NEW YORK TIMES
A Prominent Law Firm Prepares for Indictment 
By
JULIE CRESWELL
Published:
May 17, 2006
For
years, the securities class-action law firm of Milberg Weiss Bershad &
Schulman sparked fear and uncertainty in executive suites and corporate
boardrooms across the country.
Photographs
by Diane Bondareff/Bloomberg News
Melvyn I. Weiss, left, and a former partner, William
S. Lerach, right.
These
days, however, the firm finds itself on the hot seat as it faces the possibility
of an indictment in connection with a six-year federal investigation into
whether the firm made illegal payments to clients. An indictment, while it
would not prevent the firm from practicing law, would have dire consequences
for its business.
Negotiations
to avert an indictment of the firm have stepped up in recent weeks. But by this
week, hopes for a settlement were quickly fading as both sides remain far apart
on several crucial points surrounding any so-called deferred prosecution
agreement, including the waiver of client-attorney privileges; new compliance
and monitoring systems and personnel the firm would be required to put in
place; and the size of any potential payments, according to several lawyers
involved in the talks.
Federal
prosecutors were initially seeking a payment of more than $100 million, the
lawyers said. A payment of that size would either require individuals inside
the firm to put up the cash themselves or the firm to commit to pay it from
future earnings, the lawyers said.
The
talks have been complicated by the Justice Department's reluctance to indict a
firm since it came under fire for putting the accounting firm Arthur Andersen
out of business after it was indicted on obstruction of justice charges in
2002. (The firm's conviction was later overturned by the Supreme Court.) Since
then, the accounting firm KPMG and the drug maker Bristol-Myers Squibb, among others, have
reached deferred-prosecution agreements with Justice.
Furthermore,
in the dog-eat-dog world of class-action securities law, Milberg Weiss has one
of the biggest barks.
It
has survived and thrived despite attempts by lawmakers to eradicate it over the
years. It has recovered billions for shareholders in sometimes belligerent
white-knuckle negotiations with high-profile defense firms.
Indeed,
if the firm is indicted, one of its founders, Melvyn I. Weiss, is gearing up
for a brawl.
"Mr.
Weiss believes very strongly that neither he nor any of his partners have
violated the law. He is confident that whatever legal proceedings must be dealt
with in the days ahead will be vigorously and successfully defended," said
Benjamin Brafman, a high-profile defense lawyer representing Mr. Weiss.
"Mel Weiss is known throughout the legal community as a fighter, not a
quitter," he added.
Lawyers
involved in the talks said a decision whether to indict the firm could come as
early as tomorrow or next Thursday, the day of the week a federal grand jury in
Any
charges against the firm would probably be included in a revision of an
indictment that was originally handed up last summer. The initial indictment
accused Seymour M. Lazar, a retired
It
is illegal for a plaintiff in a lawsuit to receive a portion of the legal fees
because lead plaintiffs in class actions cannot have incentives that might
persuade them to enter into a settlement that may not be best for the class.
Milberg
Weiss made a last-ditch effort to stave off indictment late last week when
Statements
from the firm said the two men agreed to the decision and would use the time to
focus on their defense if charges against them were filed.
People
briefed on the firm's contingency planning said cases that the two partners
were working on were being reassigned to other lawyers.
William
W. Taylor III, a lawyer with Zuckerman Spaeder who represents Milberg Weiss,
said: "We hope that the Department of Justice will not seek an indictment
of the firm because of the incalculable harm that it would inflect on its
partners, employees and clients. If it is indicted, however, the firm will continue
to represent its clients, victims of corporate wrongdoing, just as it always
has and without any impact on current and future cases."
(Page 2 of 2)
But
prosecutors on the West Coast, who have combed through decades of documents and
interviewed dozens of witnesses, including Mr. Bershad's assistant, who was
brought across the country twice by train as she has a fear of flying, appear
to be leaning toward an indictment, said lawyers involved in the talks.
The
One
of the largest and most prominent securities class-action law firms in the
country, Milberg Weiss is at a crossroads, and either path could ultimately
lead to a dead end.
From
a legal standpoint, if the firm is indicted, it can still continue to represent
clients and appear in courtrooms, said Leslie D. Corwin, a lawyer with
Greenberg Traurig, who has represented law and accounting firms in disputes,
mergers and liquidations.
"If
there were to be an indictment tomorrow, they could still practice law unless
there was some sort of action by a disciplinary committee," he said.
Additionally,
the firm and partners in the firm would continue to be paid or receive portions
of recovered fees for any work they have done on cases, Mr. Corwin added.
From
a practical standpoint, however, an indictment would be a huge blow for the
firm, which celebrated its 40th anniversary last year. Clients could seek out
its competitors to represent them; defense lawyers could use the indictment as
leverage in negotiations; and some of the firm's 120 lawyers could head for the
exit doors.
The
same situation, however, could exist if the firm signs a deferred-prosecution
agreement, lawyers involved in the talks said. Lawyers from competing firms
could use that agreement against Milberg Weiss in their efforts to grab
prospective clients or seize the lead plaintiff status in a class-action lawsuit.
"Somebody
will pick up the slack," said Jerry W. Markham, a law professor at
Indeed,
lawyers in the plaintiffs bar have been buzzing for weeks that one of the
biggest beneficiaries from an indictment of the Milberg Weiss firm could be Mr.
Weiss's former partner, William S. Lerach.
Boisterous
and with a penchant for grandstanding, Mr. Lerach ran Milberg Weiss's West
Coast operations, nicknamed "Milberg West," for years.
After
a contentious split with Mr. Weiss in 2004, Mr. Lerach started a competing law
firm, Lerach Coughlin Stoia Geller Rudman & Robbins.
The
two firms dominate the securities class-action business, capturing 57 percent
of the number of cases settled last year, according to Cornerstone Research.
In
February, Mr. Weiss and Mr. Lerach were told that they were not going to be
indicted at this time, but that they remained targets of the investigation.
The
investigation into the firm was begun nearly six years ago after an
ophthalmologist, Dr. Steven G. Cooperman, was convicted on art fraud charges.
A
frequent plaintiff in shareholder lawsuits filed by Milberg Weiss, Dr.
Cooperman offered to provide evidence to prosecutors against Milberg Weiss in
exchange for a reduced sentence.
A
major breakthrough occurred last month when a former client, Howard J. Vogel,
admitted that he or members of his family were paid more than $2.4 million by
lawyers inside Milberg Weiss from 1991 to as recently as May 2005 to act as
plaintiffs in more than 40 class-action securities lawsuits, according to a
plea agreement that was filed in late April.