Friday, May 19, 2006

This Story Should Be as Big as Enron

A major securities class-action law firm, Milberg Weiss Bershad & Schulman, been indicted for conspiracy and fraud for giving kickbacks to three individuals who served as plaintiffs in over 150 lawsuits that they brought.
In the 20-count indictment by a federal grand jury in Los Angeles yesterday, Milberg Weiss and two of its prominent partners, David J. Bershad and Steven G. Schulman, are accused of racketeering conspiracy, mail fraud, money laundering conspiracy and obstruction of justice.

The prosecutors are asking for the return of the fees earned by the firm and those named in the indictment. In addition, there is the possibility of prison for the two partners — up to 20 years for racketeering conspiracy, for example.

To disguise some of the secret payments to plaintiffs, which prosecutors referred to as kickbacks, the law firm moved cash through casinos and kept money in a credenza in Mr. Bershad's office, the indictment said.

....From 1981 through about 2004, Mr. Lazar, 78, or members of his family served as plaintiffs in about 70 lawsuits for Milberg Weiss and got about $2.4 million in "secret and illegal kickback payments," the new indictment said.

According to the charges, the scheme involving Mr. Lazar and two other paid plaintiffs worked like this: Plaintiffs would buy securities anticipating that they would decline in value, hence positioning themselves to be named plaintiffs in the class actions.

After the court in a lawsuit awarded lawyers' fees, the firm and Mr. Bershad and Mr. Schulman gave cash directly to the plaintiffs or to intermediary lawyers.

The firm also falsely accounted for the payments as referral fees or professional fees, the indictment said.

Under New York law, it is illegal for a lawyer to promise or give anything to induce a person to bring a lawsuit or to reward a person for having done so, the indictment said.

Furthermore, the payments created a conflict because the paid plaintiffs had a "greater interest in maximizing the amount of attorneys' fees awarded to Milberg Weiss than in maximizing the net recovery" to others in the class, the indictment said.

One figure named as an unindicted co-conspirator in the indictment is a Beverly Hills ophthalmologist, Dr. Steven G. Cooperman. Dr. Cooperman or members of his family acted as plaintiffs in nearly 70 lawsuits, receiving approximately $6.5 million in payments, the indictment said.
Is there going to be the outcry over this firm's shenanigans and is the cry going to go out that all large law firms pursuing class-action lawsuits share some sort of guilt by association in the way that there were outcries against big companies after Enron? I still have students who think all big business is bad and corrupt and cite Enron as their example. In their simplistic views, if one company is corrupt, then all must be corrupt and just haven't been found out yet. Of course, this law firm won't get a fraction of the coverage that the Enron story got, and lawyers with a stake in large class-action suits will start bemoaning the possibility that victims of large company fraud won't get justice now.
"The people who are going to be happy about this indictment are the hundreds and hundreds of companies that Milberg Weiss successfully sued and the political demagogues who rail about 'trial lawyers' running up the price of eggs," said William W. Taylor, a lawyer at Zuckerman Spaeder who represents Milberg Weiss.

"You could hear the cheering all the way from Wall Street to Pennsylvania Avenue, and it feeds right into the hands of people who want to prevent victims from being able to get the justice from big companies that they deserve," Mr. Taylor said.
How about preventing fraudulent plaintiffs from destroying the value of companies and the assets of investors?