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(Adds comment from former chairman's lawyer)
By Karen Freifeld
NEW YORK, March 27 (Reuters) - Dewey & LeBoeuf's ex-financedirector pleaded guilty to grand larceny last month and admittedhe knew false financial statements were being provided to thefirm's lenders, according to court documents unsealed onThursday.
Francis Canellas, 34, faces anywhere between no jail timeand five to 15 years, the documents showed, for his role in theaccounting fraud at Dewey & LeBoeuf, which became the largestU.S. law firm collapse when it went bankrupt in May 2012.
He is one of seven firm employees who have pleaded guilty tothe fraud, according to prosecutors, and has agreed to cooperatein the case against the firm's management.
Dewey & LeBoeuf's former chairman Steven Davis, 60,executive director Stephen DiCarmine, 57, chief financialofficer Joel Sanders, 55, and client relations manager ZacharyWarren, 29, were all criminally charged March 6 for the allegeduse of accounting gimmicks and fraud to cheat banks andinvestors in a failed attempt to keep the law firm alive.
"We all knew that adjustments were being made to deceive ourlenders and others," Canellas said in a five-page statement unsealed on Thursday by Manhattan State Supreme Court JusticeMichael Obus.
Dewey's lenders included JPMorgan Chase & Co,Citigroup Inc's private banking unit, Bank of America Corp and HSBC Holdings Plc.
Canellas said the "inappropriate" adjustments began in late2008 after Sanders told him that DiCarmine and Davis said theyneeded to meet cash flow covenants in the firm's creditagreements. Over the years, he said, he instructed others tomake the adjustments.
Canellas also said he, Sanders and others providedinformation "that we knew to be false" to investors in a $150million bond offering in 2010, and that he participated inefforts to keep the firm's auditors, Ernst & Young, in the dark.
Lawyers for the executives charged in the case played downthe potential impact of Canellas's statement. All of theexecutives have pleaded not guilty.
Attorney Elkan Abramowitz, who represents Davis, said thestatement does not contain "any direct evidence of wrongdoingagainst Davis because there isn't any."
Austin Campriello, the attorney who represents DiCarmine,called Canellas's statement a "very thin reed on which to builda case against Steve DiCarmine." He said the case against hisclient "will crumble."
New York attorney Edward Little, who represents Sanders,said he was not surprised "that a cooperating witness who hasadmitted to a crime is trying to implicate others and blamethem, especially when he got such a sweet deal."
Canellas said in the statement that he interacted withSanders on a daily basis and discussed their activities.
Lawyers for Warren and Canellas could not be immediately reached for comment.
Agreements for the six other employees who have pleadedguilty are expected to be unsealed on Friday.
A separate civil case was filed by the U.S. Securities andExchange Commission over the bond offering.
The case is New York v Davis et al, New York State SupremeCourt, New York County.
(Reporting By Karen Freifeld; Editing by Diane Craft)
