By Jonathan D. Glater - New York Times
Published: 06-19-08
The best-known shareholder law firm in the country agreed on Monday to pay $75 million to dodge a criminal trial ending a seven-year investigation that tarnished the profession’s image.
The law firm long known as Milberg Weiss Bershad Hynes & Lerach has shrunk in size and now calls itself just Milberg. One of its most famous partners William S. Lerach is in prison and the other Melvyn I. Weiss is headed there under previously announced guilty pleas.
The firm though will survive under the latest agreement with prosecutors.
The guilty pleas and the firm’s agreement represent a stunning change of fortune not just for the convicted lawyers but also for a certain legal culture of braggadocio and excess — always in the name of justice for the investors that they represented.
Now increasingly conservative courts impose tougher standards on shareholder claims. The reputation of the lawyers who file such suits has suffered. The image of Mr. Lerach brandishing shredded documents from Enron taking a stand against corporate corruption has been eclipsed by sordid revelations of these lawyers’ conspiracies to fool the courts and by confessions of criminal misconduct.
“The field has gotten a black eye which of course is very unfortunate” said Richard S. Schiffrin who recently retired as a founding partner at the shareholder law firm of Schiffrin Barroway Topaz & Kessler in suburban Philadelphia. Changes in the law though have had more of an impact on cases he added.
Under the agreement a copy of which was provided by Milberg the firm will have five years to complete the $75 million payment to the government one of the largest fines ever levied against a law firm. Prosecutors will ask a court to dismiss the indictment of the firm.
“The conclusion that no current lawyer at the firm had any involvement in the wrongdoing will enable us really to move forward” said Sanford P. Dumain a partner at Milberg in an interview on Monday. He added that the firm was considering whether to seek recovery of some of the money from its former partners to pay the government.
Prosecutors have been investigating secret payments to lead plaintiffs in securities class-action suits brought by Milberg. The payments rewarded what prosecutors described as a “stable” of ready clients who held stock in companies.
The payments meant that the lead plaintiffs stood to receive more money than they would if they had simply been members of the class and that as a result they might not have looked out for the best interests of the entire class as lead plaintiffs are supposed to do.
“The settlement with Milberg reflects the seriousness of what was probably the longest-running scheme ever conducted by a law firm” said Thomas P. O’Brien a United States attorney. According to his office Milberg paid secret kickbacks to plaintiffs in more than 165 lawsuits over 25 years that garnered nearly $240 million in legal fees.
Even prison walls have not ended Mr. Lerach’s trademark bravado. In a recent article for the business magazine Portfolio he wrote “Paying plaintiffs was an industry practice.”
The reverberations from the investigation of past conduct by former Milberg lawyers are felt outside the courtroom. Several Republican lawmakers have cited Mr. Lerach’s claim that misconduct was widespread as cause for concern and have called for further investigation.
“The Milberg Weiss scandal has revealed a clear and present threat to our nation’s prosperity” Representatives John A. Boehner Republican of Ohio and Lamar Smith Republican of Texas wrote in a letter to the Democratic chairman of the House Judiciary Committee John Conyers Jr. of Michigan in May.
Both Mr. Lerach and Mr. Weiss pleaded guilty to roles in the kickback scheme. Mr. Lerach was required to forfeit $7.75 million and was sentenced to two years in prison; Mr. Weiss was required to pay a penalty of $250000 and forfeit $9.8 million and was sentenced to 30 months.
The revelations of misconduct by the lawyers “poisoned the well” said one longtime New York shareholder lawyer. He insisted on anonymity out of fear of retaliation by other lawyers; such is the powerful reputation of Milberg still.
“Any judge you come before expects that you’re a crook too” this lawyer said. “There are judges that I’ve appeared before for many years who are frosty all of a sudden.”
The higher standards that courts have begun imposing on shareholder suits are not directly related to the Milberg investigation but instead have much to do with the positions adopted by the Supreme Court and intermediate appellate federal courts.
But the number of shareholder lawsuits has not dropped greatly. Last year 176 suits were filed up from 118 in 2006 but down from a high of 497 in 2001 according to the Securities Class Action Clearinghouse at Stanford Law School. So far this year 101 suits have been filed.
“Securities fraud filing activity is very robust this year” said Joseph A. Grundfest founder of the Stanford Clearinghouse. “There is no shortage.”
