By Joseph Ax

NEW YORK, Oct 2 (Reuters) - A former Crowell & Moring attorney accused of fleeing the country after stealing more than $10 million in clients' money, which prosecutors said he used to lead a lavish lifestyle, pleaded guilty on Tuesday.

Prosecutors accused Douglas Arntsen, 34, of embezzling millions in escrow funds starting in 2009, when he allegedly began siphoning money into bank accounts he controlled. They said Arntsen used the money to visit pricey restaurants and strip clubs, and to buy businesses for himself and his friends and family.

He pleaded guilty in a Manhattan courtroom to several counts of grand larceny and scheme to defraud before Acting Supreme Court Justice Jill Conviser and will have to make $10.8 million in restitution to two clients in addition to serving his prison sentence. Arntsen, wearing a dark jacket and tan pants, did not speak except to answer the judge's questions about the plea with a simple "Yes, Your Honor."

The plea ends a convoluted legal saga that began when Arntsen flew to Hong Kong in September 2011, two days after he resigned from the firm and one day after the Manhattan district attorney's office notified Crowell that Arntsen was the subject of a criminal probe.

Prosecutors accused Arntsen of fleeing to avoid arrest, while his defense lawyer, Alan Lewis, has said he was taking a planned trip.

Arntsen has been held without bail since federal authorities returned him to the United States in January to face the charges.

Arntsen, who had faced up to 25 years before pleading guilty, will be sentenced in October.

"He's always indicated his intention to accept responsibility, and he did today," Lewis said after the court appearance.

In a statement, Manhattan District Attorney Cyrus Vance said Arntsen had betrayed the "sacred trust" between attorney and client.

"Today's conviction holds him accountable for fraudulent conduct that violated the law, abused his clients' trust, and cost them millions of dollars," Vance said.

HONG KONG TRIP

The district attorney's office launched an investigation last fall after one of Arntsen's clients, Regal Real Estate, was unable to account for the money in its escrow accounts, according to prosecutors.

Regal's managing partner, William Punch, told Reuters last year that when he confronted Arntsen about $4 million in missing funds on Sept. 12, 2011, the lawyer broke down and admitted he had used some of the funds. Arntsen resigned from the firm that day.

Regal's lawyer, Bruce Lederman, said at the time that Arntsen met Punch the following day and made several stops at banks, withdrawing close to $2 million, which he gave to Punch, before telling him he had to fly to Hong Kong to retrieve the rest of the money.

Punch and Arntsen agreed to meet the next day to travel to Hong Kong together. But Punch and Lederman alerted prosecutors about the meeting, and police planned to arrest Arntsen.

Arntsen never showed up and instead boarded a plane to Hong Kong alone.

The case bewildered some of Arntsen's colleagues, who described him to Reuters as a hardworking, good-natured lawyer whose crimes came as a shock to the firm.

Crowell has already settled three civil lawsuits brought in connection with Arntsen's fraud, all by real estate companies claiming the lawyer stole funds from their accounts. The terms of the settlements with Regal, Aristone Realty Capital and BCN 16th St were not publicly disclosed.

"We regret the harm caused by Douglas Arntsen to our clients and our firm and are pleased Mr. Arntsen has acknowledged his crimes with a guilty plea," said Crowell managing partner Ellen Dwyer in a statement.

A graduate of Seton Hall University School of Law, Arntsen joined Crowell in 2007 from Buchanan Ingersoll & Rooney as part of a group of finance and distressed-debt attorneys.

The case is People v. Arntsen, New York State Supreme Court, New York County, No. 01399/2012.

For the prosecution: Assistant District Attorney Sophi Jacobs.

For Arntsen: Alan Lewis of Carter, Ledyard & Milburn.

(A prior version of this story misstated Arntsen's age.)

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