Into Milberg Weiss Law Firm
By JOHN R. WILKE
Staff Reporter of THE
Federal prosecutors are investigating one of the nation's most aggressive
class-action law firms, Milberg Weiss Bershad &
Schulman, for alleged fraud, conspiracy and kickbacks in scores of securities
lawsuits, and could seek criminal charges against the firm itself and its
principals.
The three-year investigation focuses on allegations that the New
York-based firm routinely made secret, illegal payments to plaintiffs who
appeared on securities class-action lawsuits brought by the firm, according to
court documents and lawyers close to the case. A grand jury in
Prosecutors offered a glimpse of the broad investigation in an
indictment filed in federal court in
The charges don't name Milberg Weiss, but Milberg Weiss officials confirm that it is the firm cited in the indictment. The firm has been told that senior partners alleged to have authorized payments to the plaintiff and the firm itself could face indictment, the lawyers close to the case said.
Milberg Weiss has brought
hundreds of class-action cases over 30 years and won tens of billions of
dollars in settlements and judgments against businesses. Some corporate and
Wall Street executives say the firm exemplifies abuses in class-action
litigation that burdens the courts. In
Class-action lawyers said they feared that an indictment of
Milberg Weiss could have far-reaching impact and hamper efforts to recover
damages for shareholders and consumers.
Last week's indictment charged Mr. Lazar with fraud, conspiracy,
money laundering and obstruction. It alleges that a
The indictment alleges that Mr. Lazar or a member of his family
appeared as a plaintiff in more than 50 Milberg Weiss securities cases during a
period running from 1981 to 2004. Mr. Lazar and family members together
received more than $2.4 million in secret payments from the law firm, the
government charges. During this period, Milberg Weiss earned at least $44
million in legal fees from cases in which Mr. Lazar or a family member was a
plaintiff, according to the indictment.
Investigators allege that Mr. Lazar was illegally promised a
share in the legal fees that would result from the cases in which he was a
plaintiff, according to the indictment. Named plaintiffs in class-action cases
can't have a special interest or concealed inducements beyond others in the class.
A second man,
Most of the cases being investigated were filed before a change
in the law altered the way law firms jockeyed for the lead in class-action
cases. Previously, the first to file a case was assigned the lead, allowing it
to control the case and win the highest fees. As a result, many law firms kept
a stable of clients to help launch suits quickly. Today, courts usually decide
which firm will be given the lead role based on expertise, resources and
increasingly, the lowest fees.
A Milberg Weiss representative confirmed that the firm has
received subpoenas and said that it has been cooperating fully with the
investigation being pursued by the
In a separate statement, the firm called the allegations
"baseless" and said the indictment "unfairly implicates the firm
in the wrongdoing alleged against Mr. Lazar." It lashed out at the Justice
Department for targeting the firm, citing the case of Arthur Andersen, the
accounting firm that collapsed after it was indicted in the Enron case. The
firm said it was "disappointed that in the face of recent criticism of the
government following the reversal of the Arthur Andersen conviction, the U.S.
Attorney's office would risk harming the Milberg Weiss firm" and hundreds
of innocent employees.
The decision to indict an entire company -- rather than simply
the individuals involved in an alleged crime -- has become highly controversial
since the Andersen case, in which thousands of employees lost their jobs.
Justice Department officials say they use this weapon only sparingly, and
carefully weigh factors in the decision, including the likelihood that a crime
will be repeated and the extent of cooperation by the company or the
individuals involved. In the past year, the government has increasingly turned
to deferred-prosecution agreements that spare firms a criminal trial and
possible conviction; it is currently weighing such an agreement in an
investigation of alleged illegal tax shelters sold by KPMG LLP, the Big Four
accounting firm.
Mr. Lazar's lawyer, Thomas Bienert, called the government's prosecution of Mr. Lazar
"misguided" and "a heavy-handed attempt" to pressure him
into becoming a witness in the broader criminal investigation of Milberg Weiss.
He said Mr. Lazar had acted "in concert with reputable legal counsel who
indicated to him that his actions were ethical and appropriate."
Mr. Bienert called Mr. Lazar "a
strong advocate for consumer rights" and said that the cases in which he'd
been involved "led to significant changes, including ending discrimination
at a restaurant chain and forcing financial institutions to stop overcharging
their clients."
Mr. Bienert also complained that his
client, who he said is in poor health, was handcuffed by federal agents when he
was arrested and arraigned last week. A spokeswoman for the Justice Department
in
The government's investigation is focusing largely on conduct
that occurred when the firm was known as Milberg Weiss Bershad
Haynes & Lerach. Last year, William Lerach split off from the firm,
following a dispute with Mr. Weiss, and formed a San Diego-based firm known as
Lerach Coughlin Stoia Geller Rudman
& Robbins. The new firm retained a high-profile case against Enron and its
bankers on behalf of institutional shareholders. The
It isn't clear whether one or the other of the now-separate
firms faces greater potential exposure; investigators are seeking to determine
whether top partners of either firm, including Messrs. Weiss and Lerach, were
aware of the alleged scheme, those close to the case said. It also isn't clear
which senior partners of either firm are under scrutiny.
The indictment details dozens of alleged payments to Mr. Lazar
or members of his family over the years, and suggests that others received
similar inducements from the
The most recent case detailed in the indictment describes Mr. Lazar's daughter as having received two secret and illegal payments totaling $183,000 in a case in 2000 and 2001 against Schein Pharmaceuticals Corp., in which she had bought stock. None of the family members were charged