Paragraph 3 reads: "Cauley, 41, said he "ran into financial trouble" in 2007 while experiencing "a severe depressive episode," when he abused escrow monies from a settlement in the Southern District of New York. He told the court he had been taking medication for depression for the last six years but 'I don't offer that as an excuse'."
Lawyer Admits Dipping Into Escrow Funds for $9.3 MillionMark Hamblett
New York Law Journal
June 2, 2009
Securities class action plaintiffs' lawyer Steven Eugene Cauley of Arkansas had no excuse for taking $9.3 million from a settlement escrow account and spending it on overhead at his Little Rock law firm and some shaky investments.
"I always made a good deal of money in my law practice and, knowing that I had additional monies coming in, I took a short cut," Mr. Cauley on Monday told Southern District Judge Paul A. Crotty as he pleaded guilty to wire fraud and criminal contempt.
Cauley, 41, said he "ran into financial trouble" in 2007 while experiencing "a severe depressive episode," when he abused escrow monies from a settlement in the Southern District of New York. He told the court he had been taking medication for depression for the last six years but "I don't offer that as an excuse."
His former firm, Cauley Bowman Carney & Williams of Little Rock, was co-lead plaintiffs counsel in a New York class action against insurance-services firm Bisys Group Inc., which settled the case for $65.8 million in 2007.
Southern District of New York Judge Jed S. Rakoff approved the settlement on Aug. 20, 2007, and directed the settlement monies be deposited in an escrow account at Cauley's firm.
On Nov. 26, 2008, Rakoff instructed that the money be transferred to a settlement administrator.
Cauley wired $36.7 million to the administrator between December 2008 and February 2009, but he still owed $9.3 million when, in April, Rakoff instructed that representatives from the parties appear in his courtroom on April 20.
Defense attorney John Wesley Hall of Little Rock, who represents Cauley, said after Monday's guilty plea that things moved fast at the April 20 hearing.
"The judge said, 'Well, when can we expect the money?'" Hall said. The judge was told it would take between 90 and 120 days.
But when Judge Rakoff asked where the money was, the attorney said he could not respond without violating the privilege against self-incrimination.
Hall said the judge had anticipated that answer and had invited prosecutors to the hearing, adding, "I am delighted that they are here."
Hall and his client then left the hearing, met with prosecutors and quickly reached a plea deal.
"We spilled our guts that very day," said Hall.
Assistant U.S. Attorney William J. Stellmach told the court Monday that the criminal contempt charges were based on Cauley's refusal to comply with Aug. 20, 2007, and Nov. 28, 2008, court orders.
Stellmach said Cauley was contacted by one of his former partners about the discrepancy in the settlement monies and said Cauley responded he could not reach the money because it was invested in Treasury bills that had not yet matured.
"In fact, there had been no purchase of T-bills," Stellmach said.
Cauley, a graduate of Vanderbilt University Law School in Nashville, has already surrendered his law license. The surrender was accepted by the Arkansas Supreme Court on May 28.
Cauley was named one of The National Law Journal 's "Top 40 Lawyers under 40" in 2005, with the newspaper noting that he had won a $41 million settlement from NewPower Holdings in 2004 and an earlier $115 million settlement in the shareholder fraud case against Lernout & Hauspie Speech Products.
The wire fraud charge against Cauley carries a maximum of 10 years in prison and a sentence for criminal contempt is at the discretion of the judge. But Judge Crotty said Monday that Cauley faces a U.S. Sentencing Guidelines range of between 6 1/2 years and eight years and one month in prison when he is sentenced Sept. 10. He has also agreed to pay $9.3 million in restitution.
When Crotty asked Cauley whether he thought the range was fair, the defendant chuckled ruefully.
"That's where we've had some sticking points, but I believe I have to say 'yes,'" said Cauley, who remains free on a $5 million bond.