Steven Eugene "Gene" Cauley, who surrendered his Arkansas law license last month, waived indictment (PDF) and pleaded guilty Monday afternoon in a Manhattan federal court to wire fraud and criminal contempt of court for misappropriating $9.3 million in client funds.
His defense attorney, John Wesley Hall Jr. of Little Rock, told ArkansasBusiness.com that Cauley was given a week to post $5 million bail (PDF) – $3 million of it in property and a $2 million personal guarantee.
The property pledged cannot have been acquired by Cauley using money he received in the August 2007 settlement of a class-action securities case against a company called the Bisys Group. Cauley, as escrow agent and sole signatory of the account at Centennial Bank of Little Rock, misappropriated money from the $65.8 million Bisys settlement.
Thirty percent of the settlement – about $19.75 million – was distributed to various attorneys who represented investors who bought stock in Bisys. But when the New York federal court ordered the distribution of the funds to the plaintiffs late last year, Cauley was only able to come up with $36.7 million of the $46 million that was owed.
According to the information (PDF) – charges filed by federal prosecutors as opposed to an indictment issued by a grand jury – Cauley "periodically transferred settlement funds from the Escrow Account … to pay business expenses from various ventures in which he had an ownership interest, or to fund his own personal investments."
Cauley’s plea was accepted by U.S. District Judge Paul A. Crotty of the Southern District of New York. A sentencing hearing has been scheduled for Sept. 10.
In the meantime, according to Hall, Cauley’s movement will be restricted to Arkansas and New York.
Cauley’s passport was seized in April, as soon as the judge in the Bisys case referred the matter of the missing money to federal prosecutors, Hall confirmed.
That’s something prosecutors failed to do after another Little Rock lawyer, Keith Moser, agreed to plead guilty to, among 13 felony counts, stealing client money. In February 2004, Moser skipped out on his plea date and was later arrested in Madagascar. He is serving a sentence of more than 15 years and is currently confined to the federal prison at Forrest City with a projected release date of November 2017.
Cauley, however, is looking at a maximum sentence of 10 years on the wire fraud count, while the penalty for criminal contempt is at the judge’s discretion, according to a statement issued by federal prosecutors in New York. He will probably get some credit for what the sentencing guidelines call "acceptance of responsibility."
WSJ Law Blog
The Wall Street Journal’s Law Blog posted on Monday the first of a promised two-part series on Gene Cauley, based on an "hours-long interview." Unlike regular WSJ content, the blog appears to be available to non-subscribers.
UPDATE: The second part is available here. In it, he says he "took a shortcut" after his businesses developed cash-flow problems in 2007 and he was unable to get a bank loan. (At the time, Cauley was a major shareholder in Centennial Bank of Little Rock, which was sold to Home BancShares Inc. of Conway in January 2008. The sale was announced on Aug. 24, 2007, four days after the Bisys settlement was approved in New York.)
Last fall, Arkansas Business agreed to Cauley’s demand that its reporters no longer attempt to contact him for comment on any articles.
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