Big Tort Lawyer Turns State’s Evidence

LOS ANGELES — Federal prosecutors are closing in on two titans of the class action bar, Melvyn Weiss and William Lerach, after one of their former law partners pleaded guilty to scheming to make secret payments to plaintiffs in securities lawsuits.David Bershad, 67, entered a guilty plea to one felony count of conspiracy before Judge John Walter yesterday afternoon. During the 40-minute hearing, Bershad told the judge that prosecutors were correct when they charged that the firm where he worked for nearly four decades, Milberg Weiss & Bershad, paid investors to serve as named plaintiffs. Bershad, the longtime financial chief for the firm, also implicated Messrs. Weiss and Lerach by agreeing that they were aware of and participated in the payments.“Of course, this is the worst possible development,” a law professor at New York University, Stephen Gillers, said. “It bodes ill for Partners A & B,” the professor said, using the pseudonyms prosecutors have adopted to refer to Messrs. Weiss and Lerach in court proceedings. “Each of them is clearly in the prosecutors’ sights,” Mr. Gillers said. With Bershad’s testimony, prosecutors “may now have the ability to pull the trigger” and obtain an indictment of the two men, Mr. Gillers said.“It seems pretty damning to me,” another professor who has been following the case, Larry Ribstein of the University of Illinois, said. “They are facing a trial or pretty hard time, if all this pans out.”Messrs. Weiss and Lerach have not been charged with any crime. However, in recent weeks, the pair has been in plea discussions with federal prosecutors, a lawyer involved in the case said, speaking on condition of anonymity.Mr. Weiss’s attorney, Benjamin Brafman, declined to comment on the development. Mr. Lerach’s lawyer, John Keker, did not respond to a message seeking comment for this article.Bershad could receive up to five years in prison on the conspiracy count. Prosecutors and Bershad’s lawyers agreed that sentencing guidelines call for 18 months to two years in his case, though Judge Walter is not obligated to follow that recommendation. Bershad also agreed to forfeit $7.75 million of his receipts from the various lawsuits and to pay a $250,000 fine.At yesterday’s hearing, Bershad and one of his lawyers, Cristina Arguedas, stood at a lectern as a prosecutor, Richard Robinson, outlined the facts the government would seek to prove if Bershad went to trial. For 15 minutes, the prosecutor described the scheme by which Milberg Weiss used secretly paid plaintiffs to win the race to be first to file securities lawsuits.“Generally, these individuals were promised that they would be paid approximately 10% of the net attorneys’ fees that Milberg Weiss obtained,” Mr. Robinson said. This gave Milberg Weiss an advantage because plaintiffs’ firms that filed first were likely to be named as lead counsel and to enjoy a larger share of attorneys fees when cases were settled, he said. In 1995, Congress changed the laws related to class actions, and first-to-file status became less critical.In one of the case’s most eye-catching allegations, Mr. Robinson said Bershad kept in his office a stash of cash contributed by Milberg Weiss partners. The prosecutor said this became a “secret payment fund” used to make off-the-books distributions to plaintiffs, who were expected to take less than the customary 10% if they were paid in cash.Mr. Robinson said Partner A, Mr. Weiss, made at least one payment from the fund, and Partner B, Mr. Lerach, sought reimbursement for a cash payment to a plaintiff. The prosecutor said Partner A also used a “phony option,” which court papers indicate related to an artwork, to pay $175,000 owed to one plaintiff involved in the scheme.“Did you do what the prosecutor said in his offer of proof?” Judge Walter asked after Mr. Robinson completed his recitation.“Yes,” Bershad said.“Are you pleading guilty because you are, in fact, guilty?” the judge asked.“Yes,” Bershad said again.“The court finds there is a factual basis for the plea,” Judge Walter said as he formally accepted the plea.As he answered the judge’s questions yesterday, Bershad spoke firmly but tersely. Judge Walter looked stern as he oversaw the proceedings. The closest thing to a moment of levity came when the judge asked whether Bershad had used drugs or alcohol in the past 72 hours.“I had one glass of wine last night with dinner,” he said, with a hint of amusement.Judge Walter said Bershad could remain free on bond until sentencing, which was set for June 2008. Bershad did not respond to a reporter’s request for comment after the court session. However, one of Bershad’s attorneys, Robert Luskin, issued a written statement regarding the plea.“David Bershad is committed to making amends for what he has done. His efforts to right these wrongs, together with his many good works throughout his career, should be remembered along with the offense he admitted today,” Mr. Luskin said.In a statement, Milberg Weiss said Bershad is no longer connected to the firm. “We remain confident that his actions will have no effect on the firm’s commitment to its clients and its ongoing work to protect public shareholders and consumers,” the statement said.Prosecutors obtained their first indictment in the Milberg Weiss case in June 2005. Those charges named a retired Palm Springs entertainment lawyer who served as one of the firm’s frequent plaintiffs, Seymour Lazar, as well as Mr. Lazar’s personal attorney, Paul Selzer, with involvement in the scheme.In May of last year, the Milberg Weiss firm itself was indicted, along with Bershad and another senior partner, Steven Schulman. Those indictments referred to the off-the-record payments as “kickbacks,” but the factual statement prosecutors and Bershad agreed on yesterday used the term “secret payment arrangements.” Lawyers for other defendants in the case have complained that the alleged payments were not kickbacks as that term is commonly understood, and that they may not have been illegal.Aside from Bershad, all of the defendants have pleaded not guilty.The darkening legal clouds for Messrs. Weiss and Lerach threaten to tarnish the reputations of two of America’s most successful and most feared attorneys. “They are legendary in American law by virtue of the millions they recovered and the fear they instilled in corporate America,” Mr. Gillers observed. “Fairly or unfairly, this will impact the plaintiffs’ bar.”The NYU professor stressed that Messrs. Weiss and Lerach are entitled to the presumption of innocence and said the pair could still confound their critics. “Lerach and Weiss are fighters. … I can’t count them out,” Mr. Gillers said.

Big Tort Lawyer Turns State’s Evidence

Big Tort Lawyer Turns State’s Evidence

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