NEW YORK – Federal prosecutors told a New York court that former Little Rock lawyer Gene Cauley’s multimillion-dollar theft from a settlement fund was not his first misappropriation of client funds, but U.S. District Judge Paul A. Crotty ignored those allegations last week when he sentenced Cauley to more than seven years in prison.
A sentencing memorandum that remained under seal last week in the U.S. District Court for the Southern District of New York contained the allegation of other breaches of fiduciary conduct. At the sentencing hearing at the federal courthouse in Manhattan, defense attorney John Wesley Hall asked Crotty to stick with the crimes for which Cauley was charged and to which he pleaded guilty.
“I would request the court not to consider what the government put at page 2 of its submission to the court that came in last week – it refers to other possible occurrences – because they are not charged and have not been submitted to a grand jury,” Hall, of Little Rock, said at the hearing.
Any information that was included in the prosecution’s memorandum was presumably uncovered by a subpoena by a New York grand jury, but Cauley didn’t wait for a grand jury to indict him. Instead, he waived indictment and pleaded guilty June 1 to wire fraud and contempt of court for stealing $9.3 million from a $65.8 million settlement fund set up in a New York class-action securities case against the Bisys Group.
“The government suggests in its submission that this misappropriation is not Mr. Cauley’s first. It is only the first time he was caught,” Judge Crotty said before sentencing Cauley to 86 months for wire fraud and 48 concurrent months for contempt of court. “As I have already indicated, I am not going to consider those allegations because I believe that I ought to confine myself to what happened here.”
Neither the presentencing report on Cauley, which was prepared as is routine by the U.S. Probation & Pretrial Services System, nor the prosecution’s sentencing memorandum was available to the public last week. However, multiple references to information in those documents were made during the sentencing hearing, shedding some new light on Cauley’s crimes.
For instance, Assistant U.S. Attorney William J. Stellmach said Cauley “from virtually the beginning of the opening of that escrow account” in November 2006 “treated it like his personal checking account, taking out money as and when he needed it.”
Stellmach said the theft continued into 2009, but Cauley said he stopped about February 2008. “So we are talking about 14 months. It wasn’t several years.”
Crotty, however, didn’t seem to make much distinction, saying that either way it was “an extended period of time during which this behavior took place.” Crotty seemed more interested in the fact that Cauley took the money even though his law firm was entitled to about half of the $19 million in attorneys fees that came out of the $65.8 million Bisys settlement.
“I don’t have the exact figure, but the bottom line was he had legitimate income in seven figures coming from this case alone, let alone the rest of his practice, and it wasn’t enough,” Stellmach told the court.
Cauley disputed Stellmach’s contention that his primary motivation had been greed. Crotty then asked him to explain what else it could have been.
“You were living a pretty large lifestyle down in Little Rock and you seemed to enjoy it,” the judge said. “What could possibly justify it? Because you knew it was wrong right from the start.”
To that Cauley said, “I think mostly it was pride, if you want to know the truth, your Honor.
“I had built several businesses. I went through a cash flow crisis. My entire life had been a pattern of excessive performance, being able to get myself out of jams. And rather than swallow my pride and laying off a bunch of people and the embarrassment that would cause me to admit failure, this is what I did.”
‘Bold and Brazen’
Cauley was accompanied to the hearing by a woman identified as his fiancée, Kathleen Rooney, and by Sylvester Smith of Little Rock, who headed the Gene Cauley Foundation. Before the hearing, Cauley stood outside the courtroom with Rooney, laughing and telling jokes. He was wearing a brown checked jacket and red-framed glasses.
Defense attorney Hall had filed paperwork before the hearing requesting no prison time for his client, who volunteered to pay full restitution and has already paid $500,000 of the missing $9.3 million. Hall agreed, however, with the presentencing report’s calculation of the sentencing guideline of 78 to 97 months, and Cauley himself never asked for a lenient sentence.
“I think anything I say, your Honor, would be viewed as self-serving and not credible. I will say that it would be hard for you to fashion a sentence that wouldn’t harm innocent third parties,” Cauley said.
Hall noted that Cauley promptly surrendered his law license after the theft was discovered in April, and he told the judge on Monday that the crimes would ultimately cost Cauley about $40 million because of lawsuits from his creditors and lost income.
“It is literally the death penalty for lawyers in my state and any other state these days when this happens with a trust account. That has cost him dearly,” Hall said.
But the judge asked Hall if he was seriously asking for so lenient a punishment.
“Have you ever had someone steal $9 million and not go to jail?” Crotty asked.
Even after hearing Cauley’s personal statement and supporting testimony from Smith, who enumerated various causes – Christian schools, rescue dogs, deaf students – to which Cauley had donated time and money, Crotty questioned whether Cauley had sincerely accepted responsibility for this crime.
“I was under the impression that that restitution was going to be made on a rather prompt basis, but it hasn’t been. Instead, we have a suggestion that he be given a sentence without imprisonment, which I think is bold and brazen, in [that] it fails to recognize the seriousness of the crime. Actually, it calls into question Mr. Cauley’s acceptance of responsibility for which he received a three-level reduction in the calculation of the offense level” for sentencing purposes.
Crotty handed down a sentence on the wire fraud charge that was near the middle of the guideline range – 86 months. The 48-month sentence for contempt of court will be served at the same time, and his prison time will be followed with three years of supervised release.
Crotty did not assess a fine against Cauley, and he entered an order giving Cauley one year to come up with the remaining $8.8 million in restitution. A year, Hall told the judge, is “the best we can hope for,” and he complained that some of Cauley’s creditors were “circling … like vultures” and had even attempted to garnish Hall’s trust account.
(Tim Persinko is a freelance journalist working in New York.)