficials- includingthe
Defendants- hadno qualmsaboutreferringamongthemselvesinvariousemailsto"fake
income,""accountingtricks,""cookingthebooks,"anddeceivingwhattheydescribedas a
"cluelessauditor."
6. Dewey'saccountingfraudwasorchestratedbythefirm'ssenior-mostfinance
professionals,mostnotablyJoelSanders(CPO),FrankCanellas(DirectorofFinance),and
ThomasMullikin(Controller). Dewey'sseniormanagement,whichincludedStevenDavis,the
firm'sChairman,andStephenDiCarmine,thefirm'sExecutiveDirector,wasalsoawareof and
supportedtheseeffortsto falsifyDewey'sfinancialresults.AnditwasDavis,inhiscapacityof
Chairmanof thefirm, whoauthorizedthefirmtoraise$150millionviaabondofferingwhose
PPMincorporatedblatantlyfalsified financial results.
7. Deweycontinuedusingandconcealingimproperaccountingpracticeswell after
theBondOfferingclosedinApril2010. TheNotePurchaseAgreement("NPA"),governingthe
BondOffering,requiredDeweytoprovideitsinvestorsandlenderswithquarterlycertifications
thatDeweywasnotinbreachof itsdebt covenantsandtoprovidecertainrelatedfinancial
information.ThequarterlycertificationsthatDeweymadepursuantto theNPAwereall
fraudulent.
VIOLATIONS AND RELIEF SOUGHT
8. Byvirtueoftheconductallegedherein:
3
a. Davis,directlyorindirectly,singlyorinconcert,hasengagedinacts,
practices,andcoursesofbusinessthatconstituteviolationsof Section 17(a)of the
SecuritiesActof1933 ("SecuritiesAct")[15 U.S.C. 77q(a)],Section 10(b)ofthe
SecuritiesExchangeActof1934("ExchangeAct")[15 U.S.C. 78j(b )] andRule1 Ob-5
thereunder[17 C.P.R.240.10b-5]; and
b. DiCannine,Sanders,Canellas,andMullikin,directlyorindirectly, singly
orinconcert,haveengagedinacts,practices,andcoursesofbusinessthatconstitute
violationsofSection 17(a)oftheSecuritiesAct[15 U.S.C. 77q(a)] andaidingand
abettingDewey'sandDavis'sviolationsofSection1 O(b) of theExchangeActandRule
10b-5(b)thereunder,pursuantto Section20(e)oftheExchangeAct[15 U.S.C. 78j(b)]
andRule10b-5thereunder[17 C.P.R.240.10b-5].
NATURE OF PROCEEDINGS AND RELIEF SOUGHT
9. TheCommissionbringsthisactionpursuantto theauthority o n f e r r e ~ uponitby
Section20(b)oftheSecuritiesAct[15 U.S.C. 77t(b)] andSection21(d)(1)oftheExchange
Act[15 U.S.C.78u(d)(l)],seekingafinaljudgment:(i)restrainingandpermanentlyenjoining
Defendantsfrom engagingintheacts,practices,transactions,andcoursesofbusinessalleged
herein;(ii)requiringDavis,DiCarmine,Sanders, Canellas,andMullikintoeachdisgorgetheill-
gottengainstheyreceived,ifany, as aresultof theirviolations,andtopayprejudgmentinterest
thereon;(iii)imposingcivilmonetarypenaltiesuponDavis,DiCarmine,Sanders,Canellas,and
Mullikinpursuantto Section20(d)oftheSecuritiesAct[15 U.S.C. 77t(d)],and/orSection
21(d)oftheExchangeAct[15 U.S.C. 78u(d)];and(iv)pursuantto Section21(d)(2)ofthe
ExchangeAct [15U.S.C. 78u(d)(2)] barringdefendantsDavis,DiCannine,and Sandersfrom
4
servingas anofficerordirectorofanypubliccompany. Finally,theCommissionseeksanyother
relieftheCourtmaydeemjustandappropriate.
JURISDICTION AND VENUE
10. TheCourthasjurisdictionoverthisactionunderSections20(b),20(d), and22(a)
oftheSecuritiesAct[15 U.S.C. 77t(b),77t(d),and77v(a)], Sections21(d) and 27 ofthe
ExchangeAct[15 U.S.C. 78u(d)and78aa], and 28 U.S.C. 1331.
11. VenueisproperintheSouthernDistrictofNewYorkunderSection22(a)of the
SecuritiesAct[15 U.S.C. 77v(a)],and Section27oftheExchangeAct[15U.S.C. 78aa].
Certainoftheacts,practices,transactions,andcoursesofbusinessallegedinthis Complaint
occurredwithintheSouthernDistrictof NewYork(forinstance,theDefendantssolicited
investorsfortheBondOfferinginthisDistrictandoperatedfrom Dewey'sheadquarterslocated
inthisDistrict)andwereeffected,directlyorindirectly,bymakinguseof themeansand
instrumentsof transportationorcommunicationininterstatecommerce,orthemails.
DEFENDANTS
12. StevenH. Davis, age60, aresidentofNewYork,NewYork,isanattorney
licensedinNewYork. DavispracticedenergylawpriortobecomingthechairmanofLeBoeuf
LambGreen&,MacRae,LLP("LeBoeufLamb")severalyearsbeforethemerger,inOctober
2007,betweenDeweyBallantine,LLP ("DeweyBallantine")andLeBoeufLamb(the"merger").
Daviscontinuedas chainnanofthemergedfinn until aroundMarch2012,whenhewasremoved
fromhispositionas solechairmanand replacedwithafivemember"OfficeoftheChairman,"
consistingof himselfand fourotherDeweypartners. InoraroundApril2012,Daviswas
removedaltogetherfrom hisleadershippositionatDewey.
5
13. StephenDiCarmine,age57,aresidentofNewYork,NewYork,isanattorney
licensedinNewYorkandwastheexecutivedirectorofLeBoeufLambsince1998,and
continuedinthatpositionafterthemerger.
14. JoelSanders,age55,isaresidentofMiami,Florida. Sandersservedasthechief
financialofficerof Deweysincethemerger.
15. FrankCanellas,age34,isaresidentof LongIsland,NewYork. Canellasjoined
LeBoeufLambas ajunioraccountantin2001.Afterthemerger,hebecamefinancedirectorat
Deweyandreportedto Sanders.
16. ThomasMullikin,age43,isaresidentof BergenCounty,NewJersey.Mullikin
heldvariouspositionsinDeweyBallantine'saccountinggroupwhereheworkedsincearound
1993.Afterthemerger,Mullikinwasthecontrollerof DeweyuntilJune2011,whenheleftto
becomecontrollerat anotherlawfirm.
FACTS
I. DEWEYMISSTATEDITSFINANCIALRESULTSANDCONDITIONTO
CONCEALBREACHESOFDEBTCOVENANTSINITSLOANAGREEMENTS
17. DeweywastheproductofamergerinOctober2007betweenDeweyBallantine
andLeBoeufLamb. Followingthemerger,Deweyexperiencedseverefinancial difficultiesas a
resultof thesteepcostsarisingfrom themergerandexacerbatedbytheeconomicrecession.
18. InoraroundJuly2008,Deweyenteredintoanomnibus creditagreementwith
fourbankswithwhichithadlinesofcredit. Thisomnibus creditagreementcontainedafinancial
covenant,whichrequiredDeweyto maintainanannual cashflow, definedas NetIncomeplus
Depreciation,of $290million(the"CashFlowCovenant").
6
19. As the endof2008approached,Dewey'sfinancegroup-principallyinthefonn
ofCFOSandersandFinanceDirectorCanellas-informedDavisandDiCanninethatthefinn
wasinseriousjeopardyof breachingtheCashFlowCovenantbecausethefirm'srevenuehad
driedup.
20. FortheyearendedDecember31,2008,thefirmmisseditsbudgetedrevenueby
almost$200millionanditsbudgetedprofitabilitybyover$150million.The were
awarethatabreachof theCashFlowCovenantcouldcauseDewey'slenderstopulltheirlinesof
credit,imperilingthefirm'sabilityto operate. Inshort,Deweyfaced anexistentialcrisis.
Ratherthanadmitto thispublicly,orto seektorenegotiateitscreditarrangements,Dewey
insteadembarkedonthecourseoffraudulentconductdescribedherein.
21. OnDecember4, 2008 SandersemailedCanellas: "What revenue number must
we hit not to breach our covenants?" Canellasresponded: "The covenant is on Cash Flow,
described as net income plus depreciation. The agreement call [sic] for Cash Flow of290M.
Budgeted expenses are 715 less 11M ofdepreciation. Hence, we will need 994M in Revenue to
be in compliance."
22. OnDecember23,2008,inresponseto areportthatclientsweretryingto delay
theirpaymentsto Deweyto avoidbreachingtheirownbankcovenants, Sanderstold Davis:
" That's precisely what I'm concerned about. The banks will pull our lines in a heartbeat ifwe
don't !\'atisfy our covenants." Davisresponded: "That's what I [sic] told him [another Dewey
partner}."
23. ByDecember30,2008, Deweywasonthecuspofamassiveshortfall,withonly
onebusinessdayremaininginwhichto collectenoughrevenueto meetits CashFlowCovenant.
7
Late on December 30, 2008, Sanders emailed DiCarmine and Davis to inform them the firm
needed "$50M [in collections] tomorrow to meet our covenant." Davis responded: "Ugh."
Canellas and Sanders Devise a "Master Plan"
24. Canellas and Sanders, working closely with a young collections manager
("Collection Manager A"), who was promised to receive his full target bonus if Dewey met its
Cash Flow Covenant, hatched a scheme at the very end of 2008 to falsify numerous entries in
Dewey's books and records in order to increase the firm's net profit.
25. Canellas outlined this strategy in a detailed spreadsheet entitled "Master Plan,"
which listed Dewey's actual net profit, the amount it needed to meet its Cash Flow Covenant and
itemized adjustments, most of them improper, which would allow the firm to appear in
compliance with the Covenant.
26. Canellas then instructed his and Sanders's staff, including Mullikin, to carry out
these fraudulent adjustments, and to devise other improper adjustments to artificially boost
Dewey's net profits.
27. At the end ofthe business day on December 31,2008, Collections Manager A
sent a congratulatory email to Canellas with the subject line: "Greatjob dude. We kicked ass!
Time to get paid. "
28. In the body of the email, Collections Manager A applauded Canellas for his
creativity and reminded him of their richly due reward: "Hey man, I don't know where you
come up with some ofthis stuff, but you saved the day. It's been a rough year but it's been
damn good. Nice work dude. Let's get paid!"
2
Collections Manager A left Dewey in or around June 2009.
8
2
29. Thecollectionseffort,however, stillfell shortofDewey'sgoal to meetitsCash
Flow Covenant. OnJanuary5, 2009,adistressed CancllascmailcdMullikin: "We are short on
the covenant. I really need your help with some ideas. We need to hit it. Start thinking and
let's talk sometime this morning."
30. ThefraudulentadjustmentsmadebySanders,Canellasandtheirstaffincluding
Mullikin,tookvariousforms, as summarizedbelow.
1. ReclassifyingSalariedPartners'andOf-Counsels'Compensationas Equity
Distributions
31. Inoraround early2009,Canellasimproperlymovedcompensationpaidto two
salariedpartnersfrom anexpenseaccountonDewey's2008 generalledgerto anequity
distributionaccount. CanellasalsoinstructedaDeweypartnerrelationsspecialisttomovethe
compensationofthreeof-counselattorneysfrom anexpenseaccountto an equitydistribution
account. Thedistributionaccountwasabalancesheetaccount,andtheseadjustmentsresultedin
Deweyloweringitssalaryexpensesandincreasingitsnetprofitby$14.3million.
32. Atthetimetheseimproperadjustmentsweremadeto Dewey'sbooks,these
salariedpartnersandof-counselhadno equityinthefirm andtheywerenottoldofthechanges.
Thecompensation-relatedmodificationswereashamdesignedto createtheillusionofhigher
profitability.Davisand DiCarminewereinformedoftheseadjustmentsandkneworrecklessly
disregardedthattheywereimproper.
2. TheReversalofUncollectibleDisbursements
33. Deweyrecordeditsincomeundertheincometaxbasisofaccounting,which
requiresfees to berecognizedwhenreceivedfrom itsclients,notwhenbilled. Accordingly,
Deweydid notreportthosereceivablesonitsfinancial statements.
9
34. Disbursementswerecosts-suchas travel,wordprocessing,orlegalresearch-
incurredbyDeweyonbehalfof aclient,whichDeweywouldlaterbillitsclient. Dewey'sclients
wouldthenreimbursetheseamountswhenpayingtheirbillsforlegalservices.
35. ThesecostswereinitiallyrecordedasreceivablesonDewey'sbooksandrecords
whenpaidbyDewey,andincludedwithinthefinancial statementlineitementitled"Accounts
receivable-clientdisbursements."
36. Deweyhadacollectionsgroupwithinthefirm,whichassessedthecollectability
ofageddisbursementsandfees. Thecollectionsgroupreferredanyreceivablesitbelievedto be
uncollectibletoDewey'scollectionscommittee--whichconsistedofcertainDeweypartners-
whowouldconductfurtherinquiryandreviewto ultimatelydetenninewhetherto approveany
write-offs. Whendisbursementswerewrittenoff,theamountsweremovedfrom abalancesheet
receivableto anexpenseitem,whichcorrespondinglyreducedDewey'snetprofit.
37. Inoraroundearly2009,CanellasinstructedDewey'sdirectorofrevenuesupport,
to reversewrite-offsfordisbursements,whichhadpreviouslybeendeemeduncollectibleand
totaled $3.8million.
38. Fraudulentlyreversingthesewrite-offshad thedesired result; theyincreased
Dewey'snetprofitby$3.8million.
3. "Joel's Amex"
39. Sanders,and othersatDewey,incurred$2.5millionofAmericanExpresscredit
cardexpensesbeforethemerger. Whilethiswas originallyrecorded as an assetearlierin2008,
Deweywroteoffthis assetin oraroundNovember2008.
10
40. In or around early January 2009, Canellas directed Mullikin, Dewey's controller,
and Employee B, an accounting manager, to reverse this write-off and reclassify the expenses as
"unbilled disbursements" (i.e., an asset related to unbilled client expenses).
41. On January 7, 2009, Mullikin emailed Canellas: "They didn't do the entry
[reverse the write-ofD for Joel's amex. Do you want them to put that entry in?" Canellas
responded: "Maybe we should do it to a pending billable matter." Mullikin then responded:
"That would be less visible."
42. Dewey mischaracterized the Amex debt as an unbilled disbursement again in
2010 and 2011. By early 2011, however, Mullikin and Canellas were increasingly concerned
that the crude nature of the gimmick would attract scrutiny. For example, on January 11, 2011 ,
Mullikin wrote to Canellas: ''Before we close I think we should writeoff [sic] at least 1.2
million ofthe amex charges from Joel's amex that have been sitting with us in [account] 1211
for so long. I don't see how we 'II get past the auditors another year. We should be able to
reverse some smaller write-offs to offset it."
4. Double Booking Income from Partner A and his Client
43. In or around the end of2007, a client of Partner A, a salaried partner who worked
in Dewey's Riyadh, Saudi Arabia office, owed Dewey approximately $1.4 million for work
performed by Partner A. The client informed Partner A that it would not make the payment by
the end of2007.
44. In order to ensure that the client's fees counted toward his targets for the year,
Partner A, with Davis's approval, loaned $1.4 million to Dewey at the end of the year, which
Dewey agreed to pay back when the client paid its bill. Dewey improperly booked the partner' s
11
paymentas incomeand didnotrecorditsstatusas aloan,whichDaviskneworrecklessly
disregarded.
45. InoraroundAugust2008,theclientpaidDeweyapproximately$8million,which
includedthe$1.4millionowedfrom thepreviousyear. Deweyalsobookedthat$1.4millionas
. 3
mcome.
46. ForovertwoyearsDeweyrefusedtopayPartnerAtheamountsitowedtohim.
In early2010, afterextensivediscussionsinvolvingDavis,DiCarmineand Sanders,Dewey
finallyagreedtopaybackPartnerAthe$1.4millionaftertheBondOfferingwascompleted.
47. Duringthecourseof thesediscussionswithPartnerA, Sanderscharacterizedthe
$1.4millionloaninemailstoPartnerAas an"auditproblem,"andDiCarmineacknowledged
thatit"hadbeenbookedasincometothefirm...." BoththeseemailswereforwardedtoDavis.
5. ImproperlyAccountingforCostsofRedundantOfficeSpace
48. Inoraroundearly2008,followingthemerger,Deweyvacatedoneof itsLondon
officesbeforetheleasetermexpired,andwasthereforerequiredtopayanearlyterminationor
break-upfee.of approximately$3.3 millionto assumeitsremainingobligationsunderthelease.
DeweythereafterhadnoinvolvementwithorobligationsundertheleaseforitsLondonoffices.
49. InoraroundFebruary2008, Canellasinquiredwiththefirm'sauditor(the
"Auditor")as to theproperaccountingtreatmentof thebreak-upfeeand fixed assetsrelatedto
Dewey'sLondonofficelease. TheAuditoradvisedCanellasthatDeweycouldamortizethefee
The$1.4millionand otheramountsreceivedaspartofthe$8 millionpaymentwere
originallybookedto adisbursementaccount,whichdidnotaffecttheP&L. Effective
December31,2008,Deweyreclassed approximately$1.5millionfrom thedisbursement
account(whichincludedthe$1.4millionloanamount)as afee, whichincreased
Dewey'sincome.
12
3
andfixed assetsoverthe termofthe leaseonlyifcertainconditionsweremet, amongwhich
included,thatDeweyremainedas aguarantoronthelease.
50. InoraroundJuly2008,Dewey'sDirectoroflntemationalFinance,locatedin
London, confirmedtoCanellasthatDeweywasnot,infact, aguarantoronthelease, andthus
couldnotamortizethepaymentforthebreak-upfee orfixed assetsassociatedwiththeleased
officespace. InoraroundJanuary2009,MullikinandCanellasdecidedthatthe$3.3 million
break-upfee, whichhadpreviouslybeenrecordedonDewey'sbooksasanexpensein2008,
shouldnowbereversedsoitcouldbeamortizedoverthelifeof theleaseperiod,whichextended
through2019.
51. MullikinandCanellasalso improperlyamortized$5.2millionoffixed assets
throughthelifeoftheleaseinsteadof properlyexpensingthatamount. ADeweyemployee
falselyrepresentedto ajuniorauditorthatthebreak-upfeepremiumwasinfact aconsultingfee
purportedlyrelatedtothenewtenant'sassumptionof thelease, andthusshouldbeamortized
overthelifeofthelease.
B. Davis andDiCarmineWereAwareofandSupportedtheYearEnd2008
EffortstoInflateDewey'sFinancialStatementsto Meetits CashFlow
Covenants.
52. WhileDefendantsSanders,CanellasandMullikinweretheday-to-dayarchitects
ofDewey'saccountingfraud, theyhadthesupportandapproval of DefendantsDavisand
DiCarmine,andmadelittleefforttohidethedetailsofthefraud from them.
53. In aDecember4,2008 emailexchangeentitled"ITSpend," Sandersventedto
Dewey'sChiefOperatingOfficer,copyingDiCarmineon theemail,aboutthefirm'scashflow
problemsandhisconcernthatsomeoneat Deweyhad approvedtheexecutionofcostly
13
information technology improvements at the firm without his knowledge or approval. In the
course of expressing his anxieties over Dewey being "hit with a few million [ ] worth of bills in
January," Sanders told the COO, "I don't know anything about [the contracts] and I don't want
to cook the books anymore. We need to stop doing that." (emphasis added).
54. Contrary to his professed anxieties about "cooking the books" and the "need to
stop doing that," on December 29, 2008, while in the midst of the mad scramble to meet the
covenants, Sanders boasted to DiCarmine in an email: "We came up with a big one: Reclass the
disbursements."
55. To which DiCannine responded: "You always do in the last hours. That's why
we get the extra 10 or 20% bonus. Tell [Sander's wife], stick with mel We'll buy a ski house
next. Just need to keep the ship afloat [sic] and take care ofthe top and bottom, the middle
can move."
56. Late on December 31, 2008, DiCarmine emailed Sanders: "You certainly
cheered the Chairman [Defendant Davis] up. I could use a dose. "
57. Sanders responded: "/think we made the covenants and I'm shooting for 60%."
Sanders cryptically added: "Don't even ask- you don't want to know."
58. On January 8, 2009, Sanders emailed Davis and DiCarmine summary financials
showing how Dewey would meet the bank covenants for 2008 and estimating the amount of
money it could distribute to partners. The summary financials pointedly contained line items
enumerating certain improper adjustments included in the "Master Plan." For example,
"Adjusted Bank Income (including equitization of Of Counsels)" and "Back-Out Disbursement
W/0 [Write-Off]."
14
59. As a result of these and other improper adjustments, Dewey met the Cash Flow
Covenant by approximately $3 million. Dewey misstated its net profit by at least $36 million in
2008; approximately $31 million of that amount was used to help the firm meet its Cash Flow
Covenant.
60. Sanders, Canellas and Mullikin expressed occasional concern that the Auditor
would detect their fraudulent accounting practices, but they took a certain degree of comfort in
what they viewed to be the ineptitude of the auditors.
61. By spring 2009, the Auditor fired-for reasons unrelated to the audit work- the
partner responsible for the Dewey audit. On June 27, 2009, the former Auditor partner emailed
Sanders his new work contact information. Sanders forwarded the former Auditor partner's new
contact information to Can ell as and added: "I assume you [k]new this butjust in case. Can you
find another clueless auditor for next year?" Canellas responded: "That's the plan. Worked
peJfect this year."
C. Dewey's Financial Struggles Persisted in 2009
62. Dewey's financial situation deteriorated further in 2009. Dewey had to grapple
not only with reduced revenues, but also with the consequences of the fraudulent adjustments it
made, some of which now would require being written off and thus affect its budget in the
current year.
63. In March 2009, Dewey's budget director emailed Sanders and Canellas
PowerPoint slides on Dewey ' s 2009 projected budget for Sanders to present to Dewey's
Executive Committee. The budget director wrote: "Here [sic] the revised presentation. I think
this is how you want it. I have marked the slides you want to show to Steve only but not in your
presentation."
15
64. Oneofthepagesmarked"Steve'scopy"includesalistofaccountingentries
madefor2008,thatincludedmanyofDewey'sfraudulententriesbrokendowninto two
categories,"Adjustments(donotimpact09budget),"including"EquitizationofOfCounsel"
and"Adjustments(impact09budget)"including"CapitalizeLondonWallreversepremium"and
"Reductionindisbursementwrite-offs."ThePowerPointpresentationwasthenforwardedto
DiCarmine.
65. Bymid-2009,acultureof accountingfraudhadtakenrootatDeweyunderthe
Defendants' watch. Forexample,inanemaildatedMay28,2009,bearingthesubjectline
"Confidential- Foryoureyesonly,"CanellassentSandersaschedulecontainingalistof
suggestedcostsavingstoDewey'sbudget,amongwhichincluded,a$7,500,000reduction
entitled"AccountingTricks."
66. FortheyearendedDecember31,2009,Deweymisseditsbudgetedrevenueby
almost$100million,or11%,anditsbudgetedprofitabilitybyover$60million,or20%.
67. In late2009,itbecameclearthatcovenantbreacheswouldagainbeaproblemfor
Dewey,as wouldeffortsto compensateDewey'spartnership.
68. OnNovember10, 2009, SandersemailedDavis,DiCarmine,Dewey'schief
operatingofficer,andCanellaswithanupdateonthefirm'seffortsto collectrevenueinthefinal
monthsof2009.
IsaidattheExecCommitteemeetingthatifwecanreallycollect(with no
adjustments)between$850and$875thenwewill dobetween$14kand
$15kperpoint. (emphasisadded).
4
Eachpartnerat Deweywas assignedpointsto determinetheircompensation.Eachpoint
wasascribed adollarvaluebasedon thefirm'sincomein agivenyear.
16
4
Ifwebring$850Minthedoor(realcollections- noaccounting
adjustmentsincludingconstructivereceiptorreclassingdisbursements)
wecangetreallyaggressiveandpushtheenvelopeto$14kperpoint. If
wereallybringin$875Mthenwecanpushto getto $15kperpoint.Keep
inmindthoughthatattheselevelswewillnothavethecashtopaythe
partnersbyJan31 since$25Mis fakeincome(emphasisadded).
69. OnDecember9, 2009, SandersemailedDavisandDiCarmine:
I'mreallysorryto bethebearerof badnewsbutIhadacollections
meetingtodayandwecan'tmakeourtarget. Therealityiswewill-miss
ournetincomecovenantby$1OOMandcomeinatabout$7kper point.
AtthispointIcan'ttellwhethertheinventoryjustisn'treallythereorour
partnersjustcan'tconvertitbuteitherwayIjustcannotmakeithappen. I
canprobablycomethroughwithenough "adjustments"togetustomiss
thecovenantby$50M-$60Mandgetthepointsto $1Okbutthatpretty
muchwipesoutanypossiblecushionwemayhavehadfornextyear
whichwasslimatbest(emphasisadded).
70. Thatsameday,DiCarmineemailedSanders: "shouldwebringFrank[Canellas]
to lunchtoday? he1nightneedsomereassuring."Sandersresponded: "Idon'tknow. He's
startingto wigalittle. Maybehe'shearingandseeingtoomuch...."
71. Shortlythereafter,atthesametimethattheywereleadingthefirm'sincreasingly
corruptfinancial andaccountingefforts,DavisapprovedDiCarmine's,Sanders'sandCanellas's
receiptof personallinesofcreditfrom Dewey'sbank,backedbyupdatedemployment
agreementsthatguaranteedtheircompensationevenif Deweyshould"enterinto dissolution."
72. Unabletobookenoughfraudulententriestomeetitscovenants,inlate2009,
Deweywasforced to sharesomelimitedinformationwithitsbanksaboutitsfinancial woes,and
persuadeditslenderstorelaxtheCashFlowCovenantfor2009tonetcashflows of$246
million. Dewey,however,stillmadenumerousinappropriateaccountingadjustmentsto satisfy
eventhisreducedamount. Deweyultimatelymadeapproximately$23 millioninadjustments
andmetthecashflow covenantbyapproximately$7million.
17
D. The Defendants' Other Fraudulent Conduct
73. Dewey'sseniormanagement,includingDavis,DiCarmine,and Sanders, was also
involved in effortstobackdateclientchecksto attemptto falselyrecordrevenue.
74. Dewey'sfinancial statementswerepreparedusingtheincometax basisof
accounting,underwhichrevenuemustberecordedwhenreceived,regardlessof whenbilledor
checksmailed.
75. Foryears-end2008and2009,Davis,aschairmanofthefirm, directlyencouraged
hisfellowpartnerswhohadclientswithoutstandingbillstorequestDewey'sclientsto backdate
checksso thattheamountscouldbeusedtobolsterthefirm'sprioryear'sincome.
76. DiCarmineand Sandersknewofand approvedtheseeffortsto backdatechecksat
Dewey.
77. Foryear-end2009,atleastonecheckwas backdatedto December2008.
78. In early2010,inthemonthsleadingup to andduringtheBondOffering,Dewey
continuedtomisstateitsfinancials.
79. Forexample,inNovember2009,Deweylearnedthatitwouldno longerbe
performingworkforamajorcorporateclientthatpaida$5 milliondollarretainer. Theclient
requestedthatDeweyreturn$4.6millionofthe$5millionretainer,whichDewey,at Sanders'
direction, delayeduntilJanuary2010so astonotreduceDewey'sincomeby$4.6millionforthe
year. Insteadofwritingoffthe$4.6millionwhenitwasreturned, Sandersinstructedthedirector
ofrevenuesupportto dribbleitoutbywritingofftheamountoverfive months,throughMay
2010. ThiswouldhavecausedDeweyto overstateitsincomeinitsquarterlycertificationsto its
lenders.
18
II. DEWEY'S$150MILLIONPRIVATEBONDOFFERING
80. Bytheendof2009,Deweyoweditslendersapproximately$206million,with
$118millionduebytheendof2010. Thefirm alsoneeded$240milliontopayitspartners,but
hadonly$119millionincashasofDecember31,2009.
81. Toalleviatetheburdenofitscrushingdebt,inoraroundJanuary2010,Dewey
soughtto raise$125millioninaseniorsecurednotesoffering. InvestmentBankservedasthe
soleplacementagentonthedeal. InvestmentBank'sagreementwithDeweyprovided,in
relevantpart,thatitsrolewas to findpotentialbuyersfor thedebtandthatitwasrelyingsolely
on theinformationprovidedbyDewey.
82. CanellassignedtheengagementletterwithInvestmentBankon behalfofDewey.
83. EachoftheDefendantswasfullyawarethatthefinancialbackboneoftheBond
Offering- Dewey'saudited2008 financialresultsandunaudited2009results-was
contaminatedbythefraudulentaccountingpracticesdescribedherein.
84. InoraroundJanuary2010,DavisandDiCarmineapprovedproceedingwiththe
BondOfferingto beaccompaniedbyanewlineofcredit.
85. In oraroundFebruaryandMarch2010,Dewey'sfinancial staff,including
Sanders, Canellas,andMullikin,compiledfinancial andotherrelevantinfonnationto includein
thePPMthatwasprovidedtoinvestors.
86. DeweyalsoprovidedInvestmentBankwithits2008 auditedfinancial statements
and its 2009compliancecertifications,containingitsunaudited financial statements.
87. OnoraboutMarch 1, 2010, Davisapprovedtheform ofthePPM,and Sanders
sentthePPMto InvestmentBankforonwardtransmissiontoinvestors.
19
88. Defendantssolicitedinvestorsdirectlythroughconferencecalls,PowerPoint
presentations,and meetings. Duringthistime,potentialinvestorssubmittedquestionsto
InvestmentBankbasedontheinformationcontainedinthePPMandDewey'sauditedfinancials.
89. Dewey'sfinancial staff,including, Sanders,CanellasandMullikineachworked
onprovidinganswersto investorquestions,whichweresubmittedto InvestmentBank.
90. OnoraboutMarch8, 2010,Deweyconductedalengthyconferencecallwith
potentialinvestors. Canellas,SandersandDiCarmineattendedtheconferencecall. Aninvestor
Power Pointpresentationcontainingmuchof thesameinformationas containedinthePPM,
includingfinancial statementsummaries,wasprovidedtoinvestorsforthecall. DiCarmine,
y
SandersandCanellas eachreviewedthePower Pointpresentationinadvanceof theconference
call.
91. OnMarch18,2010, inanemailto acorporatepartnerwhoservedas Dewey's
counselfortheBondOffering,andwasamemberofDewey'sexecutivecommittee("Partner
C"),DavisincreasedtheamountoftheBondOfferingfrom$125millionto$150million:
"After you left the office, Joel [Sanders] called and I made an "executive" decision regarding
the amount ofthe PP[Private Placement]. I told him to go for the full $150 mm and to cut
back our use ofthe revolvers. "
92. OnoraboutApril 12,2010, Davis,as chairmanofthefirm andoftheexecutive
committee,ledDewey'sExecutiveCommitteemeetingto authorizeissuingthenotesand
executingtheNPA. SandersandDiCarminealso attendedthismeeting,at whichDewey's
ExecutiveCommitteeapprovedtheBondOfferingbasedonthetennscontainedintheNPA.
20
93. Davis, DiCarrnine, SandersandPartnerCweregivensignatureauthorityon the
NPAbytheexecutivecommittee. OnoraboutApril16,2010,Deweyand theinvestors
executedtheNPAmemorializingtheBondOffering. PartnerCsignedtheNPAonbehalfof
Dewey.
94. TheBondOfferingwasoversubscribedandDeweyraised$150millionfrom
thirteen(13)insurancecompaniesbyissuingseveraltranchesof debtwithmaturitiesranging
fromthreeto tenyears. InterestonthenotespurchasedintheBondOfferingwasduesemi-
annuallyandtheprincipalforthefirsttrancheof debtwasnotdueuntil2013.
A. Material Misrepresentations and Omissions to Investors in the Bond
Offering
95. Asallegedabove,Dewey's2008and2009financial statementswhichwere
providedtoinvestorsas partof thePPM,NPA, andattheMarch8conferencecallwere,
significantlyandmateriallymisstated.
96. Forexample,inadditionto containinginflatedbalancesheetsand income
statements,thePPMprovidedthatDewey's2008"CashFlow"-usingthebanks' definitionfor
theCashFlowCovenant- was$293 million,when,infact, thatfigure was misstatedbyover$30
millionas aresultofDewey'sfraudulentconduct.
97. Asdiscussedindetailbelow,Deweymadeadditionalmaterialmisrepresentations
andomissionsinthePPM, NPA, inresponsesto questionsraisedbyinvestorssentvia
InvestmentBank,andduringaMarch8, 2010investorpresentation(the"Investor
Presentation"). Thesematerialmisrepresentationsandomissionsrelatedto, amongotherthings,
Dewey'sdebt,pensionobligations,andpartnercompensationguarantees.
21
98. TheseitemswerematerialtoinvestorsbecauseDeweyhadno hardassetsto be
usedas collateralorthatDeweycouldliquidate,andtheinvestors' abilitytorecovertheir
investmentwaslargelydependentonDewey'spartnersandtheirabilitytogeneraterevenue.
99. Furthermore,anycostsunrelatedto,orinexcessof,incomecouldbeparticularly
damagingtoDewey'sstatedabilitytopaytheinterestandprincipalonthebonds.
1. MisrepresentationsandOmissionsinthePPM
a. DeweyFailedtoAccuratelyDiscloseitsDebt.
100. ThePPMprovidedascheduleofDewey'spurportedexistingdebt,but,as
discussedabove,thescheduledidnotdisclosethe$1.4millionthatDeweyowedtoPartnerAfor
advancinghispersonalfunds inlieuof themoneyowedbyhisclient.
101. UndiscloseddebtwasmaterialtoinvestorspecauseDeweyusedtheproceedsof
theBondOfferingtopayoffitscurrentdebtandwasnotallowedtoincuradditionaldebt.
b. ThePPMMisstatedDewey'sPracticeofWrite-offsandRecording
Disbursements.
102. DeweyrepresentedtoinvestorsinthePPMthat"[t]hebillingvalueforfirm
servicesonclientmattersisrecordedas clientdisbursementsandreflected as areductionofthe
company'sexpenseswhenchargedto clients....Clientdisbursementreceivablesarewritten-off
whendeemeduncollectible."
103. Tothecontrary, asdiscussedabove,Deweyfailed to disclosethatitdid not
follow thisandotherpolicies.TomeetitsCashFlowCovenants,thefirm addedbackontoits
booksdisbursementsthatithadpreviouslywrittenoff. Initsdescriptionofitsbillingand
disbursements,Deweyalso failed to disclosethatDeweyreclassifiedcertaindisbursementsas
fees to meetitsCashFlowCovenant.
22
c. MisstatementsConcerningPaymentsto FormerPartners
104. PotentialinvestorsintheBondOfferingexpressedconcernaboutDewey's
unfundedpensionpaymentsto formerpartners. Yet,as discussedbelow,Deweyfailed to
disclosesignificantissuesrelatingthereto.
105. Byearly2010,Deweyhadceasedmakingsomeofitspensionpaymentsto former
DeweyBallantinepartnersbecauseitdidnothavesufficientcashto paytheseformerpartners
andmeetitsothercommitments. Thiswasnotdisclosedtoinvestors.
106. Moreover,someof theseformerpartnersthreatenedlitigationagainstDeweyto
enforcetheamountsowedtothemunderthepartnershipagreement. Thistoowasnotdisclosed
toinvestors. Instead,investorsweretoldthattherewereno threatenedlawsuitsagainstDewey.
d. GuaranteedContractsandOtherPartners'Compensation
107. Deweyhadnumerousguaranteedcontractswithselectpartners,thescopeof
whichwasnotfullydisclosedto investors.
108. Foryear-end2009,Deweyhadenteredintoat leastsixteen(16) guaranteed
contractswithcertainpartnersthatprovidedforguaranteedcompensationplusadditional
amountstobeputintotrusts-ifthepartnerremainedatDeweyforthedurationofthe
contract-requiringminimumannualbaseandbonuspaymentsof over$33 million. ThePPM
didnotdiscloseto investorstheexistenceofthesecompensationguarantees.
109. DeweytoldinvestorsinthePPMthatits"partnersarepaiddistributionpayments
of earningsinexcessof drawsinperiodicinstallments,inamountsdeemedprudentin
relationshipto thefirm'soverallcashflow needsto bringthemto theirshareofearningsforthe
year."Thisstatementwasmateriallymisleading.Deweydidnotdisclosethatselectpartnershad
23
guaranteedcompensationagreementsunderwhichtheywerepaidregardlessofDewey'soverall
cashflowneedsornetincome.
110. Moreover,Dewey'sauditedfinancial statementscontainanotedisclosing
approximately$7millionincashpaymentstotwo Deweypartnersaspartoflong-term
employmentagreementsenteredintoin2007,butsimilarlyfailedto disclosetheexistenceof the
approximately$26millioninguaranteedcompensationagreementswithnumerousotherpartners
atthefirm andtheiradverseeffectonDewey'snetprofits.
2. MisrepresentationsandOmissionsduringtheInvestorPresentationandin
ResponsetoAdditionalQuestionsbyInvestors
111. OnMarch8,2010,Deweyconductedaconferencecallwithpotentialinvestors,
whichDiCarmine,Sanders,andCanellasattended. ThisInvestorPresentationincludeda
PowerPointandrelatedprintedmaterials,whichwereprovidedtopotentialinvestorsand
containedmuchofthesameinformationas thePPM,includingfraudulentfinancialstatement
summaries.
112. Aftertheconferencecall,potentialinvestorssubmittedfollow-upquestionsto
InvestmentBankto forwardtoDewey.Manyofthesequestionspertainedtotheveryissuesthat
Deweyhadliedaboutorconcealedupto thispoint. Forexample,investorsaskedquestions
aboutunfundedpensionobligations,potentiallitigation,write-offsand collectabilityof
receivables,andpartners' compensation.
113. Yet,initsresponses,Deweyagainfailed to comecleananddisclosethat: (a)it
had stoppedpayingitspensionobligationsandformerpartnershad threatenedto filelawsuits
againstDewey; (b)itdidnotfollow itscollectionspoliciesandreversedwrite-offstomeetits
24
covenants; and(c)thelock-upswithkeypartnerscontainedguaranteesthatwereindependentof
thefinn'sincomeorcashflows.
114. Sanders,Canellas,andMullikineachworkedoncompilinganswerstothese
questions.
3. Misrepresentations and Omissions in the NPA
115. TheNPA,whichgovernedthetermsof investmentintheBondOffering,also
containedmaterialmisrepresentationsandomissions.
116. TheNPAcontainedascheduleofDewey'sexistingdebt,whichdisclosed
interestrateswapsas lowas$27,471 butfailed to mentionthe$1.4millionowedto PartnerA.
117. Section5.3 oftheNPAdisclosedtoinvestorsthattheNPA, PPM,andDewey's
financialstatements,amongotherofferingdocuments,"takenas awholedo notcontainany
untruestatementsof materialfactoromitto stateanymaterialfactnecessarytomakethe
statementsthereinnotmisleadinginlightof thecircumstancesunderwhichtheyweremade."
Asdiscussedabove,Dewey'sfinancial statementsandofferingdocumentscontainedfalse and
materiallymisleadinginformation.
118. Section5.5 oftheNPAprovides,inrelevantpart,that"[a ]11 ofsaidfinancial
statements(includingin each casetherelatedschedulesandnotes)fairlypresentinallmaterial
respectsthefinancial positionoftheCompanyand theRelatedEntities...andtheresultsof
theiroperationsand cashflows." Asdiscussed abovethiswasfalse andmateriallymisleading.
119. Section5.8 oftheNPAprovides, inrelevantpart,that"[t]hereareno actions,
suits,investigationsorproceedingspendingor, to theknowledgeoftheCompany, threatened
againstoraffectingtheCompanyoranyRelatedEntityoranypropertyoftheCompanyor
25
RelatedEntity..." As discussedabove, thiswas falseandmateriallymisleadingbecauseseveral
formerDeweyBallantinepartnershad,infact, threatenedtoinitiatelitigationagainstDewey
becausethefirmwasdelinquentinitspensionpayments,whichwereowedto themunderthe
DeweyBallantinepartnershipagreement.
120. Section9.6oftheNPAprovides,inrelevantpart,that"[t]hecompanywill, and
willcauseeachRelatedEntityto,maintainproperbooksof recordandaccountnecessaryto
preparefinancial statementsonataxbasis." Thisrepresentationwasmateriallyfalseand
misleadingbecauseDeweydidnotintendtomaintainproperbooksandrecordsduringtheBond
Offering,whichwasevidentfromthefactthatduringtheBondOffering,Deweywasimproperly
writingoffoverafivemonthperiod$4.6millioninretainerfees ithadreturnedto amajor
corporateclient.
121. Section10.6oftheNPAprovided,insubstance,thatDeweywillnotincur,
assumeorsufferto existanydebt,otherthancertainenumeratedexceptions. Thisrepresentation
wasrenderedfalse andmateriallymisleadingbecauseDeweydidnotdisclosethe$1.4million
loanthatitcurrentlyowedtoPartnerA.
III. DEWEY'S COLLAPSE
122. DespiteobtainingfinancingthroughtheBondOffering, Dewey'sfinancial
situationcontinuedto deterioratein2010and2011.
123. As allegedherein,Deweycontinuedto misstateitsfinancials andthusprovided
itsinvestorswithfalsequarterlycertifications.
124. Bytheendof2011,thefirm'sequityhad plummeted from $173 millionattheend
of2007to $63 million.
26
125. OnMay28, 2012,Deweyvoluntarilyfiled forprotectionunderChapter11 ofthe
BanktuptcyCodeintheU.S. BankruptcyCourtfor theSouthernDistrictofNewYork.
FIRST CLAIM FOR RELIEF
Violations of Section 17(a) of the Securities Act
(Davis, DiCarmine, Sanders, Canellas, and Mullikin)
126. TheCommissionreallegesandincorporatesbyreferenceeachand every
allegationcontainedinparagraphs 1through125.
127. Eachof Davis,DiCarmine,Sanders,Canellas,andMullikin,directlyorindirectly,
singlyorinconcertintheofferorsaleof securities,byuseofthemeansorinstrumentsof
transportationorcommunicationininterstatecommerce,orbytheuseofthemails,withscienter
have:
(a) employeddevices, schemesorartificesto defraud;
(b) obtainedmoneyorpropertybymeansof untruestatementsof materialfact orby
omittingto statematerialfacts necessaryinordertomakethestatementsmade,inlightofthe
circumstancesunderwhichtheyweremade,notmisleading;or
(c) engagedinacts, transactions,practices and coursesofbusiness,whichoperatedor
wouldhaveoperatedas afraud ordeceituponpurchasersofsecurities.
128. Theseactswerematerialbecause, amongotherthings,themisrepresentedor
omittedfacts wereimportantto investorsintheBond Offering.
129. Byreasonof theforegoing, Davis,DiCannine,Sanders,Canellas,andMullikin
directlyorindirectly,violated,andunlessenjoinedwill againviolate, Section 17(a) ofthe
SecuritiesAct[15 U.S.C. 77q(a)].
27
SECONDCLAIMFORRELIEF
ViolationsofSection lO(b)oftheExchangeActandRulelOb-S Thereunder
(Davis)
130. TheCommissionreallegesand incorporatesbyreferenceeachandevery
allegationcontainedinparagraphs 1through129.
131. Davis,inconnectionwiththepurchaseorsaleofsecurities,directlyorindirectly,
singlyorinconcert,bytheuseofthemeansorinstrumentalitiesof interstatecommerce,orof the
mails,orofthefacilitiesofanationalsecuritiesexchange,withscienter,has:
(a) employeddevices,schemesorartificesto defraud;
(b) madeuntruestatementsofmaterialfactoromittedto statematerialfacts
necessaryinordertomakethestatementsmade,notmisleading;or
(c) engagedinacts,transactions,practicesandcoursesofbusiness,whichoperatedas
afraud ordeceituponanyperson.
132. Themisstatementsand omissionsoffact detailedabovewerematerial.
133. Byreasonoftheforegoing,Davis,directlyorindirectly,violated, andunless
enjoinedwill againviolate, Section1 O(b) oftheExchangeAct[15 U.S.C. 78j(b)] andRule
1 Ob-5thereunder[17 C.P.R. 240.1Ob-5].
28
THIRDCLAIMFORRELIEF
AidingandAbettingDavis'sandDewey'sViolationsofSection1O(b) ofthe
ExchangeActandRule1Ob-5 Thereunder
(DiCarmine,Sanders,Canellas,andMullikin)
134. TheCommissionrealleges and incorporatesbyreferenceeachand every
allegationcontainedinparagraphs 1through 133.
135. Assetforth above,bothDavisandDeweycommittedprimaryviolationsof
Section10(b)oftheExchangeActandRule 10b-5thereunder,through,amongotheracts,the
provisionof false andmisleadingfinancialstatementscontainedinthePPM,NPA, Investor
Presentation,andotherwiseinconnectionwithmisrepresentationsand omissionsmadein
connectionwiththeactsdescribedabove.
136. DiCarmine,Sanders,Canellas,andMullikinknowinglyprovidedsubstantial
assistancetoDeweyandDavisinthecommissionof theseviolations.
137. Thus,byreasonoftheactivitiesdescribed,DiCannine,Sanders,Canellas,and
Mullikin,byuseofthemeansorinstrumentalitiesofinterstatecommerce,orofthemails,with
scienter,aidedand abettedDewey'sand Davis'sviolationsofSection10(b)oftheExchangeAct
[15 U.S.C. 78j(b)] and Rule 1 Ob-5 thereunder[17 C.F.R. 240.1Ob-5].
PRAYERFORRELIEF
WHEREFORE,theCommissionrespectfullyrequeststhatthisCourtissuea
FinalJudgment:
I.
Permanentlyrestrainingand enjoining:
29
(a)defendantsDavis,DiCarmine,Sanders,Canellas,andMullikin,andtheiragents,
servants,employeesandattorneys,andallpersonsinactiveconcertorparticipation
withthemwhoreceiveactualnoticeof theinjunctionbypersonalserviceor
otherwise,fromviolatingSection17(a)oftheSecuritiesAct[15 U.S.C. 77q(a)];
(b)defendantsDavis,DiCarmine,Sanders,Canellas,andMullikin,andtheiragents,
servants,employeesandattorneys,andallpersonsinactiveconcertorparticipation
withthemwhoreceiveactualnoticeof theinjunctionbypersonalserviceor
otherwise,fromviolatingSection10(b)oftheExchangeAct[15 U.S.C. 78j(b)] and
Rule10b-5thereunder[17C.F.R. 240.10b-5]; and
(c)pursuantto Section21(d)(2)oftheExchangeAct[15 U.S.C. 78u(d)(2)]bar
defendantsDavis,DiCarmine,andSandersfromservingasanofficerordirectorof
anypubliccompany.
II.
OrderingDavis,DiCarmine,Sanders,Canellas,andMullikinto disgorgeanyandall ill-
gottengainstheyreceivedasaresultof theirviolationsof thefederal securitieslaws,plus
prejudgmentinterestthereon;
III.
OrderingDavis,DiCarmine,Sanders,Canellas,andMullikintopaycivilmoneypenalties
pursuantto Section21(d)(3)of theExchangeAct[15 U.S.C. 78u(d)(3)] forviolationsofthe
federal securitieslaws;and
30
IV.
Grantingsuchotherandfurtherreliefas theCourtmaydeemjustandproper.
Dated: NewYork,NewYork
March6,2014
B y ~
AndrewM. Calamari
SECURITIESANDEXCHANGECOMMISSION
RegionalDirector
HowardA. Fischer, SeniorTrialCounsel
NewYorkRegionalOffice
200VeseyStreet,Suite400
NewYork,NewYork10281-1022
(212)336-0589(Fischer)
Email: FischerH@SEC.gov
OfCounsel:
SanjayWadhwa(WadhwaS@sec.gov)
MichaelJ. Osnato(OsnatoM@sec.gov)
WilliamFinkel(FinkelW@sec.gov)
JosephP. Ceglio(CeglioJ@sec.gov)
31
APPENDIXA
Defendants' Compensation
2009 2010 2011
Canelias $435,000
(including
$100,000bonus)
$445,000
(including
$210,000bonus)
$616,000
(including
$265,000bonus)
Davis $370,000 $3,000,000 $1,320,000
DiCarmine $2.5mil.
(including$1.5
mil.bonus}
$2.1 mil.
(including$1.1
mil.bonus)
$2.7mil.
(including$1.7
mil.bonus)
Sanders $2.4mil.
(including$1.5
mil. bonus)
$2.0mil.
(including$1.1
mil. bonus)
$2.6mil.
(including$1.7
mil.bonus)
Mullikin $218,000
(including
$20,000bonus)
$213,000
(including
$15,000bonus)
$113,000
32