U.S. Pushes Broad Investigation
Into Milberg Weiss Law Firm

By JOHN R. WILKE
Staff Reporter of THE WALL STREET JOURNAL
June 27, 2005; Page A1

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 Los Angeles convened last October has been hearing evidence of alleged illegal payments in dozens of suits filed against oil, biotechnology, drug and chemical companies during the past 20 years, the lawyers close to the case said.

Prosecutors offered a glimpse of the broad investigation in an indictment filed in federal court in Los Angeles on Thursday against a single plaintiff, Seymour M. Lazar, a retired Palm Springs, Calif., entertainment lawyer who is 78 years old.

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 Washington, Milberg Weiss has often been cited in Republican-led efforts to curb class-action suits and in congressional debate that led to 1995 legislation to limit securities litigation.

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. Michael Hausfeld, a prominent Washington plaintiffs' lawyer, said such a case "could taint private civil enforcement of securities law" and deflect attention from "the egregious corporate misconduct at issue in these suits."

Last week's indictment charged Mr. Lazar with fraud, conspiracy, money laundering and obstruction. It alleges that a New York law firm paid "millions of dollars in secret and illegal kickbacks" to Mr. Lazar.

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, Palm Springs attorney Paul Selzer, is described as an intermediary in the scheme. The indictment doesn't weigh the merits of any of the individual cases under scrutiny.

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 U.S. attorney's office in Los Angeles.

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 Los Angeles declined to comment beyond the charges in the indictment; a lawyer for Mr. Selzer couldn't be reached.

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 New York firm is now known as Milberg Weiss Bershad & Shulman. Mr. Weiss, who in recent years has widened class-action litigation to target corporate accounting firms and others involved in securities litigation, remains active. In the past three weeks, his firm has filed 12 new cases.

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 New York law firm cited in the indictment. The government charges that Mr. Lazar received a $150,000 kickback for appearing as a plaintiff in cases in 1991 and 1992 against Genentech Inc., in which he had bought stock; similarly that his wife got a $150,000 kickback in a 1992 case against Ashland Oil, and her mother got a similar payment in a case against Pacific Gas & Electric the same year; and that Mr. Lazar's son got $250,000 in 1995 in a case against United Airlines and six payments totaling $430,000 in a case against Denny's Restaurant Group Inc.

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