Criminal Charges Levied Against Big Tort Law Firm

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The New York Sun

LOS ANGELES – The future of one of the country’s leading class-action law firms, Milberg Weiss, is in grave doubt after a federal grand jury returned a criminal indictment yesterday accusing the firm of engaging in a secret, 25-year-long conspiracy to kick back attorneys fees to investors who served as named plaintiffs in more than 150 lawsuits brought against publicly-traded American companies.

Two top Milberg Weiss Bershad & Schlman LLP partners, David Bershad and Steven Schulman, were charged personally with criminal racketeering conspiracy. In addition, prosecutors are demanding that the firm forfeit $216.1 million, the sum Milberg Weiss earned in cases allegedly tainted by illegal kickbacks.

“This case is about protecting the integrity of the justice system in America,” the United States Attorney in Los Angeles, Debra Wong Yang, said at a press conference yesterday afternoon.

She charged that the alleged kickback scheme, and the failure to disclose it to the courts and class members in securities suits, constituted “a wholesale violation” of the firm’s fiduciary duties.

Ms. Yang said the secret payments to plaintiffs in Milberg Weiss securities cases totaled at least $11.3 million. “Because of the secret kickback arrangement, Milberg Weiss had a stable of individuals ready and willing to serve as paid plaintiffs,” she said. The prosecutor said the scheme gave the firm an unfair advantage over its competitors, at least until 1995, when a change in the law reduced the importance of being among the first to file a specific case.

Ms. Yang acknowledged that criminal prosecution of a law firm is unusual, but insisted that it was the appropriate course of action against Milberg Weiss.

“If you look at the totality of what was going on in the firm and the pervasiveness of how long this was going on for, and when the conduct occurred all the way up to last year, when they knew we were looking at them, we really had no choice,” she said. “The firm would not accept responsibility.”

Several former lawyers at Milberg Weiss, which has offices at Penn Plaza in New York City, are reported to be cooperating with prosecutors. In addition, a retired mortgage broker from New Jersey who served or had his family members serve as plaintiffs in about 40 securities cases, Howard Vogel, is cooperating after agreeing to plead guilty to charges stemming from the investigation.

Yesterday’s indictment also restated charges against an entertainment lawyer who acted as a perennial plaintiff for Milberg Weiss, Seymour Lazar, and Mr. Lazar’s personal attorney, Paul Selzer. Both men, who were first indicted last year, have pleaded not guilty and declined to cooperate with investigators.

While the indictment returned yesterday contains 20 counts, only one substantive charge was leveled at the firm: conspiracy to commit a crime. Messrs. Bershad, Schulman, and Lazar were also accused of joining in a racketeering conspiracy. According to the indictment, Mr. Bershad earned $160.9 million from 1983 to 2005, while Mr. Schulman earned $67.1 million from 1991 to 2005. Both lawyers recently took leave from the firm to prepare to fight the charges against them. Many of the other counts charge only Messrs. Lazar and Selzer.

Lawyers involved in the case said that prosecutors have attempted to develop charges against one of the founders of Milberg Weiss, Melvyn Weiss, and a lawyer who was once a star partner at the firm, William Lerach. The two men are mentioned but unnamed in the new indictment and have not been charged.

In 2004, the firm effectively split in two, with Mr. Lerach and dozens of Milberg Weiss lawyers taking some cases and starting a new firm. Asked if that move would allow some of those responsible for alleged wrongdoing to escape punishment, Ms. Yang again intimated that some further prosecutorial action was forthcoming. “Check back with me sometime down the road,” she said. “This is just a beginning step in this.”

An attorney for Mr. Weiss, Benjamin Brafman, said the firm plans to fight the prosecution. “Mr. Weiss is determined to assist his partners and his firm in defending against these charges and if confident that when all of the facts are litigated his partners and the firm will be completely exonerated,” Mr. Brafman said.

An attorney for Mr. Bershad, Andrew Lawler, promised to contest vigorously the charges and decried prosecutors’ use of racketeering laws. “The government’s decision to employ the RICO statute against a distinguished 66-year-old attorney is a misuse of the statute and cannot be justified,” Mr. Lawler said.

Mr. Schulman’s lawyer, Herbert Stern, said his client “will plead not guilty because he is not guilty, and we look forward to his ultimate vindication.”

Milberg Weiss said it plans to continue its normal operations, but some observers have questioned whether it could lose its lucrative position as class counsel in pending securities cases and find judges unwilling to appoint the firm to such roles in future cases.

A former federal judge and chairman of the Securities and Exchange Commission, Stanley Sporkin, confirmed yesterday that he wrote to Justice Department officials to discourage any charge against Milberg Weiss because it could cripple the firm. “We know this could be a death sentence for this firm, without the ability for it to defend itself. The question is, is that the appropriate sanction here,” Mr. Sporkin said. “Obviously, if they’ve done something wrong, they’ve got to pay for it.”

Ms. Yang took issue with the notion that the prosecution would lead inevitably to the demise of Milberg Weiss. She also issued what appeared to be a public plea for the ouster of Mr. Weiss and the firm’s other leaders by what she called “well-respected” attorneys at Milberg. “I can only hope and imagine that they’ll step up to the forefront after today,” she said.

Milberg Weiss and its attorneys have been among the most generous donors to the Democratic Party. The firm gave more than $1 million to the national Democratic Party before such donations were banned in 2002. Attorneys for the firm have also given hundreds of thousands of dollars to state parties and Democratic candidates.

In an interview last night, an attorney for Milberg Weiss, William Taylor III, stopped just short of alleging that the indictment was political.

“It’s very clear that cheering will be heard from Wall Street all the way to 1600 Pennsylvania Avenue,” he said. “This plays into the hands of political demagogues who like to rail against trial lawyers as if they were responsible for all the miseries of society.”

In response to a question from the Sun, Ms. Yang said she was certain that politics played no role in the decision to seek an indictment.

“There was absolutely no political motivation. I’ve had very little discussion with anybody with respect to this case back in Washington until as of late,” she said, adding that the recent discussions took place after defense counsel attempted to persuade Justice Department officials to head off the indictment.

The Milberg Weiss attorneys now have been exposed to several tactics often complained about by conservatives and business interests: a demand to waive attorney-client privilege to head off prosecution, a criminal charge against a business because of the alleged conduct of its employees, and a racketeering indictment in a case involving no threat of violence.


The New York Sun

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