* Ex-executives charged with covering up law firm's failing health
* Four plead not guilty to criminal charges, SEC sues
NEW YORK, March 6 (Reuters) - Less than a month after writing that he did not want to "cook the books anymore," but facing a deadline to show lenders that Dewey & LeBoeuf had enough cash, the law firm's top finance executive emailed a colleague that he "came up with a big one," according to investigators.
"You always do in the last hours," the law firm's executive director Stephen DiCarmine replied to the Dec. 29, 2008 email from chief financial officer Joel Sanders, according to investigators. "That's why we get the extra 10 or 20% bonus."
The communications and other evidence are the basis of criminal and civil charges announced in New York on Thursday in which the law firm's former leaders are accused of accounting gimmicks and fraud to cheat banks and investors in a failed attempt to keep their prestigious law firm alive.
Dewey & LeBoeuf once had as many as 1,400 lawyers, before going bankrupt in May 2012. Its collapse is the largest of a U.S. law firm, costing thousands of jobs and hundreds of millions of dollars of estimated losses for banks, lenders and investors.
The 106-count indictment from Manhattan District Attorney Cyrus Vance Jr charges former Dewey & LeBoeuf chairman Steven Davis, 60, DiCarmine, 57, and Sanders, 55, with several dozen felonies each, including grand larceny, securities fraud and falsifying business records.
Former client relations manager Zachary Warren, 29, was also criminally charged with helping to start the fraud and cover up its early stages.
All four men pleaded not guilty on Thursday in Manhattan criminal court, which they entered in handcuffs. Davis was carrying a paperback book while DiCarmine and Sanders, who live in Florida, appeared to have suntans.
Davis lives in London, England, and agreed to travel restrictions. Bail was set on Thursday at $2 million for Davis, DiCarmine and Sanders, and $200,000 for Warren.
Manhattan Assistant District Attorney Peirce Moser told State Supreme Court Justice Robert Stolz that the men "acted out of a shocking mix of greed and hubris."
Separately, the U.S. Securities and Exchange Commission filed a civil fraud lawsuit against five former Dewey & LeBoeuf officials: Davis, DiCarmine, Sanders, finance director Frank Canellas, 34, and controller Thomas Mullikin, 43, for cheating 13 insurers in a $150 million bond offering in 2010.
At a press conference, Vance said Dewey's finance department ran a "blatant accounting fraud and deceit" at the direction of the firm's top management, and that officials gave false information to the law firm's auditor, Ernst & Young. Ernst & Young spokeswoman Amy Call Well declined to comment.
Vance said this went on even as Davis was authorizing "generous" salaries and bonuses for top lieutenants, while many other law firm employees were seeing their pay go down.
Seven people, whose names have not been publicly disclosed, have already pleaded guilty in the case, and the investigation is continuing, Vance said.
DEFENSE LAWYERS SEE SCAPEGOATING
Dewey & LeBoeuf was formed in a 2007 merger of two New York law firms, Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae.
Prosecutors said the evidence shows attempts to head off the firm's possible collapse, as it found itself unable to cut costs fast enough to combat a plunge in revenue and mounting debt following the financial crisis.
Many of the problems arose from the big pay packages that had been guaranteed to dozens of partners, to a degree atypical in the legal industry.
These payouts often went to partners who did not produce enough revenue to justify them, spurring resentment and eventually mass defections from partners who were missing out.
The "Dewey" in the firm's name was Thomas Dewey, the former New York governor and Republican presidential candidate.
Elkan Abramowitz, a lawyer for Davis, said his client's actions as chairman "were taken in good faith in an effort to make the firm a success."
DiCarmine's and Sanders' respective lawyers, Austin Campriello and Edward Little, said the charges reflect a bid by prosecutors to find a "scapegoat" for the law firm's collapse.
Warren's lawyer, Steve Hyman, declined to comment.
Lawyers for Canellas and Mullikin did not immediately respond to requests for comment.
'WE NEED TO HIDE THIS'
Investigators said the fraud began in late 2008, when Dewey executives began misrepresenting the law firm's compliance with cash flow and other loan covenants.
Prosecutors accused Davis, DiCarmine and Sanders of covering their tracks by misclassifying revenue and expenses to make Dewey's books look better, and trying to backdate checks.
The men were also accused by Vance of having stolen nearly $200 million from 13 insurers and two financial institutions.
Evidence included a note from Sanders to two employees after he had learned in 2011 that Dewey did not write off millions of dollars of a troubled client's receivables.
"We need to hide this actually writing it off," Sanders allegedly wrote, according to Vance.
The SEC case focuses on the regulator's allegations that investors were misled about Dewey's finances in marketing materials for the 2010 bond offering, which it said was conducted "to alleviate the burden of its crushing debt."
Among its evidence was a schedule of proposed cost cuts that was labeled "Accounting Tricks," and DiCarmine's hopes for a larger bonus.
"We'll buy a ski house next. Just need to keep the ship a float," DiCarmine wrote to Sanders, according to the SEC.
Dewey's lenders have included JPMorgan Chase & Co, Citigroup Inc's private banking unit, Bank of America Corp and HSBC Holdings Plc.
"Investors were led to believe they were purchasing bonds issued by a prestigious law firm that had weathered the financial crisis and was poised for growth," SEC enforcement chief Andrew Ceresney said.
He called the bond sale "a desperate grasp for cash."
The SEC is seeking civil fines and to recoup illegal gains.
The cases are New York v. Davis et al, New York State Supreme Court, New York County, and SEC v. Davis et al, U.S. District Court, Southern District of New York, No. 14-1528.