Posted on 05/19/2006 7:40:53 AM PDT by Brilliant
Powerhouse plaintiff securities firm Milberg Weiss Bershad & Schulman and two of the firm’s name partners were indicted Thursday in an ongoing investigation into an alleged fee-sharing scheme, federal prosecutors in Los Angeles announced.
A 20-count grand jury indictment accuses the 120-lawyer, New York City-based firm and partners David J. Bershad and Steven G. Schulman with participating in a conspiracy whose objects were obstructing justice, perjury, bribery and fraud.
The purpose of the conspiracy, according to prosecutors, was to conceal the fact that some $11.3 million in illegal kickbacks had been secretly paid by Milberg Weiss to lead plaintiffs in class action cases filed by the firm.
“This case is about protecting the integrity of the justice system in America,” said Debra Wong Yang, U.S. attorney in Los Angeles, in a press release. “Class-action attorneys and named plaintiffs occupy positions of trust in which they assume responsibility to tell the truth and to disclose relevant information to the court. This indictment alleges a wholesale violation of this responsibility.”
Lawyers for the firm, Bershad and Schulman did not return phone messages left Thursday evening.
Prosecutors also charge other law firms and lawyers selected by the paid plaintiffs served as conduits for the illegal payments, which were made to encourage friends of Milberg Weiss to serve as lead plaintiffs. In exchange, the indictment alleges, 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 the absent class members or shareholders.”
As a result of this scheme, the indictment continues, lawsuits filed by the firm were “settled in a manner that often would generate substantial attorneys’ fees for Milberg Weiss, while concealing from the courts approving these settlements, and from the absent class members or shareholders on whose behalf the settlements were being negotiated, their secret and illegal kickback arrangements.”
Such payments are not permitted under various class-action-related statutes, including the Private Securities Litigation Reform Act of 1995. Also, it is considered an unethical practice for lawyers to give referral fees to nonlawyers.
The act says the share of a final judgment awarded to a representative plaintiff should be equal, on a per share basis, to the amount awarded to other class members. It also requires attorneys seeking fees as part of a settlement to file an application with the court along with an explanation in support of the petition.
If such payments are not disclosed in depositions and court filings, they can be considered part of an illegal conspiracy to violate the statutes and commit a fraud upon the court, says John C. Coffee Jr., a professor at Columbia Law School in New York City.
Yang described the alleged misconduct as “particularly troubling, because it represents a pattern of deception that spans two-and-a-half decades. Moreover,” she said, “the indictment alleges that the kickback scheme continued until last year—long after the media had reported that federal authorities were investigating the practices of Milberg Weiss.”
Two additional persons charged in Thursday’s indictment are retired Palm Springs, Calif., entertainment lawyer and investor Seymour M. Lazar and his personal attorney, Paul T. Selzer, a Palm Springs practitioner. The two also were charged last year in an earlier version of Thursday’s indictment, concerning alleged kickbacks made by Milberg Weiss through Selzer to Lazar and family members for serving as lead plaintiffs.
Lawyers for Lazar and Selzer also did not return phone messages left Thursday evening. However, Selzer’s counsel, David W. Wiechert of San Clemente, said earlier this month, “Mr. Selzer still vehemently asserts that he is innocent of all the charges levied against him.”
Bershad and Schulman reportedly left Milberg last week.
Observers say the indictment likely will create difficulties for Milberg Weiss, because it will encourage both firm clients and firm lawyers to go elsewhere.
“I think it’s unfortunate that the parties couldn’t agree on a deferred prosecution agreement, because I think this is going to be Arthur Andersen, déjà vu, all over again,” says Coffee. Like the former Big Five accounting firm—which eventually won a 2005 U.S. Supreme Court ruling overturning its criminal conviction concerning the Enron scandal, but meanwhile effectively disbanded when its clients and accountants deserted in droves—any professional services firm is going to be damaged by allegations of illegal conduct, Coffee points out.
“In that kind of world, there is a stigma associated with being indicted that I think is going to have an adverse effect,” he says. Today, most plaintiffs in the securities class actions that Milberg Weiss is known for are public pension funds, “and it’s hard to explain, as a public pension fund, why you’re using a law firm that has been indicted.”
Meanwhile, “professional services firms, whether they are law firms or accounting firms, are fragile,” Coffee continues. “Clients can always leave … and partners can always leave … and, finally, they live in a world of very sharp elbows, where other firms will exploit their disadvantage.”
Other observers recently speculated that the ongoing six-year investigation of the firm by Yang’s office, the U.S. Postal Service and the IRS Criminal Division, will lend ammunition to advocates of nationwide efforts to reduce the number of tort cases being brought in state and federal court.
Lisa Rickard, a lawyer who is president of the U.S. Chamber Institute for Legal Reform, is one who believes that publicity about the Milberg Weiss investigation will have an impact. “I think it does play a part in developments in the overall legal reform debate,” she says. Her Washington, D.C.-based organization is affiliated with the U.S. Chamber of Commerce.
“Certainly, any time any lawyer is accused of or acknowledges wrongful conduct, it reflects poorly on our profession and hurts us all,” says Robert A. Clifford, a well-known Chicago personal injury attorney and a past chair of the ABA Section of Litigation. However, “the tort reform movement is far more about a lot of other things than these guys,” he says.
News of the indictment Thursday followed a related plea deal late last monthwith a retired mortgage broker.
In plea documents, Howard J. Vogel—who is named in Thursday’s indictment as a co-conspirator—claims five partners at “a New York law firm” that specializes in plaintiffs securities cases and shareholder derivative actions paid him and members of his family nearly $2.5 million in illegal kickbacks between 1991 and 2005. The payments were for serving as lead plaintiffs in class actions and shareholder derivative suits and calculated based on a percentage of the attorney fees.
Another lead plaintiff in cases filed by Milberg who also allegedly received secret kickbacks, Steven G. Cooperman of Connecticut, an ophthalmologist convicted of fraud in an unrelated case, is also named as a co-conspirator in Thursday’s indictment.
Efforts to reach legal representatives for Vogel and Cooperman were unsuccessful Thursday.
Although the Vogel plea documents do not otherwise name the law firm, paragraph 19 of the plea agreement provides that Vogel will “cooperate fully” with law enforcement agencies concerning “proceedings relating to any payment made directly or indirectly to any named plaintiff in any class action or shareholder derivative lawsuit brought by the law firm of Milberg Weiss Bershad & Schulman LLP.” A firm spokeswoman also confirmed that Milberg Weiss is under investigation.
The documents say Vogel and members of his family were lead plaintiffs in some 40 cases brought by Milberg Weiss between 1991 and 2005. However, the alleged $2.5 million in payments was gleaned from only 15 of these cases.
Prosecutors charged Vogel late last month with a single count of making a false declaration in federal court under 18 U.S.C. § 1623. In his plea agreement, filed the same day, he pleads guilty to the charge and promises to cooperate with an ongoing investigation of payments made by Milberg Weiss, among other commitments.
Vogel has not yet been sentenced, but promised as part of the plea agreement to pay a $2 million fine. The prosecution agreed, if he cooperates, to ask the court to reduce the penalties recommended under federal sentencing guidelines. According to the plea agreement, the maximum prison term is five years.
According to the statement of facts filed with the plea agreement, Vogel approached Milberg Weiss in 1991 and asked for a share of the attorney fees in exchange for bringing a class action to the firm and serving as lead plaintiff. The unnamed “Partner E” with whom Vogel met allegedly promised to make the requested payment.
The firm then filed the suit in Texas against Valero Energy Corp. and other defendants, and paid more than $637,223 to Vogel and his wife in late 1992, representing 14 percent of the attorney fees, according to the statement.
In 1992, in another discussion with Partner E and a Partner C, Vogel was told he needed to find a lawyer to represent him so that payments could be funneled through the attorney, the statement continues. Vogel allegedly enlisted an unnamed Denver lawyer for this purpose. A “retainer agreement” for the case was signed in October 1992. It “contained several false and misleading statements,” according to the facts statement. Among them: that the $637,223 was being paid to the Denver lawyer for his work in the case, when in fact that lawyer was simply being used as a conduit for kickbacks.
Similar arrangements involving “attorney fees” ranging from a little over $1,000 to $1.1 million allegedly were made concerning cases filed primarily in Delaware, but also in California, Colorado, New York, Ohio and Washington, D.C. In all, payments made by the firm to Vogel and his family members totaled almost $2.5 million, according to the statement.
Vogel, who resided in New Jersey and Florida during this time, also dealt with unnamed Partners A, B and D, the statement says, as well as another outside lawyer in New York who served as an intermediary to get the money to Vogel.
Corrupt attorneys? No way!
Milberg Weiss is one of the biggest contributors to the democrat party. This story is just beginning.
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