UPDATE 3: ‘Mostly It Was Pride,’ Gene Cauley Tells Judge

NEW YORK – Former Little Rock lawyer Gene Cauley, in the hearing at which he was sentenced to more than seven years in federal prison, said he misappropriated client funds rather than suffer the embarrassment of a business failure.

Cauley, who pleaded guilty June 1 to wire fraud and criminal contempt of court in the theft of $9.3 million from a client trust account, didn’t dispute Assistant U.S. Attorney William John Stellmach’s statement that he had treated a settlement escrow account “like a personal bank account.”

But when he addressed U.S. District Judge Paul A. Crotty, Cauley did dispute Stellmach’s assertion that Cauley had been motivated by greed.

“I can’t explain why this happened. I agree this did not have to happen. I have to disagree that the motive was greed,” Cauley told Judge Crotty of the Southern District of New York.

The judge asked him to explain the theft since “you knew it was wrong.”

“I am here to take full responsibility,” Cauley replied, his voice choking. “I’m not here to whitewash the truth. Mostly it was pride. I had built several businesses myself and I had a cash problem.

“I spent my whole life getting out of jams. I did it rather than laying people off and experiencing the embarrassment of failure. Instead I’ve caused embarrassment to everyone close to me.”

Cauley, 41, was sentenced Monday afternoon to 86 months in federal prison for wire fraud and a concurrent sentence of 48 months for contempt of court. Cauley is to surrender to the U.S. Marshals Service on Jan. 25, and he has asked to serve his time at the Federal Correctional Institution at Texarkana, Texas.

Cauley appeared Monday in Crotty’s courtroom in a federal courthouse near the southern tip of Manhattan. He was prosecuted in New York because that’s where investors in a company called the Bisys Group filed their federal class-action complaint. Cauley had been entrusted with the $65 million settlement in that case but was unable to come up with the full amount when it came time to distribute the settlement to the plaintiffs.

Cauley’s Little Rock defense attorney, John Wesley Hall, had filed paperwork before the hearing requesting no prison time for his client, who has volunteered to pay full restitution and has already paid $500,000 of the missing $9.3 million.

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 when this happens with a trust account, and my client has paid 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.

He also questioned whether Cauley had taken full responsibility for his crimes.

“I was under the impression that that restitution was going to be coming forth promptly. This has not happened,” the judge said. “Instead we got a request for no prison sentence, which I think is a bold and brazen request and which called into question Mr. Cauley’s level of responsibility.”

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 had even attempted to garnish the fees that Cauley had paid Hall for his defense work.

Cauley was accompanied to the hearing by a woman identified as his fiancée, Kathy 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.

Cauley and Rooney both declined to comment to ArkansasBusiness.com.

Rooney did not testify, but Smith acted as a character witness. He told Crotty that he and Cauley had been friends for four years and that he had run the nonprofit foundation for two years.

Smith enumerated various causes to which Cauley had donated time and money – Christian schools, rescue dogs, foster students and job workshops for deaf students. He showed the judge a framed photo of deaf students thanking Cauley for his work on their behalf.

“Mr. Cauley, despite his faults, spent a lot of time giving to the less fortunate than him.” Smith said.

(Tim Persinko is a freelance journalist working in New York.)

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