Choose Your Own Punchline: Mel Weiss,
Other Former Milberg Partners Snared in Madoff Scam

By Nate Raymond
The American Lawyer
New York Lawyer
February 5, 2009

As if Melvyn Weiss and David Bershad didn't have enough troubles these days, documents released Wednesday reveal that the two convicted Milberg Weiss partners were customers of Bernard Madoff.

Weiss and Bershad's names appear on a 162-page list of customers of Bernard L. Madoff Investment Securities LLC. Patricia Hynes, another former name partner of Milberg Weiss who now practices at Allen & Overy, also appears on the list as a customer of Madoff, who allegedly ran a $50 billion Ponzi scheme since the 1970s.

Weiss's lawyer, Benjamin Brafman in New York, confirmed Weiss was one of Madoff's victims.

"Mel Weiss, like many dozens of other very sophisticated and highly successful people, unfortunately believed that Bernard Madoff was a scrupulously honest, legitimate investment adviser who was also involved in very impressive philanthropic activities," Brafman says. "Mr. Weiss like many others are now bitterly disappointed to learn that they have apparently been victims of a fraud.

"But to fool people like Mel Weiss, Mort Zuckerman, and [Mets owner] Fred Wilpon suggests that Madoff was truly a 'master' at his craft."

Brafman says it would "not be appropriate" to discuss how much Weiss lost. Bershad's lawyer, Robert Luskin of Patton Boggs, says his client has no comment. Hynes did not return a call seeking comment.

In June, Weiss was sentenced to 30 months in prison. Under his plea deal, he agreed to forfeit $9.75 million and pay a fine of $250,000. Bershad was sentenced in October to six months in prison. He forfeited $7.75 million and was fined $250,000.

Hynes, a former name partner, left Milberg in 2006 after the firm was indicted for paying kickbacks to name plaintiffs to file class action lawsuits. Milberg LLP settled with the government for $75 million in June.

The list of Madoff customers was prepared by AlixPartners L.P., which was hired by the bankruptcy trustee as claims agent. It does not say how much money the former Milberg partners or others may have lost following the collapse of Madoff's company. Like other customers on the list, the trio would have had open accounts with Madoff sometime last year, and were mailed claim forms last month.

It's not just the Milberg attorneys who are listed as customers. Howard Vogel, the Englewood, New Jersey-based broker that received kickbacks from Milberg Weiss to serve as a name plaintiff, also is listed as a customer. So too is his retirement fund, which was used as the name plaintiff in some litigation by Milberg.

Vogel's lawyer, Miller & Chevalier partner Marc Rochon, did not return a call for comment.

Ironically, the lawyers' former firm, now named Milberg LLP, has been one of the most active plaintiff's firms in rounding up Madoff victims for litigation. It has more than 100 victims already signed up, a spokeswoman says.

Attorney in Milberg Case Draws Two-Month Prison Term

Amanda Bronstad
The National Law Journal
New York Lawyer
August 13, 2008

LOS ANGELES - A federal judge has sentenced Richard Purtich, a Los Angeles lawyer who pleaded guilty in the government's criminal kickback case against Milberg, to two months in prison, despite requests from his lawyer and federal prosecutors to give him probation.

On Monday, U.S. District Judge John Walter of the Central District of California sentenced Purtich to prison time, plus an additional year of supervised release, and ordered him to pay a $50,000 fine.

Purtich pleaded guilty two years ago to a tax charge, admitting that he failed to report to the Internal Revenue Service about $900,000 he received from Milberg and passed on to Steve Cooperman, a lead plaintiff in several of the firm's cases. In the case, prosecutors claimed that Cooperman, who pleaded guilty to a federal conspiracy charge last year, received payments from William Lerach--a former partner at Milberg, formerly known as Milberg Weiss--who pleaded guilty last year to a federal conspiracy charge and is serving a sentence of two years in prison.

In a sentencing memorandum, prosecutors had recommended that Purtich receive one year probation, with no home confinement, given his extensive cooperation in the case. They also noted that Purtich lost his license to practice law about two years ago. They recommended a $50,000 fine.

Thom Mrozek, a spokesman for the U.S. Attorney's Office, for the Central District of California, declined to comment.

Purtich's lawyer, William Genego, a partner at Santa Monica, Calif.-based Nasatir Hirsch Podberesky and Genego, did not return a call for comment.

In a sentencing memorandum, Genego had recommended that Purtich receive probation.

Under the advisory Federal Sentencing Guidelines, Purtich could have faced 21 to 27 months in prison. The probation office had recommended a $200,000 fine.

Lawyer in Kickback Scheme Has Prosecutors
Go to Bat for Him on Sentence

By Amanda Bronstad
The National Law Journal
New York Lawyer
August 4, 2008

Federal prosecutors in the criminal kickback case against securities firm Milberg are recommending that Richard Purtich, a Los Angeles lawyer who was one of the first to plead guilty in the case, be sentenced to one year of probation, according to a sentencing memorandum filed by the government last week. In court papers, prosecutors cited his "substantial assistance to law enforcement in the investigation and prosecution of another person who committed an offense." Purtich, an insurance lawyer, is scheduled to be sentenced on Aug. 11.

In April 2006, he agreed to plead guilty to a tax charge, admitting that he failed to report to the IRS about $900,000 in payments he accepted from Milberg that he passed on to Steve Cooperman, a lead plaintiff in several of the firm's cases. The next month, federal prosecutors indicted the firm, then called Milberg Weiss, and two of its partners, David Bershad and Steve Schulman, alleging they obtained more than $200 million in attorney fees by paying kickbacks to lead plaintiffs in their cases.

Prosecutors claimed that Cooperman, who pleaded guilty to a federal conspiracy charge last year, frequently received payments from William Lerach, a former partner at Milberg who left in 2004 to start his own firm, now called Coughlin Stoia Geller Rudman & Robbins. Lerach pleaded guilty last year to a federal conspiracy charge and is serving a prison sentence of two years.

According to last week's sentencing memorandum, Purtich faced 21 to 27 months under the advisory sentencing guidelines.

Federal prosecutors recommended probation, without a prison sentence or home confinement, because Purtich cooperated in the case while his career as a successful lawyer floundered.

"Purtich was in the prime years of his career as a lawyer when, as a result of his offense conduct, he largely destroyed the professional success he had achieved," prosecutors said in the memorandum.

During his career, for example, Purtich, a "devoted husband and father," earned up to $700,000 per year. But in 2002, after the government's investigation became public, Purtich lost his job. In December 2006, after he pleaded guilty, the State Bar of California suspended his license to practice law. He now works as an "independent contractor paralegal," prosecutors said in the memo.

Prosecutors also noted that the kickbacks occurred several years ago.

Cooperman, or his relatives, served as lead plaintiffs for Milberg from 1988 to 1999. Purtich began working with him in 1992.

"Of course, Purtich's role as intermediary in the Milberg Weiss kickback scheme was also quite serious. However, as the Probation Office properly recognized, Purtich's conduct 'pales in comparison to the Milberg Weiss expansive scheme that involved a repeated fraud upon the Court system,'" prosecutors summarized. "With regard to the defendants sentenced to date, Melvyn Weiss, William Lerach, and Seymour Lazar, none of them cooperated with the government's investigation or prosecution. Each are clearly deserving of much harsher sentences than Purtich because of their central roles in the kickback scheme, including their obstruction of the courts." Weiss, co-founding partner of Milberg, pleaded guilty to a federal racketeering charge and is scheduled to begin serving a 30-month prison sentence next month. Lazar, a lead plaintiff in several Milberg cases, pleaded guilty to three counts, including obstruction of justice, and, given his ailing health, was sentenced to two years of probation, including six months of home detention.

For Purtich, federal prosecutors also recommended a $50,000 fine. The probation office had recommended a $200,000 fine.

Purtich's lawyer, William Genego, a partner at Santa Monica, Calif.-based Nasatir Hirsch Podberesky and Genego, did not return a call for comment.

NY Firm Defends Pay Deal With Partners
Who Pleaded Guilty on Kickbacks

New York Lawyer
July 16, 2008
By Anthony Lin
New York Law Journal

Securities class action law firm Milberg yesterday defended at a court hearing a pay deal with co-founder Melvyn I. Weiss, who was sentenced last month to 30 months in prison for orchestrating a scheme to pay kickbacks to individual plaintiffs in shareholder suits.

The October 2007 agreement to pay Mr. Weiss 15 percent of fees on matters being handled by the firm was sharply criticized in a Wall Street Journal editorial Monday as a sweetheart deal that would pay the convicted felon far more than the roughly $10 million he disgorged or was fined. But following a brief hearing on the agreement yesterday, Milberg partner Matthew Gluck took issue with the editorial, saying the deal had proceeded with the government's full knowledge and contained no litigation release that might forestall a potential effort by Milberg to collect from Mr. Weiss some of the $75 million the firm itself agreed to pay last month in exchange for dropping criminal charges against it.

The deal was struck shortly after Mr. Weiss was indicted last fall and marked his stepping down as managing partner of the firm. As an active senior partner, Mr. Weiss would likely have received closer to 25 percent of fees, said Mr. Gluck.

Represented by Leslie D. Corwin of Greenberg Traurig, Mr. Weiss had moved for approval of the agreement before Manhattan Supreme Court Justice Herman Cahn, who oversaw yesterday's hearing. Though Mr. Weiss' application was unopposed, the judge reserved ruling, saying he wanted an explanation about a letter he received from Brooklyn lawyer Theodore A. Bechtold concerning the matter.

Mr. Bechtold maintains a Web site in which he rails against those he regards as "racketeer lawyers," including but not limited to Mr. Weiss and other former Milberg partners.

A lawyer for Steven G. Schulman, another convicted former partner, was also present in the courtroom yesterday, suggesting similar agreements were struck with the other figures in the kickback case. Along with Mr. Weiss and Mr. Schulman, federal prosecutors in Los Angeles also extracted guilty pleas from former name partners William S. Lerach and David J. Bershad. The last major figure in the case, Paul T. Selzer, a lawyer who helped facilitate the kickback payments, pleaded guilty Monday.

Attorney, Last Defendant in Law Firm
 Kickback Scandal, Pleads Guilty

New York Lawyer
July 15, 2008
By Amanda Bronstad
The National Law Journal

LOS ANGELES — Paul Selzer, the last remaining defendant in the federal government's kickback case against Milberg, has pleaded guilty to filing false documents with the Internal Revenue Service (IRS).

The plea agreement ends an investigation spanning nearly a decade in which federal prosecutors alleged that Milberg and seven of its partners generated $251 million in attorney fees by paying kickbacks to lead plaintiffs. Last month, Milberg agreed to pay $75 million as part of a nonprosecution agreement with federal prosecutors. Several former partners, including co-founder Melvyn Weiss and William Lerach, have pleaded guilty in the case.

Lerach is serving a sentence of 24 months; Weiss was sentenced in June to 30 months in prison.

Selzer, who was scheduled to go to trial next month, has agreed to pay a $250,000 fine and serve an unspecified period of probation in home detention. He pleaded guilty on July 14. Sentencing is set for Nov. 3. His lawyer, David Wiechert, a solo practitioner in San Clemente, Calif., declined to comment.

Bonnie Vuong, chief assistant to U.S. Attorney Thomas P. O'Brien of the Central District of California, declined comment.

Selzer is a former lawyer for Seymour Lazar, a lead plaintiff in several of Milberg's cases who pleaded guilty last year to one count of filing false tax returns and one count of obstruction of justice. He also admitted that he made false statements in court. Earlier this year, Lazar was sentenced to two years of probation, including six months of home detention.

According to Selzer's plea agreement, the law firm in Palm Springs, Calif., where Selzer worked received about $991,000 from Milberg between 1984 and June 1995. A firm he later co-founded received another $190,000 from July 1995 to 2001. The payments were all earmarked for Lazar, who did not report the income to the IRS.

In the plea agreement, Selzer admits that in 2000 his firm reported to the IRS as its own income nearly $50,000 of payments from Milberg. Those payments should have been reported as income to Lazar.

Judge Approves NY Firm's $75 Million
 Mea Culpa, Drops Charges

By Amanda Bronstad
The National Law Journal
New York Lawyer
July 15, 2008

LOS ANGELES — A federal judge has agreed to dismiss charges against Milberg after the law firm agreed last month to a $75 million settlement. The firm had been charged with conspiracy, mail fraud, money laundering and obstruction of justice.

In an investigation spanning nearly a decade, the government had alleged that the firm and seven of its former partners made $251 million in attorney fees by paying secret and illegal kickbacks to lead plaintiffs. Milberg, which had been preparing for an August trial, avoided a plea deal under a non-prosecution agreement with federal prosecutors.

Several former partners have pleaded guilty in the case, including co-founding partner Melvyn Weiss and William Lerach. Lerach is serving a prison sentence of 24 months. Weiss is scheduled to begin a sentence of 30 months next month.

Milberg Agrees to Pay $75 Million to Settle
Criminal Charges New York Lawyer

By Anthony Lin
New York Law Journal
June 17, 2008

Federal prosecutors today reached a settlement with class-action law firm Milberg, four of whose former name partners have pleaded guilty in the past year to criminal charges relating to the payment of kickbacks to individual plaintiffs in shareholder cases.

The deal calls for the New York-based firm to pay $75 million in fines in exchange for the dropping of criminal charges. That amount is to be paid in installments through 2012, but the schedule will be accelerated if Milberg's revenues exceed $40 million in a single quarter or $120 million over four quarters.

According to the agreement filed in Los Angeles federal court, Milberg "acknowledges and accepts responsibility" for the actions of the former partners - Melvyn I. Weiss, William S. Lerach, David J. Bershad and Steven G. Schulman, who have pleaded guilty to participating in the kickback scheme.

But federal prosecutors also stated their "belief that no attorney currently a partner or associate with Milberg LLP is culpable with respect to the Investigated Conduct."

Sanford Dumain, a Milberg management committee member, said yesterday the firm had retained counsel to explore recouping some of the $75 million through litigation against its former partners. He declined to provide further details on those efforts.

Lawyers for the four ex-partners have either declined comment or did not return calls.

The firm has already placed the first installments of the fine, totalling over $22 million, in escrow, he said.

Mr. Dumain said the important thing was that the firm would now be able to move forward.

"It's very important to us to get this behind us and have the recognition that none of the current partners and associates had anything to do with the misconduct," he said.

As part of the settlement, the firm will also be required to maintain for an additional two years a "best practices" monitoring program it instituted several months prior to its 2006 indictment. The program overseen by former federal prosecutor Bart M. Schwartz is intended to ensure that the firm engages in no further misconduct in its handling of client matters.

That misconduct, which spanned over 25 years, helped make Milberg the dominant firm when it came to securities fraud class actions

At its height before a 2004 bi-coastal split, the firm then known as Milberg Weiss Bershad Hynes & Lerach was behind more than half of all securities class actions. The firm became Milberg Weiss Bershad & Schulman after Mr. Lerach left to found the San Diego-based firm now known as Coughlin Stoia Geller Rudman & Robbins.

Shareholder suits often settle for millions and even billions of dollars, reaping large contingent fees for those plaintiffs' firms designated as lead counsel. As a result, there is intense competition among firms to be so named.

Milberg's kickback scheme, which paid named plaintiffs 10 percent of legal fees in a case, allowed it to maintain a stable of such plaintiffs in order to swiftly bring claims on behalf of shareholders. Prior to the enactment of the Private Securities Litigation Reform Act of 1995, the first law firm to file such an action could count on winning lead counsel status.

Such agreements are illegal because named plaintiffs in class action suits are not permitted to have interests above those of other class members, to whom they owe a fiduciary duty. The named plaintiffs also falsely certified to courts that they were not receiving any payment for their services.

In the statement of facts accompanying the settlement agreement, Milberg today admitted earning around $239 million in legal fees on cases where plaintiffs were paid. The firm also admitted it concealed the fact that it illegally paid frequent class action expert witness John Torkelsen on a contingent-fee basis.

The firm further admitted kickbacks were paid to a number of New York-area stockbrokers who referred clients to act as named plaintiffs in Milberg cases. One of these, a lawyer-turned-stockbroker named Paul L. Tullman, received almost $9 million in payments from the firm between 1981 and 2005.

When Mr. Tullman received his last payment, the investigation of the firm's activities was already several years old. Prosecutors brought their first indictment in June 2005 against Seymour Lazar, one of the plaintiffs who received kickbacks, and Paul T. Selzer, a lawyer who allegedly facilitated the payments. Mr. Lazar and two other kickback recipients ultimately pleaded guilty in the case. With Milberg's settlement, Mr. Selzer will remain the only defendant.

Lead Figures Plead Guilty

It initially appeared the firm's two leading figures, Mr. Weiss and Mr. Lerach, who split off from Milberg to form his own California firm in 2004, had escaped prosecution when, in May 2006, only the firm and Messrs. Bershad and Schulman were indicted.

But after Mr. Bershad agreed to plead guilty last July, Mr. Lerach announced he too would be pleading guilty. Mr. Weiss was indicted in October 2007 and pleaded guilty in March. He was sentenced earlier this month to 30 months in prison. Mr. Lerach is already serving the two-year sentence he received in February.

Milberg saw a significant number of its lawyer depart the firm in the wake of its indictment, and the ongoing prosecution raised the possibility that the law firm might disintegrate in a manner similar to accounting firm Arthur Andersen, which fell apart after its indictment for obstruction of justice in the Enron scandal.

But Mr. Dumain said yesterday that Milberg, which has around 60 lawyers, remains one of the largest law firms in the securities class action bar.

"I think it's remarkable how many people have stayed here and gotten good results," he said. He also said the firm continued to have resources, like its own team of investigators, that other plaintiff's firms lacked.

Following its indictment, the firm was also fired by some client pension funds and removed from lead counsel roles by some courts. Mr. Dumain acknowledged these setbacks but said far more frequent had been instances in which Milberg had carried on with its work on matters while under indictment.

Barbara Hart, the head of securities litigation for competing firm Lowey, Dannenberg, Cohen & Hart, said Milberg had many young, talented lawyers and said she expected they would "put their best efforts forward to win new business."

But she said the firm's recent past will probably continue to be a factor with clients, as well as with courts.

"I don't imagine it will make things easier for them," she said.

For many in the legal community it will also be difficult to imagine the new Milberg carrying forward without Mr. Weiss at the helm. But Mr. Dumain said the firm had been planning for the 72-year-old Mr. Weiss' eventual retirement even before his indictment.

Milberg was represented by: William W. Taylor of Zuckerman Spaeder; Bryan Daly of Mayer Brown and former U.S. assistant attorney general Viet Dinh.

NY Firm Founder Gets 30 Months in Prison

By Amanda Bronstad
The National Law Journal
New York Lawyer
June 3, 2008

LOS ANGELES - A federal judge in Los Angeles yesterday sentenced Melvyn Weiss, the co-founding partner of Milberg, to 30 months in prison.

U.S. District Judge John Walter of the Central District of California, said it was "difficult to reconcile" Mr. Weiss' numerous charitable contributions with his criminal conduct, which "strikes directly at the core and heart of the judicial system."

Mr. Weiss, 72, is set to report to prison on Aug. 28. His lawyer, Benjamin Brafman, requested that Mr. Weiss serve his sentence at a men's minimum security facility in Morgantown, W.Va.

Under a plea deal reached earlier this year, Mr. Weiss agreed to forfeit $9.75 million and pay a $250,000 fine. At yesterday's hearing, Judge Walter said Mr. Weiss must pay $5 million of the forfeiture in seven days, with the remaining due within 180 days.

"I want to apologize to my family, to my professional colleagues and people within the organization that I built over the last 45 years," said Mr. Weiss, who bowed his head during most of the hearing. He said his "contrition is profoundly genuine," and that his punishment great, given he would lose his "life's passion and my ability to earn a living as a professional."

After the hearing, Mr. Brafman said he had anticipated that Judge Walter would sentence Mr. Weiss to 33 months.

"Accordingly, we're pleased that the court recognized the extraordinary life of Mr. Weiss and counted it in the sentencing analysis," Mr. Brafman said.

Prosecutors allege that Milberg and seven of its partners, including Mr. Weiss, obtained $251 million in attorney's fees by paying $11 million in illegal kickbacks to lead plaintiffs.

The Wall Street Journal reported yesterday that prosecutors are close to a $75 million settlement with Milberg, which faces an August trial.

Assistant U.S. Attorneys Douglas Axel and Richard Robinson, prosecutors in the case, declined to comment on the settlement talks.

A lawyer for Milberg, Bryan Daly, a Los Angeles partner of Mayer Brown, declined to comment beyond stating that "settlement discussions are ongoing."
Nine defendants have pleaded guilty to federal charges including conspiracy and racketeering. Six have agreed to forfeit more than $32 million in gains obtained from their alleged criminal activity.

In April, Mr. Weiss pleaded guilty to a federal racketeering conspiracy charge, admitting he lied to judges and secretly paid kickbacks to plaintiffs, in cash or through intermediary law firms, as part of a criminal enterprise that lasted 25 years.

He also agreed to serve 18 to 33 months in prison, with the option of home or community confinement for no more than half the sentence.

In recent weeks, Mr. Brafman, noting that Mr. Weiss would be 73 next month and citing his numerous charitable contributions, had been seeking a sentence of 18 months. More than 275 letters were submitted by former judges, law professors and lawyers - a collection that Mr. Brafman referred to at yesterday's hearing as a "breathtaking array of extraordinary work."

Mr. Brafman called Mr. Weiss "one of the greatest lawyers of this generation" and "one of the legal giants of the bar." In reiterating Mr. Weiss' charitable work, which involved helping the victims of the Holocaust and Sept. 11, he asked Judge Walter for lenience in his sentence.

Prosecutors in the case had backed a pre-sentencing report recommending 33 months.

At the hearing, Mr. Axel said that Weiss was "right in the thick of this conspiracy" and that, by refusing a plea deal, "he put the firm in the firing line in order to avoid responsibility for his own actions."

Judge Walter questioned the relevance of Mr. Axel's arguments.

In reaching his decision, Judge Walter said there was "no question that Mr. Weiss' charitable and civic work was extensive," and acknowledged that the letters were among the most impressive he had seen in his career.

But he said he was troubled about Mr. Weiss' conduct during a November 2003 meeting at which kickback payments were discussed with a lawyer for one of the lead plaintiffs, Howard Vogel. In court papers, prosecutors had said that meeting, which took place during the government's investigation, showed "criminal arrogance" on the part of Mr. Weiss. Mr. Brafman, in court papers, had countered that the meeting was the result of bad judgment.

"I do have concerns of Mr. Weiss' conduct after the government's investigation became known," Judge Walter said at the hearing. Specifically, he said, Mr. Weiss had been subpoenaed a few months prior to that meeting to provide documents related to a kickback to another lead plaintiff, Steve Cooperman, which was disguised as a phony art option. With such information, Judge Walter concluded, "all the facts just don't pass muster."

Both Messrs. Cooperman and Vogel have pleaded guilty in the case.

But at the hearing, Judge Walter appeared to agree with Mr. Brafman that the testimony of Mr. Vogel's lawyer was unbelievable.

Mr. Brafman also had attacked the government's reliance on testimony by two other partners, David Bershad and Steven Schulman, both of whom have pleaded guilty in the case.

Regarding the sentence, Mr. Brafman compared Mr. Weiss' age to that of William Lerach, another former partner, who, now 62, was sentenced in February to 24 months, the maximum allowable under a plea deal he reached with prosecutors last year. Mr. Lerach, who pleaded guilty to one count of conspiracy, agreed to pay $8 million in fines and forfeitures and reported to prison last month.

As at Mr. Lerach's sentencing hearing, Judge Walter called the conduct of the defendant in the case one of the most serious crimes of the court and said he had "serious reservations" about accepting the plea deal. But he disagreed with Mr. Brafman that Mr. Weiss' sentence should, at the worst, mirror that of Mr. Lerach's. Mr. Weiss, he said, "was one of the key players if not the architect of the criminal scheme."

Unlike Mr. Lerach, Mr. Weiss did not withdraw from the conspiracy after the government's investigation began, Judge Walter said. Further, Mr. Weiss obstructed the investigation, he added.

        NY Law Firm's Scheme Hurt Shareholders, Study Claims

By Anthony Lin
New York Law Journal
New York Lawyer
May 28 2008

As former securities class action king Melvyn I. Weiss awaits sentencing for his role in the payment of kickbacks to named plaintiffs in shareholder suits, a conservative think tank is set to release a study purporting to show that the scheme injured shareholders.

The American Enterprise Institute Legal Center is releasing today an article by Professor Michael Perino of St. John's University School of Law that takes on the argument that the Milberg Weiss (now known as Milberg) kickbacks constituted a victimless crime because the payments came out of legal fees awarded to the firm and named plaintiffs had incentive to maximize class recoveries.

Examining a database of 730 Milberg Weiss class action settlements and legal fee awards, Mr. Perino compared those that were cited in the indictments against the firm and its partners and those that were not. He found the indictment cases on average actually settled for slightly less than the non-indictment cases, suggesting the kickback incentives did not improve recoveries.

On the other hand, Mr. Perino found that the legal fees requested and awarded in the indictment cases were significantly higher than those in the non-indictment cases, and also higher than those in cases handled by firms other than Milberg Weiss.

According to the report, the findings support the notion that class members were hurt by the kickbacks, as they "appear to have received a lower proportion of the settlement proceeds than class members in otherwise substantially similar non-indictment cases."

Federal prosecutors have requested a 33-month sentence for Mr. Weiss, who pleaded guilty in March. He is in turn arguing for 18 months. His sentencing is scheduled for June 2.

Ex-NY BigLaw Partner Charged in Second Fraud Scheme

By Anthony Lin
New York Law Journal
New York Lawyer
May 27, 2008

Brooklyn federal prosecutors have further charged a former Baker & McKenzie partner, indicted last fall on securities fraud charges, with stealing from a client escrow account.

Martin E. Weisberg, 57, then a corporate partner in Chicago-based Baker & McKenzie's New York office, was charged in October by the Eastern District U.S. Attorney's Office with participating in an illegal short-selling scheme that netted two Israeli investors $55 million. The counts in the indictment include securities fraud, conspiracy and money laundering.

Federal prosecutors said today they had since uncovered Mr. Weisberg's involvement in a separate fraud scheme. He is now facing additional counts of wire fraud and money laundering.

According to the indictment announced today, Mr. Weisberg told three clients they would not receive interest on $30 million they deposited with him in an escrow account. Mr. Weisberg then allegedy deposited the money in an interest-bearing account which generated $1.6 million in interest between August 2006 and October 2007. Prosecutors claim Mr. Weisberg stole $1.3 million of it.

He faces a maximum of 20 years in prison on each wire fraud count and 10 years in prison on each money laundering count. He had already faced similar maximum sentences on his earlier securities fraud charges, as well as millions of dollars in fines.

One of the clients that placed escrow funds with Mr. Weisberg, Bahamas-based SIAM Capital Management, recently sued Baker & McKenzie over the firm's turning over of the company's documents to prosecutors in alleged violation of attorney-client privilege. But William J. Linklater, a partner who acts as spokesman for the firm, said recently the case had been resolved with the firm returning SIAM's documents. Mr. Linklater could not immediately be reached for comment on the new indictment.

Mr. Weisberg's lawyer, Elkan Abramowitz of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, also could not immediately be reached for comment.

According to the October indictment, Mr. Weisberg helped Israeli investors Zev Saltsman and Menachem Eitan gain access to hundreds of millions of discounted but restricted shares in two companies he represented.

The alleged scheme involved a series of so-called PIPE (private investment in public equity) transactions. In such transactions, large investors are allotted blocks of discounted shares, the sale of which are restricted until after a registration statement becomes effective. From 2001 to 2004, Messrs. Saltsman and Eitan allegedly used a variety of vehicles to invest almost $90 million in PIPE transactions, acquiring 123 million shares of Xybernaut and 101 million shares of Ramp.

The government charges that, prior to the effective date of the registration statements, the two would take short positions in the two companies' stock.

A technique utilized by investors betting a stock price will drop, short-selling typically involves borrowing stock to be repaid at a later date when the investor hopes it will be cheaper. Messrs. Saltsman and Eitan would set this date after the effective date of the registration statement, permitting them to use their discounted PIPE shares to repay the borrowed stock.

Messrs. Saltsman and Eitan were also charged in the October indictment, as were Edward G. Newman, Steven A. Newman and Andrew Brown, the top executives at the two companies whose shares were used in the scheme, New York health care software company Ramp Corp. and Virginia-based Xybernaut Corp., a maker of wearable computers. The Securities and Exchange Commission also filed a civil suit against the six men.

According to prosecutors, Mr. Weisberg and the executives at Xybernaut and Ramp were aware of what Messrs. Saltsman and Eitan were doing and accepted money to give them continued access to the company's PIPE deals. Mr. Weisberg allegedly received $3.1 million from the Israeli investors, keeping $1.7 million for himself and transferring $1.4 million to Steven A. Newman.

Edward Newman and Andrew Brown allegedly received payments of $100,000 and $50,000 respectively.

During most of the time the alleged PIPE scheme was ongoing, Mr. Weisberg, was a partner at New York's Jenkens & Gilchrist Parker Chapin, then an arm of now-defunct Dallas law firm Jenkens & Gilchrist. Most of the lawyers in the office, including Mr. Weisberg, left to open a New York office for Atlanta's Troutman Sanders in April 2005. Mr. Weisberg left Troutman Sanders soon after and became a partner in the New York office of Baker & McKenzie in August 2005.

In a strange twist, Mr. Weisberg had also previously faced fraud and money laundering in a 1991 case brought by federal prosecutors in Texas.

Mr. Weisberg had been a partner in the New York office of Philadelphia's Morgan, Lewis & Bockius when he was retained in 1989 by William W. Gray of Horseshoe Bay, Texas, to launch a corporation specializing in "arbitrage" of the Mexican peso. In a January 1991 indictment, the government charged the arbitrage was in fact a Ponzi scheme in which investors were promised returns of up to 600 percent a year based on the supposed currency trades.

Investors allegedly lost $27 million in the scheme. Mr. Weisberg left Morgan Lewis, where he had been a partner since 1987, in February 1991, shortly before he was added to the indictment.

Mr. Gray was found guilty on all counts and sentenced in October 1991 to 18 years in prison, from which he was released in 1998. Most of the other participants reached plea agreements. But Mr. Weisberg was acquitted after a trial at which Dick Clark of American Bandstand, a longtime client, testified as a character witness.

NY Firm Moves to Reduce Criminal Forfeiture in Scandal

By Amanda Bronstad
New York Lawyer
National Law Journal
May 23, 2008

Milberg Weiss has filed a pre-trial motion to chip away at the $251 million in criminal forfeiture being sought by federal prosecutors in the government's kickback case against the New York firm.

Prosecutors allege that Milberg Weiss, now known as Milberg, along with seven of its partners, obtained $251 million in attorney fees through illegal payments to name plaintiffs.

In March, founding partner Melvyn Weiss agreed to plead guilty to a federal racketeering conspiracy charge and pay nearly $10 million. Three other former partners, William S. Lerach, David Bershad and Steven Schulman, have pleaded guilty in the case. Lerach reported to federal prison this week to serve his two-year sentence.

In recent months, Milberg has been in settlement talks with prosecutors.

The recent motion addresses the more than $251 million being sought as "proceeds" derived from the alleged conspiracy and money laundering charges against Milberg. The motion says that, under forfeiture provisions, the firm is entitled to deduct direct costs associated with providing a "lawful service."

"Because Milberg was providing lawful services and is alleged to have done so in an illegal manner, any illegal 'proceeds' of its services must be calculated," the motion says. "Milberg is entitled to introduce evidence of its costs in litigating the class action lawsuits and to have those costs deducted from any amount found to be 'proceeds' of the offenses for which it is convicted."

Also, the government should only be allowed to seek forfeiture for those alleged crimes that occurred before Aug. 23, 2000, when the Civil Asset Forfeiture Reform Act became effective, the motion says. The government's charges involve cases from 1984 to 2005.

Milberg also opposes the government's request for a personal money judgment and seeks a jury's decision on the amount of the forfeiture for each crime.

Milberg's lawyer, William Taylor, a partner at Zuckerman Spaeder in Washington, declined to comment.

Thom Mrozek, a spokesman for the U.S. Attorney's Office for the Central District of California, declined to comment.

Milberg Weiss Founder Melvyn Weiss
 Pleads Guilty in Kickback Scheme

By Anthony Lin
New York Law Journal
New York Lawyer
March 20, 2008

Famed securities class action lawyer Melvyn I. Weiss has agreed to plead guilty to a racketeering charge for participating in a scheme to pay kickbacks to lead plaintiffs in shareholder suits.

The plea agreement recommends a sentence of between 18 and 33 months in prison for Mr. Weiss, 72. He also has agreed to pay $10 million in fines and forfeited fees.

Mr. Weiss is resigning from the firm, according to a statement on its Web site by Stanford Dumain, a member of its executive committee. Mr. Dumain said that the firm will change its name to Milberg LLP.

In a statement, Los Angeles federal prosecutors, who first launched the investigation of alleged kickbacks in securities cases several years ago, said they would ask the court to impose a 33-month sentence.

Mr. Weiss' lawyer, Benjamin Brafman, said in a statement the court would have discretion to substitute home or community confinement for up to half of Mr. Weiss' term.

Mr. Weiss and a number of his former partners at Milberg Weiss were the subject of a years-long investigation by federal prosecutors over their payment of some $11 million in kickbacks to individuals who served as name plaintiffs in their securities cases. Milberg Weiss was until recently the dominant firm in such cases, which typically settle for millions and even billions of dollars, earning large contingent fees for plaintiff's firms.

The kickbacks allowed the firm to maintain a stable of plaintiffs so it could swiftly bring a claim on behalf of shareholders. Prior to the enactment of the Private Securities Litigation Reform Act of 1995 (PSLRA), the first law firm to file such an action could count on winning coveted lead counsel status, reaping the largest share of legal fees. The plaintiffs were generally paid 10 percent of the legal fees received in their cases.

Such agreements are illegal because name plaintiffs in class action suits are not permitted to have interests above those of other class members, to whom they owe a fiduciary duty.

"This kickback scheme lasted for more than 25 years and had a severely detrimental effect on the administration of justice across the nation as lies were routinely made to judges overseeing significant cases," said U.S. Attorney Thomas P. O'Brien in announcing Mr. Weiss' plea agreement. "The scheme was based in greed and it affected the integrity of the courts and the interests of an untold number of absent class members."
Milberg Weiss, the firm Mr. Weiss co-founded, remains under indictment in the case, though Mr. Weiss was the last major figure from the firm to be facing individual indictment.

Former name partners William Lerach, David Bershad and Steven Schulman, all pleaded guilty last year.

In a statement, Mr. Weiss said: "I deeply regret my conduct and apologize to all those who have been affected, including all of the wonderful and extremely talented lawyers and other employees of the Firm, none of whom had any involvement in any wrongdoing. I believe that it is very important to preserve this unique legal resource for the benefit of victims of wrongdoing affecting the masses, who historically have been underserved in so many ways."

Mr. Brafman said yesterday that Mr. Weiss' plea should not cloud his legacy of pro bono work and philanthropy and that he hoped the court took these into account.

"Accordingly, despite his participation in the criminal conduct he has today acknowledged, I am nevertheless hopeful and confident that the Court will recognize Mel Weiss to be one of the true legal giants of his generation and a consummate humanitarian whose contributions to the Bar and the world community have been nothing short of spectacular," Mr. Brafman said.

If Mr. Weiss had proceeded to trial, his defense was expected to argue that he was so preoccupied with humanitarian and charity work during the charged period that Messrs. Bershad and Schulman had been able to carry on the kickback scheme without his knowledge.

Mr. Dumain, the Milberg executive committee member, apologized on behalf of the firm for Mr. Weiss' misconduct and pledged "faithful adherence" to "all legal and ethical norms ... as we move forward to rebuild our practice."

"Having previously believed former leaders' assurance of their innocence, the Firm is now seeking to find a fair and appropriate resolution of remaining issues so that we can continue our work on behalf of injured investors and consumers," Mr. Dumain stated.

NY Firm Bats .200 in Keeping
 Itself Out of Court on Kickback Charges

New York Lawyer
February 28, 2008
By Amanda Bronstad
The National LAw Journal

LOS ANGELES —­ A federal judge in Los Angeles has refused to grant four out of the five dismissal motions filed by Milberg Weiss in the federal government's kickback case.

Prosecutors allege that Milberg Weiss and seven of its partners, including its founding partner, Melvyn Weiss, generated $250 million in attorney fees by paying illegal kickbacks to name plaintiffs.

In January, Milberg Weiss filed motions to dismiss several of those claims, refuting charges that the firm committed mail fraud in failing to provide "honest services," obstructed justice by not turning over documents during a grand jury subpoena or violated New York's commercial bribery statutes. The firm also filed a motion challenging the government's depiction of a vast conspiracy, arguing that the indictment details separate schemes involving different plaintiffs. Weiss joined in those motions.

U.S. District Judge John Walter for the Central District of California refused to grant the four motions earlier this week, according to Assistant U.S. Attorney Richard Robinson, a prosecutor in the case.

Robinson declined to comment on the judge's decision.

Walter did not rule on a fifth motion to dismiss a money laundering count, which he set for a hearing on March 31.

Marina Ein, a spokeswoman for Milberg Weiss, declined to comment. Benjamin Brafman of Brafman & Associates in New York, who represents Weiss, did not return a call for comment.

Former Milberg Weiss Expert Witness
 Agrees to Plead Guilty to Perjury

By Amanda Bronstad
The National Law Journal
New York Lawyer
February 29, 2008

John B. Torkelsen, a former expert witness for Milberg Weiss, has agreed to plead guilty to perjury, admitting he lied to a federal court judge in a securities class action case about how he was getting paid.

Prosecutors in the Milberg Weiss case have been eyeing Torkelsen for years.

His ex-wife, Pamela, has been cooperating with prosecutors in that case.

Torkelsen, who ran Princeton Venture Research Inc. and Equity Valuation Advisors Inc., served as an expert witness in hundreds of shareholder derivative and class action lawsuits for several law firms from 1985 to 2003. In an announcement about the plea agreement on Thursday, prosecutors claim that Torkelsen was retained by several firms, including "one with a principal office in New York." According to prosecutors, the law firms told federal judges that Torkelsen was serving as an independent expert. But in secret, Torkelsen was being paid on a contingency fee basis. To maintain that secrecy, the firms would request reimbursement for fees that were never paid to Torkelsen. The firms also caused Torkelsen to lie, stating that he had been retained on a "non-contingency fee basis," and to write off his fees in unsuccessful cases and submit inflated fee requests.

For instance, from 1993 to 1996, Torkelsen charged class action law firms more than $60 million in bills. More than $7 million of those fees were written off or adjusted in unsuccessful cases. As a result, the firm overbilled others by the same amount to make up those costs.

In the case of the "New York law firm," Torkelsen inflated bills by more than $4 million, prosecutors allege.

Torkelsen admits that he falsely told a federal judge in San Jose, Calif., that he was retained on a "non-contingent engagement by plaintiff's counsel" in a 1999 case.

The plea agreement, which was filed in U.S. District Court for the Eastern District of Pennsylvania, also resolves related tax matters from 2003 to 2005 and was arranged by prosecutors in the U.S. District Court for the Central District of California who are handling the Milberg Weiss case.

In the Milberg Weiss case, prosecutors allege that the firm and seven of its partners generated $250 million in attorney fees by paying illegal kickbacks to name plaintiffs. Some of those name plaintiffs have pleaded guilty in the past year.

Torkelsen is serving a prison sentence in West Virginia after pleading guilty in 2006, in a separate case, to defrauding the Small Business Administration about his investment fund, Acorn Technology Fund. His lawyer in that case, Ralph Caccia, a partner in the Washington office of Atlanta-based Powell Goldstein, did not return calls.

Contrite and Cowed, "Scariest Lawyer in the World" Gets 2 Years

By Dan Levine
The Recorder
New York Lawyer
February 13, 2008

The gray-haired man in the black robe huffed. And he puffed.

But in the end, Los Angeles federal judge John Walter didn't blow up William Lerach's plea deal. Walter did, however, sentence the former securities class action king Monday to two years in jail — the highest penalty allowed under Lerach's agreement with the government.

The conspiracy at Lerach's former firm, Milberg Weiss, to kick back fees to class action name plaintiffs — and the lies told in court to cover it up — deprived other law firms "who played by the rules" a fair shot at lead counsel in securities cases, Walter said. Indeed, the lies formed the very bedrock of Milberg Weiss's business model, allowing it to prosper and collect millions in fees over the years, the judge said, all based on falsely earned credibility.

Such conduct stands in stark contrast to the generous and bright lawyer described in 159 letters submitted to the court on Lerach's behalf, the judge said.

"With all of his intelligence, I cannot imagine how Mr. Lerach lost his moral compass to become a key member of the conspiracy," Walter said.

Lerach, appearing in a black suit and a subdued blue tie that matched his tone, uttered just a few sentences to Walker, punctuated with pauses just long enough for the row of reporters to take down every word.

"I pled guilty in this case because I was guilty. I knew what I was doing was wrong," he said, halting. "It was, as they say, felony stupid."

Lerach apologized to his family, his former law firm, "and to the legal system I've abused." He added: "The conduct was completely unacceptable. I guess all I can hope is that you won't find it completely unforgivable."

Lerach, 61, pleaded guilty in September to conspiracy in connection with kickbacks paid to Daniel Cooperman, a former Beverly Hills doctor who fingered Lerach in exchange for leniency in an unrelated art fraud prosecution. The government indicted Lerach's former firm, Milberg Weiss, in 2006, along with partners David Bershad and Steven Schulman. The indictments capped a seven-year investigation.

Both Bershad and Schulman have pleaded guilty and agreed to cooperate. They await sentencing, which is scheduled for June. Melvyn Weiss, meanwhile, has pleaded not guilty and is currently scheduled for an August trial.

Some defense lawyers involved in the case said before Lerach's sentencing that if Walter took a harsh posture toward Lerach, it might make Weiss, 72, more likely to take his chances with a jury, figuring that the prospect of leniency before Walter would not be great. Given Weiss' age, though, a conviction at trial could effectively mean a life sentence. Weiss' lawyer, Benjamin Brafman, declined to comment.

Other name plaintiffs involved in the scheme, Howard Vogel and Seymour Lazar, have already been sentenced.

On Monday, Judge Walter did not seem in a forgiving mood. Walter told the full, but not packed, courtroom that but for the plea agreement, he would have sentenced Lerach to a prison term "substantially in excess" of 24 months. The government had asked for 24 months, while Lerach sought six months in jail and six months home confinement.

Before ultimately accepting the deal, Walter interrogated federal prosecutors about their reasons for entering into it. This created a window into the negotiations between the government and Lerach's lawyers, John Keker and Elliott Peters of Keker & Van Nest.

Assistant U.S. Attorney Robert McGahan noted that Lerach came to the government to discuss a plea before Lerach had been notified he would be indicted. Jail time was on the table from the very start of negotiations, McGahan said. The prosecutor at one point described Lerach as a "volunteer" for entering into talks with the government.

That set Walter off.

"Mr. Lerach certainly was not a volunteer in terms of Mr. Lerach calling the government, knocking on their door and saying, 'Here I am,'" the judge said.

Walter noted that Lerach had been under investigation for years, undermining any claim that he suddenly "saw the light."

"That's just not factually true," Walter said. "Being a former federal prosecutor, I know that didn't happen."

At that point McGahan expanded his answer, saying that although the government was confident in its analysis that the statute of limitations would not be an impediment to prosecuting Lerach, it was still a risk.

On the defense side, Keker said he told the government in negotiations that Cooperman was a "defense lawyer's dream" because of all of his shady behavior, and so would not be a credible witness. But Keker also noted that taking the case to a jury would have carried a big risk for Lerach as well, given the huge jail sentence that could follow a conviction.Probing the Milberg Weiss Probe

Federal prosecutors have it in for the ailing class action leviathan. Follow our complete coverage of the kickback investigation.

Ultimately, Walter said he respected the prosecutors and defense lawyers on the case, and that they were "assisted by a well-respected member of the court" who was a former federal prosecutor.

Walter did not identify the mediator, but a lawyer familiar with the case said he believed it was Central District Judge A. Howard Matz, who had already presided over discovery issues in the Milberg Weiss prosecution.

"I have a great deal of respect for my colleague's judgment," Walter said. Moreover, "judges should not intrude on charging decisions of prosecutors," he added.

Lerach will also be on supervised release for two years, pay a $250,000 fine, and disgorge nearly $8 million in fees. He also must complete 1,000 hours of community service.

In 2004 Milberg Weiss Bershad Hynes & Lerach split into two firms: one then known as Lerach Coughlin Stoia Geller Rudman & Robbins in San Diego, and Milberg Weiss Bershad & Schulman in New York.

Lawyer Sentenced in Kickback Scheme

By the Associated Press
The New York Times
February 11, 2008

LOS ANGELES (AP) -- William Lerach, a former partner at a prestigious New York law firm, was sentenced Monday to two years in federal prison for his role in a lucrative kickback scheme involving class-action lawsuits against some of the nation's biggest corporations.

Lerach, 61, was also sentenced to two years probation, fined $250,000 and ordered to complete 1,000 hours of community service.

"This whole conspiracy corrupted the law firm and it corrupted it in the most evil way," U.S. District Judge John Walter said during the hearing.

Authorities said Lerach's former firm, now known as Milberg Weiss, made an estimated $250 million over two decades by filing legal actions on behalf of professional plaintiffs who received kickbacks.

The firm paid $11.3 million in kickbacks to people who became plaintiffs in lawsuits targeting companies such as AT&T, Lucent, WorldCom, Microsoft and Prudential Insurance, prosecutors said.

Seven people, including three former partners at the firm, have pleaded guilty in the case.

Lerach, whose high-profile legal victories included a $7 billion judgment against now-defunct energy giant Enron Corp., pleaded guilty in October to one count of conspiracy to obstruct justice and make false statements.

"I pleaded guilty in this case because I was guilty," Lerach said before sentencing. "It was, as they say, felony stupid."

Prosecutors had recommended a two-year prison sentence along with two years probation and a $250,000 fine. Probation officials' proposed that he be imprisoned for 15 months.

Retired Lawyer Sentenced in Case Over
NY Firm's Alleged Kickback Scheme

By Thomas Watkins
The Associated Press
New York Lawyer
January 29, 2008

Seymour Lazar, a retired attorney who pleaded guilty in a lucrative kickback scheme involving class action lawsuits against some of America's largest corporations, was sentenced Monday to six months home detention and two years probation.

Federal prosecutors have said the 80-year-old Lazar was paid about $2.6 million to be a professional plaintiff and help the prestigious law firm now known as Milberg Weiss in its pursuit of the lawsuits.

Authorities said the firm made an estimated $250 million over two decades by filing such legal actions.

Seven people, including three former partners at the firm, have pleaded guilty in the case. Lazar was the first to be sentenced. He also was fined $600,000.

U.S. District Judge John F. Walter said he was outraged that a former attorney could "flatly lie" as part of legal proceedings.

The lack of respect for the legal system amounted to the "absolute height of arrogance," the judge said, adding that he would not have hesitated to send Lazar to prison it not for his age and deteriorating health.

Wearing a dark blue suit with a knitted sweater draped across his shoulders, presumably for extra warmth, the frail-sounding Lazar said he understood Walter's concerns but felt he had already been punished for his wrongdoing.

"I have been under investigation for seven or eight years and it has been seven or eight years of hard time," Lazar said. "That's all I can say."

With the judge's consent, Lazar remained seated throughout the hearing.

Lazar pleaded guilty in October to obstruction of justice, subscribing to a false tax return and making a false declaration to the court.

He could have faced up to 18 years in federal prison but prosecutors recommended home detention because of Lazar's declining health and his age.

Walter said he spent the weekend thinking about a suitable sentence for Lazar, worrying that a noncustodial term would send a message that wealthy defendants can buy their way out of confinement.

But ultimately, Walter said Lazar's infirmity made him unsuitable for prison.

Lazar thanked the judge after the sentencing.

"Good luck to you," the judge replied.

Lazar then left the courtroom and was greeted by members of his family.

Lazar has already repaid $1.5 million of the money prosecutors said he was paid as part of the scheme.

The law firm, previously known as Milberg Weiss Bershad & Schulman, paid $11.3 million in kickbacks to people who became plaintiffs in class action lawsuits against companies such as AT&T, Lucent, WorldCom, Microsoft and Prudential Insurance, prosecutors said.

The tactic allowed attorneys with the firm to be among the first to file litigation and secure the lucrative position as lead plaintiffs' counsel, according to court documents.

The firm dominated the industry in securities class action lawsuits, which involve shareholders who claim they suffered losses because executives misled them about a company's financial condition.

The three former partners who have pleaded guilty are William Lerach, Steven Schulman and David Bershad.

Lerach's high-profile legal victories included a $7 billion judgment against now-defunct energy giant Enron Corp. He pleaded guilty as part of a deal to conspiracy to obstruct justice and make false statements.

Schulman pleaded guilty to a racketeering conspiracy charge. He agreed to forfeit $1.85 million to the government and to pay a $250,000 fine.

Bershad pleaded guilty to conspiracy and agreed to cooperate with the government.

Firm co-founder Melvyn Weiss has pleaded not guilty to one count each of conspiracy, mail fraud, money laundering and obstruction of justice in a revised indictment.

The Milberg Weiss firm itself has pleaded not guilty to two counts of conspiracy and one count each of obstruction of justice and making false statements.

Judge Rips One NY Firm for Greed, Another for a Possible Conflict

By Zusha Elinson
The Recorder
New York Lawyer
December 5, 2007

Milberg Weiss can't seem to shake the shadow of its criminal probe.

In an order rejecting a class action settlement in a securities case, San Francisco Chief District Judge Vaughn Walker ripped the firm for asking for too much money. He also cited the firm's pending criminal charges at length in a discussion about whether the plaintiffs lawyers were really protecting the interests of the class.

The ruling came Friday in In Re Chiron Corporation Securities Litigation, in which plaintiffs accused the drug company of not disclosing facts about its failure to bring a flu vaccine to market in 2003 and 2004.

A settlement agreement of $30 million plus interest was reached in March between the plaintiffs and the drug company, which is represented by Skadden, Arps, Slate, Meagher & Flom. Walker denied Milberg's motion for preliminary settlement approval in his ruling and has set a case management conference for Dec. 20.

Milberg Weiss has been dogged by a criminal probe into allegations that the firm paid kickbacks to lead plaintiffs in major class actions. William Lerach and other former partners have pleaded guilty, though the Milberg Weiss firm and name partner Melvyn Weiss have pleaded not guilty and are fighting the charges.

In 2004, Milberg Weiss Bershad Hynes & Lerach split into two firms, then known as Lerach Coughlin Stoia & Robbins in San Diego and Milberg Weiss Bershad & Schulman in New York.

In the Chiron case, the plaintiffs lawyers sought $7.5 million -- a 25 percent cut of the settlement -- but Walker said it was too much. Walker wrote that when calculating the firm's hours using typical hourly fees, Milberg's request amounts to a multiplier of eight or even 10. The normal multiplier for class counsel, Walker wrote, is between one and four.

"Class Counsel need to justify both the application of a multiplier and its level as much as they need to show that their hourly rates are in line with competitive norms," Walker wrote.

The judge further questioned whether the lead plaintiff -- International Union of Operating Engineers Local No. 825 Pension Fund -- was an adequate class representative because, he wrote, by approving the big fee for the lawyers, it didn't appear to be trying to maximize recovery for the class.

Finally, Walker raised the criminal probe as a factor in considering the settlement agreement.

"It is against this tableau common to all class action settlement proposals that the criminal charges against lead counsel pose a concern here, because the kickback arrangements alleged criminally are that lead counsel gave the paid plaintiffs a greater interest in maximizing the amount of attorneys fees awarded to lead counsel than in maximizing the net recovery to absent class members," he wrote.

Defense lawyers were not immune from Walker's pen, either. Walker wrote that because Skadden is representing Lerach Coughlin in connection with the criminal probes, "the court is troubled whether Skadden, Arps is able to probe the adequacy of lead plaintiff and/or lead counsel lest a rigorous challenge uncover problems that might be traced back to Lerach Coughlin."

James Lyons, a Skadden lawyer on the case, would not comment on the ruling, but said that Skadden had worked for certain Lerach Coughlin lawyers but not the plaintiffs firm.

"Skadden has represented some individuals at Lerach Coughlin, none of whom had any involvement in the [Chiron] case, and we did not represent the Lerach Coughlin firm," he said Tuesday.

Patrick Coughlin, name partner at Coughlin Stoia Geller Rudman & Robbins -- the Lerach Coughlin firm's new name -- said that his firm, though an offshoot of Milberg Weiss, was not class counsel on the case.

"Whatever he does to Milberg, I feel sorry for them, but it has nothing to do with us," Coughlin said.

A Milberg Weiss attorney declined to comment on the ruling. Walker is known for his skepticism of securities class actions and has had disagreements with the firm before.

               Legal Giant Pleads Guilty in Kickback Scheme

By Anthony Lin
New York Law Journal
New York Lawyer
October 30, 2007

Former Milberg Weiss name partner William S. Lerach pleaded guilty yesterday to charges that he participated in a conspiracy to pay kickbacks to named plaintiffs in securities class actions.

Law Also Applies to Lawyers

By a Times Editorial
St. Petersburg Times
September 29, 2007

The United States is awash in lawyers, upward of a million of them, and they come in all stripes. Many are highly ethical professionals who act in the best interests of not only their clients but also the law. But far too many fit the negative stereotype and practice their craft for the purpose of personal enrichment irrespective of ethics.

An example of this insuperable greed is offered up in an indictment that is shaking the foundation of one of the nation's most venerable law firms. Melvyn Weiss, a leading class action securities lawyer and co-founder of the firm Milberg Weiss, faces federal conspiracy, racketeering and other charges for an alleged kickback scheme.

While Weiss denies any wrongdoing, the indictment charges him with participating in a decades-long strategy to pay individuals money if they would serve as named plaintiffs in large class action lawsuits. Named plaintiffs are needed before a class action suit can move forward. They are the representatives of a larger group of similarly aggrieved people, who may or may not be individually known.

Having a willing plaintiff in its back pocket would allow a law firm to be first at the courthouse to file cases, giving it a jump on other law firms, and to position itself to collect a bigger share of attorney fees. According to the New York Times, prosecutors in Los Angeles have said that Milberg Weiss paid out $11-million in kickbacks to ready plaintiffs in more than 150 cases, which translated into some $250-million in fees. The kickbacks allegedly have been going on for the last 25 years.

Things don't look good for Weiss. Some of his former partners have already pleaded guilty to charges, and at least one is cooperating with prosecutors. One of the men who served as a lead plaintiff in the class action lawsuits has pleaded guilty to charges related to the kickbacks.

Ethics may be a required course in law school, but too many lawyers fail to take its lessons to heart.

NY Name Partner Indicted, Could Face Up to 40 Years in Prison

By Anthony Lin
New York Law Journal
New York Lawyer
September 21, 2007

Prominent Lawyer to Be Indicted

By Barry Meier
The New York Times
September 20, 2007

Melvyn I. Weiss, a leading class-action securities lawyer, is expected to be indicted as early as today in connection with the kickback scheme that has ensnared his firm, Milberg Weiss, and several former lawyers there, the firm said yesterday in a statement.

The indictment of Mr. Weiss, 72, a legal and political powerhouse in New York, would be the capstone of a seven-year investigation into the law firm, one that started with the art fraud prosecution of a wealthy ophthalmologist who later admitted serving as a plaintiff-for-hire in several securities lawsuits brought by Milberg Weiss.

Last year, prosecutors in Los Angeles initially charged that Milberg Weiss paid $11 million in kickbacks to plaintiffs in more than 150 cases, a strategy that allowed it to beat other firms to the courthouse and earn more than $216 million in fees.

The charges against Mr. Weiss are expected to be part of a new superseding indictment against Milberg Weiss that will be filed in Los Angeles, the firm said. Thom Mrozek, a spokesman for the United States attorney’s office there, declined to comment.

In a statement, the firm said Mr. Weiss would fight the claims.

"Mr. Weiss has decided to discontinue his participation in firm management in order to focus on the defense of the charges against him," Milberg Weiss said in a statement. "The firm remains proud of Mr. Weiss’s and the firm’s accomplishments over the years."

His lawyer, Benjamin Brafman, said that he could not comment on any possible indictment because, to his knowledge, one had not been filed. But he added that if Mr. Weiss is indicted, he "intends to vigorously fight those charges, and will bring to the fight all of the talents and resources that have made him one of the most extraordinary lawyers of his generation."

The latest report about Mr. Weiss comes on the heels of a plea agreement announced on Tuesday between prosecutors and William S. Lerach, another prominent class-action lawyer who once worked at the firm.

Yet another former partner at the firm, Steven G. Schulman, is expected to soon enter an agreement to plead guilty to a conspiracy charge in connection with the kickback scheme, a person close to those talks said.

Mr. Schulman is expected to cooperate with prosecutors in the case and, like Mr. Lerach, will face a prison term, the person said. A spokesman for Mr. Schulman declined to comment.

A fourth former partner, David J. Bershad, pleaded guilty to conspiracy in July and has also agreed to cooperate with prosecutors.

An indictment of Mr. Weiss, a co-founder of the firm, coupled with the plea agreement by Mr. Lerach, would bring the fall of two lawyers who dominated the field of class-action securities litigation for more than a decade. Both men styled themselves as defenders of investors and consumers wronged by corporations; their critics, including defense lawyers and corporate leaders, viewed them as opportunists who turned class-action lawsuits into a big business.

The close timing of the plea agreement by Mr. Lerach and the indictment of Mr. Weiss suggested that both men were facing imminent indictment; given their choices, Mr. Lerach opted to cut a deal while Mr. Weiss chose not to for now.

The two men, who were allied for so long, split in 2004 after a bitter dispute. Along with the firm, several other individuals have been indicted.

Milberg Weiss, the law firm, has maintained its innocence. The trial against the firm was expected to start in January, but with Mr. Weiss’s apparent addition to the case, that proceeding may be delayed.

In many ways, the kickback scheme that prosecutors say that Milberg Weiss and its lawyers concocted was simple and effective. To file a class-action lawsuit, a lawyer needs a so-called named plaintiff, or an individual whose name will appear on the initial complaint as a representative of the class. The class could be a group of individuals, like shareholders of the same company.

Milberg Weiss, prosecutors say, essentially put named plaintiffs like the ophthalmologist, Dr. Steven G. Cooperman, on retainer and would, through disguised means, pay them 10 percent of any legal fees the firm earned. Having a ready list of named plaintiffs available also meant Milberg Weiss, by getting its cases filed ahead of other firms, could gain control of a case and get a bigger share of the legal fees.

Those payments, however, were hidden from judges overseeing the cases.

Dr. Cooperman pleaded guilty in July to conspiracy to obstruct justice and make false statements.

Milberg Weiss’s ranks have shrunk significantly since the firm came under investigation. In its statement, the firm said that prosecutors had not accused any of the firm’s other current partners of wrongdoing.

"We do not anticipate any interruption in our work, and we look forward to putting this difficult period behind us," the firm said.

Founder of Two National Firms
Pleads Guilty to Conspiracy, Is Disbarred

By Amanda Bronstad
The National Law Journal
New York Lawyer
September 19, 2007

LOS ANGELES-- Securities class action attorney William Lerach has agreed to plead guilty to a federal conspiracy charge as part of a criminal investigation into whether he paid kickbacks to named plaintiffs.

Lerach, a former partner at Milberg Weiss, also agreed to forfeit $7.75 million to the government, pay a $250,000 fine and serve one to two years in prison, depending on the judge's discretion. Lerach could serve some home detention as part of his prison time.

"I have always fought for my clients aggressively and vigorously in order to hold powerful corporations responsible when their actions harmed people, however, I regrettably crossed the line and pushed too far," wrote Christopher Lahane, a spokesman for Lerach, in an e-mailed statement on Tuesday. "For my actions, I apologize and accept full responsibility for my conduct." Prosecutors allege that Milberg Weiss and two of its former partners, Steven Schulman and David Bershad, collected more than $200 million in attorney fees by paying secret and illegal kickbacks to named plaintiffs. Earlier this year, Bershad and a named plaintiff, Steve Cooperman, agreed to plead guilty to the same conspiracy charge.

In a criminal information filed on Tuesday, federal prosecutors charged Lerach with conspiring to obstruct justice and make false statements under oath from 1981 to 2002.

As part of the agreement, Lerach, a former partner at Milberg Weiss, acknowledges that he and others hid secret payments to plaintiffs in class action lawsuits from federal judges presiding in those cases. He also acknowledges that he made such payments to named plaintiffs who were promised 10% of the attorney fees in Milberg Weiss cases, and admits that the named plaintiffs who received the kickbacks made false statements in court regarding those payments.

Specifically, Lerach admits he paid Cooperman, through intermediary lawyers Richard Purtich and James Tierney, with checks disguised as "referral fees" or other types of payments. Purtich pleaded guilty last year to funneling Milberg Weiss kickback payments to Cooperman. Cooperman used money from the alleged kickbacks to pay Tierney, who was convicted alongside Cooperman in 1999 of insurance fraud related to art theft.

As part of the deal, Lerach has not agreed to cooperate with prosecutors.

Also, prosecutors have agreed not to charge Lerach's former firm, now called Coughlin Stoia Geller Rudman & Robbins, or two of its partners, Patrick Coughlin and Keith Park, as part of the investigation.
On Tuesday, Dan Newman, a spokesman for Coughlin Stoia, issued an emailed statement: "The plea agreement announced today between William S. Lerach and the U.S. Attorney's Office categorically, definitely and unequivocally confirms that this firm has no exposure or liability in the matter." Attached to the firm's statement was a letter from U.S. Attorney George S.

Cardona to Lerach's lawyer, John Keker, of San Francisco's Keker & Van Nest, in which prosecutors said they were unaware of any pending criminal probes in other federal districts against Coughlin Stoia, or its predecessor, for violations of federal law, and that they had "no intention to pursue against any of the Lerach Firm Constituents any criminal charges." In the plea agreement, prosecutors also agreed not to prosecute Lerach for activities relating to his political contributions or investments in the Acorn Technology Fund, over which he faces a civil suit. They also agreed not to prosecute him for activities relating to payments to an unnamed "Princeton expert" he hired for cases while at Milberg Weiss and his former firm.

Prosecutors have long been eyeing plaintiff's expert John Torkelsen, who pleaded guilty last year to lying to the Small Business Administration about his investment fund, Acorn Technology Fund. His ex-wife, Pamela, has been cooperating with prosecutors in the Milberg Weiss probe.

Lerach is scheduled to appear in court for an arraignment in the coming weeks.

Lerach joined Milberg Weiss in 1976 and left in 2004 to form his own firm, now called Coughlin Stoia Geller Rudman & Robbins. He retired from his San Diego-based firm on Aug. 31.

The remaining defendants in the case are Milberg Weiss, Schulman, named plaintiff Seymour Lazar and his former attorney, Paul Selzer. They are scheduled to go to trial in January.

Marina Ein, a spokeswoman for Milberg Weiss, declined to comment.

U.S. District Judge John Walter for the Central District of California denied their motions to dismiss last month and has scheduled a status conference on Friday, Sept. 21.

Thom Mrozek, a spokesman for the U.S. Attorney's Office for the Central District of California, declined to comment.

NY Name Partner Pleads Guilty
 in Kickbacks Scheme, Forfeits $7.75 Million

By Anthony Lin
New York Lawyer
New York Law Journal
July 10, 2007

Troubled NY Firm Defeats Bid to Oust It From IPO Litigation

By Beth Bar
New York Lawyer
New York Law Journal
June 18, 2007

Embattled plaintiff's firm Milberg Weiss & Bershad, which has been indicted on criminal bribery and fraud charges in federal court in Los Angeles, will not be removed from a high-profile securities litigation pending in Manhattan federal court.

Southern District Judge Shira A. Scheindlin, saying the firm is "adequately" representing the class and that she "takes seriously the presumption of innocence afforded to defendants until proven guilty," last week denied the removal request filed in In re: Initial Public Offering Securities Litigation, 21 MC 92.

"Milberg Weiss [and the other co-lead plaintiffs] have spent years prosecuting this case and funding the litigation to the tune of several million dollars in actual expenses and over fifty million in fees," Judge Scheindlin said.

The issue stems from an action by Brooklyn solo practitioner Theodore A. Bechtold, who in May submitted a "formal" motion on behalf of his clients to intervene in the case against IPO underwriters and to remove Milberg Weiss, which is facing charges stemming from allegations that it "improperly" shared fee awards with certain plaintiffs.

In September 2005, while working for Stull, Stull & Brody, another firm involved in the litigation, Mr. Bechtold sent Judge Scheindlin an ex parte communication which contained "allegations regarding the plaintiffs' committee's discovery conduct," the judge said.

The firm subsequently fired Mr. Bechtold for cause.

Unfazed, Mr. Bechtold attempted to solicit clients through a series of press releases, in which he encouraged people who received materials relating to the IPO litigation in particular or from Milberg Weiss in general to contact him "to discuss [their] legal rights."

According to the decision, he accused Milberg Weiss in the releases of failing to charge all culpable parties and of "possible violations of duties owed to class members." He also said that mounting a defense to its own indictment has left Milberg burdened and distracted.

But Judge Scheindlin said there were "conclusory" accusations that amounted to "mere speculation . . . without any support."

"There is simply no evidence that Milberg Weiss' representation has suffered at all as a result of its defense or that it will suffer in the future," she said. "I will not disqualify and remove Milberg Weiss solely on the basis of the allegations in the indictment."

To do so, the judge said, would "undoubtedly prejudice the rights of the putative class members, who have been capably represented . . . and who the Court has no reason to doubt will continue to be adequately represented by those firms."

In response to Mr. Bechtold's motion, Milberg Weiss moved for a protective order barring him from issuing any class-wide communications without prior approval by the court.

In granting this request, Judge Scheindlin said that "based on Bechtold's history of personal animus" against Milberg Weiss and the other plaintiffs' firms in the case, as well as his "conduct in this litigation," there was "more than sufficient" justification for a minimal limitation on his class-wide communications.

She said that before Mr. Bechtold may issue any class-wide communications or press releases, he must submit a copy of the communication to the court for review.

Mr. Bechtold said in an interview on Friday that the judge "clearly ignored" his concerns and that he was "at a loss" as to how she could come to the conclusion she did.

Melvyn I. Weiss, a partner at Milberg Weiss, said Mr. Bechtold made "reckless statements" that were "unsupported by the evidence."

"The court came to the conclusion that he couldn't be taken seriously and that it was in the best interest of the client for us to continue on the case."

Jules Brody, a partner at Stull, Stull & Brody, said he could not comment on Mr. Bechtold's termination or the judge's decision.

Feds Win Milberg Discovery Battle

By Justin Scheck
The Recorder
New York Lawyer
December 5, 2006

L.A. federal prosecutors have won a behind-the-scenes discovery fight in the undying probe of plaintiffs firm Milberg Weiss Bershad & Schulman.

In a sealed ruling issued the day before Thanksgiving, U.S. District Judge A. Howard Matz ordered the production of reams of discovery that prosecutors had sought from various plaintiffs firms, according to lawyers familiar with the case.

Attorneys for Milberg -- which was indicted in May, as were two of its name partners, on charges of paying kickbacks to clients -- had argued that the material was covered by work-product privilege.

The documents relate largely to payment agreements with other firms for John Torkelsen, a former expert witness for the plaintiff goliath, said the attorneys.

Torkelsen has been the subject of intense interest as the prosecutors continue efforts to indict Milberg's former star partner William Lerach, who now heads the top plaintiff shop Lerach Coughlin Stoia Geller Rudman & Robbins.

The May indictment of Milberg accused that firm of giving fees to outside lawyers who in turn paid lead plaintiffs in class actions, constituting illegal kickbacks.

But the ongoing investigation looks beyond those charges at other transactions. Aside from the Torkelsen payments, prosecutors have spent years looking at referral fees Milberg allegedly paid to other lawyers -- and possibly stockbrokers -- in exchange for bringing them lead plaintiffs.

The stockbroker probes involve a group from Florida and brokers at the New York investment firm First Albany, said attorneys with knowledge of the case. A spokeswoman for First Albany didn't return calls.

Lawyers said the prosecutors are interested in whether Milberg paid brokers for referring investors to serve as lead plaintiffs in shareholder suits.

While such payments were made explicitly illegal by a 1995 federal law, it's not clear whether they were allowed in earlier years. That legal gray area, the lawyers said, muddles whether brokers could be forced to cooperate.

Last year, a Long Island, N.Y., broker -- and former Milberg partner -- Paul Tullman, pleaded guilty to tax charges and -- according to the Wall Street Journal -- is cooperating in the L.A. case.

The Fall of America's Meanest Law Firm
Milberg Weiss, the Lawsuit Factory
That Took Corporations for $45 Billion, Is in the Feds' Cross Hairs.

By Peter Elkind
Fortune Magazine
November 3, 2006

For decades, few things have inspired as much fear and loathing in the executive suites of corporate America as the law firm of Milberg Weiss and the two outsized personalities who ruled the place, Mel Weiss and Bill Lerach. Through creativity and ruthlessness, they transformed the humble securities class-action lawsuit into a deadly weapon.

Always, Milberg Weiss cast itself as the champion of the little guy. In media interviews Lerach has spoken Melvyn Weiss at a 2003 press conferenceevocatively about fighting for the honest, struggling blue-collar worker who, through no fault of his own, had lost his hard-earned savings to corporate perfidy. The firm boasts of having collected $45 billion for cheated investors since its founding in 1965.

But somewhere along the way, the work made its ruling partners a little like the CEOs they sued. In an especially profitable year, both Weiss and Lerach personally made more than $16 million. Weiss, 71, is a high roller at casinos who collects Picassos, owns a five-acre waterfront estate on Oyster Bay, Long Island, and has a vacation condo in Boca Raton.

The Brillo-haired Lerach, 60, who bitterly split with Weiss in 2004, taking Milberg's San Diego-based West
Coast operation along with him in a new firm, owns a William Lerach speaks at a press              home in Rancho Santa Fe, Calif., and vacation
conference  in May.                         properties in Steamboat Springs, Colo., and Hawaii. Lerach travels the country in a chartered jet, says his exercise is drinking Scotch, and will be married this month for the fourth time, to a partner at his firm.

Weiss and Lerach have also found themselves in the cross hairs of federal prosecutors. In the most extraordinary federal case now afoot in the land, Milberg Weiss has been indicted for allegedly paying three plaintiffs $11.4 million in illegal kickbacks in about 180 cases spanning 25 years - and then repeatedly lying about it to the courts.

The government says Milberg kept paying kickbacks into 2005, long after the firm knew it was under investigation. Name partners David Bershad, 66, and Steven Schulman, 55, have also been charged. (Both have pleaded not guilty, as has the firm.) The criminal probe has triggered an exodus of lawyers and clients. Once a veritable lawsuit factory - the firm averaged more than one new case a week during 2005 - Milberg has filed just a handful of suits in the five months since the bombshell landed.

And the feds are far from finished: Prosecutors have advised the presiding judge that there is "a significant chance" of a new indictment naming other defendants. Although both Weiss and Lerach insist they have done nothing illegal, the Justice Department has formally notified both that they are targets of the criminal probe. The two appear throughout the 102-page indictment as "Partner A" and "Partner B."

Even as its empire crumbles, Milberg Weiss has fired back, belittling the government's evidence, wrapping itself in legal principle, charging partisan politics by the trial-lawyer-hating Bush administration, and accusing the Justice Department of gross overreaching. But the truth is that Milberg Weiss is hemorrhaging from self-inflicted wounds: greed, hubris, lies, conflicts of interest, and shockingly poor governance - the very sort of venality and dysfunction that make for a juicy class-action lawsuit.

It makes for a wild yarn too - one with important implications for how our companies and courts do business. From a defrocked ophthalmologist with a taste for insurance scams to a retired speculator once known as Seymour the Head, Milberg Weiss's downfall is an improbable saga of deceit and payback. Our story begins, as one law enforcement official puts it, "with a b**** slap."

A domestic disturbance: The Cleveland lawyer confesses

When police showed up at 20563 Beachwood Drive in Rocky River, Ohio, an upscale Cleveland suburb, they were probably expecting to find just another domestic dispute. It was about 4 p.m. on Aug. 22,1996, and a 37-year-old woman named Pamela Davis had reported that her boyfriend had assaulted her, bloodying her mouth.

What the officers were not expecting was the dizzying tale that Davis began telling. She identified her attacker as James "J.J." Little, an attorney with Arter & Hadden, the big Cleveland firm. She said she'd met Little five months earlier at a bar and that although she was still married and had a young son, she and Little planned on tying the knot in December. She explained that Little had a $1,000-a-week crack habit, that it wasn't the first time Little had struck her, that one time she'd ended up in the emergency room, that Little was usually "a very gentle man," that she didn't really want to press charges, and that she was three months' pregnant with his child.

By this point it was clear to the officers that this was no ordinary lovers' quarrel. Davis turned out to be a local socialite on felony probation for buying clothes using stolen credit card numbers. In fact, she wasn't pregnant (and today denies ever telling police that she was). For his part, Little - who really did have a drug problem and who'd been calmly leaning against his Jeep in the driveway when the cops arrived, according to police - denied hitting Davis and claimed that he'd been trying to end the relationship.

Sometime during this dog day afternoon, according to the seven-page police report, Davis dropped another tidbit: Little, who had recently moved to Cleveland from California, was in possession of stolen paintings worth "millions of dollars" from Los Angeles. With that off her chest, Davis went back to complaining about her boyfriend's crack habit.

Within a few months the FBI had linked her story to an unsolved art theft back in L. A. Confronted by a pair of agents in February 1997, Little struck an immunity deal, then led the feds to a storage locker outside Cleveland rented by his mother, using the name of the family gardener. Inside were two cardboard boxes. The first contained Pablo Picasso's "Nude Before a Mirror," painted in 1932 and once owned by Henry Ford. The second held "The Customs Officer's Cabin in Pourville," painted by Claude Monet in 1882.

Little explained that he had brought the artwork to Ohio after having been given it to hold for "safekeeping" several years earlier by his former boss in L.A., James Tierney, an entertainment lawyer whose clients had included actor Timothy Hutton and singer Gloria Estefan. Where had Tierney gotten the paintings? He'd taken them, as part of a cunning insurance scam, at the behest of a friend who owned them: a retired eye surgeon named Steven Cooperman, who would become the feds' first big link to the alleged fraud at Milberg Weiss.

The robbery that wasn't: A bad doctor blows his cover

By July 12,1992, when Dr. Cooperman first reported the theft of the Monet and Picasso from his Brentwood home, he had already served as lead plaintiff in dozens of Milberg Weiss lawsuits. "Lead plaintiff" status made Cooperman the official representative of a class of investors in a company, and required him to convince a judge that his claims of stock market losses were "typical" of the group.

But Cooperman didn't exactly personify the humble defrauded investor evoked by Bill Lerach. He owned multimillion-dollar homes in Los Angeles and Connecticut, vacationed in the South of France, drove a Lotus, and collected Impressionist art. His claims of being innocently defrauded, time and again, were also hardly "typical" - or, for that matter, plausible.

In 1993, when Cooperman acknowledged in court papers that he had already served as plaintiff in 38 securities class actions, Dallas federal judge Joe Kendall wryly described him as "one of the unluckiest and most victimized investors in the history of the securities business."

Cooperman had time to spend on Milberg's lawsuits because he no longer worked. He had built a thriving eye-surgery practice in Beverly Hills, drumming up business by airing TV spots featuring Red Skelton and sending limos to pick up patients. In 1987 alone he earned nearly $2.4 million. But then the California medical board accused him of surgical malpractice: forging the signature of a patient on a consent form, and persuading a legally blind woman to sign forms she didn't understand.

When the board moved to revoke his license, Cooperman, then 48 and citing heart problems, settled the case in 1990 by agreeing to quit practicing medicine - and smoothly transitioned into a lucrative new career. He began claiming the proceeds of 18 separate disability-insurance policies, providing more than $600,000 a year in tax-free income. And he had begun serving as a serial plaintiff for Milberg Weiss.

By mid-1992 some of this history had begun to draw attention. A story in the National Law Journal discussing "professional plaintiffs" noted Cooperman's recurring role in Milberg cases as well as a court fight with a disability insurer who had sued him for fraud. Lerach fired off a letter to the editor vouching for his prized client: "Dr. Cooperman's reputation and character are impeccable, and any inference to the contrary which may be drawn from your article is unfair and unwarranted."

A bigger problem for Cooperman was that his highflying lifestyle had left him deeply in debt. He was behind on $6 million in loans and facing foreclosure on the house in Brentwood. It was just about this time that the Monet and Picasso paintings disappeared from Cooperman's home. Police were immediately suspicious. Nothing else was missing, there was no sign of forced entry, and the Coopermans' alarm system hadn't made a sound. But the doctor had an alibi: He and his third wife had been vacationing on the New Jersey shore.

The theft, of course, was faked. Cooperman had enlisted his lawyer friend Tierney, who agreed, as Tierney later put it, to "help him bury the body." Cooperman gave him the keys and the alarm code for the house; Tierney made off with the paintings after the doctor left for vacation.

When Cooperman got back, he filed a claim for the full insured value of the paintings: $12.5 million, vastly more than they were worth. Cooperman had bought the Monet in 1986 for $750,000 and the Picasso a year later for $957,000 - and scammed insurers into wildly overvaluing the works.

When the insurance companies refused to pay, Cooperman promptly sued, alleging bad faith and demanding the full $12.5 million, plus punitive damages. In short order, the insurers folded, agreeing to pay Cooperman $17.5 million. The insurers offered a $250,000 reward for recovery of the paintings, but they remained safely missing for almost five years - until J.J. Little slugged Pam Davis.

Little's cooperation with the FBI led to Tierney, who let the lawmen tape phone calls between him and Cooperman, still blissfully unaware that the FBI had recovered his artwork. "Sleeping dogs are best left sleeping," Cooperman declared in one call, when discussing what to do with the paintings. Cooperman had suggested throwing them into a dumpster, but Tierney rejected the idea: "The problem with a dumpster is that the garbage man comes and he picks 'em up, and he might say, 'Hey, this looks like a Monet!'" Cooperman then proposed running them through a shredder or cutting them up with garden shears.

In July 1999, after a ten-day trial in L.A., Cooperman was convicted of insurance fraud. Facing up to ten years in prison, he was released on a $10 million bond and returned to his estate in Connecticut. He hired a new lawyer, New Yorker Russell Gioiella, who raised the idea of cutting a deal with prosecutors to reduce his client's prison time. Did Cooperman know anything - anything big - that might be of interest to the federal government? "They aren't going to trade this case for a peanut," he told Cooperman. As it turned out, Cooperman did know something big: the secrets of Milberg Weiss.

Race to the courthouse: The magic of the serial plaintiff

By the time Steve Cooperman offered to rat out Milberg Weiss, the firm had become the 800-pound gorilla in the shareholder class-action game. Co-founded in 1965 by Mel Weiss, the Bronx-born son of a CPA, Milberg had started out small in a backwater business. But over the decades, Weiss expanded the frontiers of securities suits, bringing ever bigger cases.

Plaintiffs firms are paid on contingency, as much as 30% of whatever they win, and Weiss - unlike most plaintiffs lawyers, who settled fast and cheap - was willing to go into debt to press a case for years in search of a bigger payoff.

Lerach signed on in 1976, opening Milberg's California office in San Diego. He was ferocious and creative, and worked like a madman, building "Milberg West" into an operation that competed with the New York office for influence and profits. His special target was Silicon Valley companies, whose volatile stocks made them juicy prey; he transformed Milberg into a lucrative volume business that churned out scores of class actions a year. This business model allowed him to settle cases when he wanted; if defense lawyers didn't buckle, he'd simply cash in on another lawsuit and continue to torment their clients.

A favorite Lerach tactic was to scream at CEOs, telling one: "I'm going to take away your f***ing condo in Maui! I'm going to take away every penny you own!" Milberg sued several companies repeatedly - (Com Charts) nine times. T.J. Rodgers, CEO of Cypress Semiconductor (Charts), called him "lower than pond scum."

Nine out of ten cases did settle. Companies reasoned that paying up was safer and cheaper than going to trial, since insurance companies paid most of the settlement bill. On average, investors recovered only about 15 cents of every lost dollar, while Milberg Weiss routinely pocketed millions. Weiss and Lerach saw their personal takes soar from $3.4 million apiece in 1990 to $16 million in 1995. During the 1990s, both men earned more than $100 million. Bitter executives came to view it all as an extortion racket - they called it getting "Lerached."

But these lawsuits were only that profitable if Milberg Weiss ended up in charge of the case. By gaining the coveted role of lead counsel, the firm commanded the biggest fees and controlled the litigation. Until 1995 that job usually went to whoever filed first, winning the "race to the courthouse." That put a premium on having plaintiffs who lost money on the company's stock available at a moment's notice.

In practice, the plaintiffs were figureheads - the lawyers ran the case. So Milberg Weiss built a stable of plaintiffs with tiny holdings in dozens of companies, ready to lose money and bring suit within hours of a big stock drop. And that's where the likes of Steve Cooperman came in.

The doctor is in: Cooperman sings like a canary

When the retired doctor and his lawyer began trying to negotiate a cooperation agreement, Richard Robinson, the veteran assistant U.S. attorney in L.A. who had won Cooperman's conviction for insurance fraud, knew next to nothing about Milberg Weiss.

There were plenty of reasons not to do a deal. Cooperman's story was that Milberg had paid him to serve as plaintiff - usually about 10% of its fees. If true, the practice was illegal. Lead plaintiffs aren't supposed to receive any special compensation, just their share of the settlement and approved expenses. Indeed, the lead plaintiffs (and their attorneys) are required to swear under oath that they aren't getting special payments; lying about it would be a felony. Yet Robinson knew the charges might strike a jury as a legal nicety, since the money to pay the plaintiffs had come from the pockets of the plaintiffs lawyers, not investors.

Milberg was also a huge, politically charged target - a big supporter of Bill Clinton, then still in office. Plus the man auditioning for the role of government cooperator was a convicted felon. Did it make sense to launch a big investigation on his word?

Robinson, a lifelong Democrat, had no animus toward plaintiffs lawyers. But like most prosecutors, he was eager to chase a bigger case. A deal was soon struck: In return for his cooperation, Cooperman would remain free until 2001, then serve just 21 months. (He is now living in Connecticut.) A sealed July 2001 government sentencing recommendation obtained by Fortune cited his "valuable assistance in the initiation and development of a major criminal investigation." The document notes that Cooperman wore a body wire, initiated bugged phone calls, and helped persuade others to cooperate. A lifelong packrat, he produced letters and bank records.

And what a story he had! Cooperman told prosecutors that he, along with relatives and friends, had been paid for serving as plaintiff in about 70 cases over a decade. (The indictment says the total would turn out to be $6.5 million.) He explained that Lerach had introduced him to this new line of work in 1989. After contacting the firm about launching a potential shareholder lawsuit, Cooperman and a Brentwood buddy, Dr. Ronald Fischman, had met with Lerach in San Diego.

Lerach, Cooperman later testified in his divorce trial, "told us that it was very difficult for them to get people to be plaintiffs, and he volunteered that... they compensate the plaintiffs ... by giving them 10% of the fees that they receive." (Lerach declined requests for comment; his lawyer did not return calls.)

According to the indictment, Lerach urged Cooperman and Fischman to buy stock in different companies to position themselves as plaintiffs in future lawsuits. Dozens of cases and payments followed. But because Milberg wasn't supposed to pay plaintiffs, all of this had required certain arrangements.

Following Lerach's instructions, Cooperman testified, he enlisted lawyers to act as intermediaries for the payments. That gave the pretext that Milberg was paying referral fees to the attorneys for originating the case and providing the plaintiff. In most states such fees are legal, as long as the lawyer doesn't share the money with the client. But Cooperman's lawyers did share the money with their client; according to the government, they served as fronts, either passing the money on to Cooperman by personal check or using it to pay bills that Cooperman had run up for other litigation.

Milberg, for example, sent 35 checks totaling $3.5 million to Richard Purtich, an L.A. insurance lawyer who had represented Cooperman in various court battles. (Purtich has pleaded guilty to a felony tax charge in the case.) Cooperman directed another $2 million in Milberg payments to James Tierney. Cooperman's brother-in-law Bruce Bjork served as another conduit; according to the government, Milberg paid him $245,000 for consulting work he never performed, and he passed most of it on to Cooperman. (Bjork declined comment.)

Cooperman reported recruiting others to serve as plaintiffs and share in the windfall - his wife, Nancy; a second brother-in-law; a Beverly Hills pop psychologist named Mel Kinder; and Fischman. (Most of these people are now cooperating with prosecutors.)

Milberg's criminal defense counsel responds that the firm believed it was paying legitimate referral fees and had no idea the money was being passed to plaintiffs.

During his divorce trial, Cooperman said both Weiss and Lerach paid him directly. He testified that one $175,000 check came "from Mr. Weiss himself." (Weiss's lawyer says it was a down payment for a painting he planned to buy from Cooperman.) Cooperman described driving with his wife to San Diego to pick up "a cash payment" from Lerach."... We sat at - at a conference table where he handed us an envelope. And he said, 'Here is $16,000.'" (Nancy Cooperman testified that she never saw any cash change hands.)

On another occasion, Lerach was exulting over a big windfall from a lawsuit against Apple Computer (Charts). "Too bad you weren't the plaintiff," Cooperman testified Lerach told him. "You could have made a lot of money in this case."

As Cooperman described it, a major player in the payment scheme was David Bershad, the now indicted partner who served as Weiss's No. 2 and, in effect, chief operating officer of the firm. (Between 1983 and 2005, Bershad earned $160.9 million.) The indictment says Bershad kept a safe in his credenza, from which cash payments to plaintiffs were doled out. Bershad typically signed the checks to Cooperman's intermediaries.

According to the indictment, Cooperman's kickbacks continued until Feb. 25,1999, when his pending trial for insurance fraud brought his career as a paid plaintiff to an end with a final payment of $145,305. But by then, Cooperman testified, it was clear that his was neither the only such arrangement nor the first: "At the time what was going on with Milberg Weiss was a very well-known activity. It was just an activity that Milberg Weiss did with a number of people."

When the prosecutors had digested Cooperman's story, that was precisely what they were wondering about. What Robinson needed was more Coopermans - without the felonious baggage. But finding them wasn't going to be easy. Robinson spent months studying hundreds of Milberg cases, looking for repeat plaintiffs. Once he'd found them, he'd track payments. Subpoenas sent to a law firm required approval from Washington, slowing everything down. Milberg itself wasn't eager to cooperate, of course. And the case generated little enthusiasm or support inside the U.S. attorney's office in L.A., even after Republicans moved in at the Justice Department. "This case could have died at any moment, and no one in D.C. would have given a s***," says one lawyer.

In January 2002 subpoenas finally went out to a group of repeat Milberg plaintiffs. Among the unhappy recipients was a wealthy retiree from Palm Springs named Seymour Lazar.

American eccentric: How Seymour made his pile

When Lazar appeared in federal court in L.A. earlier this year after being charged with fraud, conspiracy, and obstruction of justice in the Milberg Weiss case, it seemed a miracle he was still alive. A small, wild-haired man, Lazar, now 79, sat in a wheelchair and listened to the proceedings with a hearing aid. Later court filings detailing his medical history - and asking for the charges to be dismissed because the stress of a trial was likely to kill him - reported that Lazar was suffering from congestive heart failure, diabetes, renal failure, high blood pressure, anemia, gout, strokes, a suppressed immune system, and cancer (in remission).

Yet Lazar, who had pleaded not guilty, remained combative and defiant. He'd recently protested his innocence on the front page of the Wall Street Journal, declaring, "I swear, they treat me like an absolute thug.... Who did I cheat? Did anybody get screwed?" While Milberg Weiss was insisting that it had no idea its "referral fees" were ending up with plaintiffs, Lazar admitted that Milberg had paid him. He simply argued that no one got harmed because the money came out of the law firm's pockets.

Seymour Lazar is a Great American Eccentric - a wily wheeler-dealer who hates wearing socks. He's retired from highly profitable careers in entertainment law, finance, and real estate. But that doesn't begin to do Lazar's history justice. During the 1950s he dated poet Maya Angelou; during the 1960s he served as manager for comedian Lenny Bruce and hung out with LSD guru Timothy Leary.

In the bestselling book, Supermoney, "Adam Smith" memorialized Lazar as "Seymour the Head" - "formerly a respectable Los Angeles lawyer with a respectable wife and child, who discovered arbitrage, mind-blowing chemicals, and a new life style all at the same time." After years spent overseas, he settled in Palm Springs, where he made tens of millions speculating in desert real estate.

Lazar was litigious too. He sued his wealthy father's estate after being disinherited. He sued Donald Trump and Carl Icahn. In 1980, after Hertz charged him $11.15 for returning a rented Pontiac without filling the tank, he led class actions against rental-car companies. Whatever the motivation, this "feisty little prick," as he was described by one chronicler of the 1960s LSD scene, allegedly received $2.4 million in kickbacks for serving as a plaintiff (with his relatives) in about 70 Milberg cases dating back to 1981.

Lazar first met Mel Weiss after being named a defendant in a 1973 Milberg lawsuit for failing to disclose his stock holdings in a corporate takeover. He assumed the role of Milberg plaintiff three years later, when Lerach - who had just arrived at the firm - sued Gap Charts) over its IPO.

The indictment suggests that Lazar's relationship with Milberg Weiss established the pattern that Cooperman and other paid plaintiffs would follow: Lazar bought small stakes in companies to position himself as a "defrauded" plaintiff; recruited relatives (a son, a daughter, his wife, and mother-in-law) who also served as Milberg plaintiffs; received 5% to 10% of Milberg's take after the firm was paid; and arranged for Milberg to send the money to attorneys who did unrelated work for him, in the guise of referral fees.

The government says Lazar's arrangement involved six lawyers in three states. On one occasion, Milberg Weiss got its serial plaintiffs mixed up, sending a $25,000 check to a Lazar lawyer for a case where Cooperman had served as plaintiff. Twice it paid two firms for referring Lazar in the same case.

Much of Lazar's Milberg money went through Paul Selzer, a respected real estate attorney who worked in the Palm Springs office of Best Best & Krieger, or BB&K. (Selzer has pleaded not guilty to money laundering.) Beginning in 1984, Selzer received a steady flow of Milberg checks, often with cover letters citing Selzer's involvement in Lazar's class-action lawsuits. After paying Lazar's bill at BB&K, according to the government, Selzer passed on the rest to Lazar and others Lazar wanted paid, such as his accountant or engineers working on Lazar's various real estate projects.

Job Lazar, Seymour's son and a lawyer himself, also got a piece of the action. In March 1995, after Milberg received a $969,000 fee in a United AirlinesCharts) class action (Job's half-brother Adam had served as plaintiff), it sent a $250,000 check to Job, identifying the money as "your participation in our fee" in the United suit. Over his 20 years as a Milberg plaintiff, Seymour Lazar repeatedly denied under oath that he was getting paid.

By 1994, BB&K partner Daniel Olivier, a Selzer protégé, began to entertain doubts about the propriety of the ongoing arrangement, and put those doubts in a memo. Lazar wanted to have it both ways - to have his California lawyers claim the payments were legitimate referral fees that belonged to the firm, yet apply the money toward his bills.

"Mr. Lazar does not wish to have this relationship documented," Olivier noted. Lazar was proposing that the firm spend "excess" funds on personal items for him, such as making lease payments on cars and charitable contributions, Olivier added. "Mr. Lazar argues that these things would simply be 'business favors' for a very profitable firm client." But Olivier was doubtful. Lazar's "business favors" cover story wouldn't stand up to outside scrutiny. "To us," Olivier wrote, "it just smells bad and probably would to an investigator."

Yet Lazar continued sending work to the firm, and a year later, when Selzer left BB&K to open his own law office, Olivier took over Selzer's role with Milberg and Lazar. Olivier, who remained at the firm until 2004, when investigators started asking questions, is now expected to be a government witness. Selzer's attorney claims the arrangement was approved by BB&K management - as does Lazar. "Everything was declared and everyone knew about it," Lazar said in a May interview with the Riverside Press. BB&K vehemently denies this, saying Selzer and Olivier were acting on their own, without the knowledge of anyone else at the firm.

After Lazar's subpoena from the U.S. attorney's office arrived in January 2002, according to the government, Lazar instructed his accountant to destroy records concerning his relationship with Milberg Weiss. His career as a serial plaintiff was over. (Lazar could not be reached for comment.)

The divorce: Weiss and Lerach part ways

By 2002, Mel Weiss was flying high. His firm was thriving, despite a move by Congress to rein in class actions. It had survived a coup attempt by a partner who had unsuccessfully urged Weiss to oust Lerach before his recklessness destroyed the firm. In 1999 it had endured an embarrassing trial in Chicago on an abuse-of-process suit filed by Daniel Fischel, a star damages expert for the defense bar. There was testimony about how Weiss had told Fischel, "I'm going to destroy you" - and how Lerach had vowed "to put the little f***er out of business." After a jury awarded Fischel $45 million and prepared to consider punitive damages, Milberg settled for $50 million.

Despite that, Weiss's firm had grown to more than 200 lawyers - four times as many as any of its rivals. And it had won appointment as lead counsel in Enron, the mother of all class actions. There was, of course, the small matter of the criminal investigation in L.A., but no one at Milberg seemed worried. Cooperman was easily branded a miscreant - never mind that he had been their miscreant. And if the feds seemed to be zeroing in on Lazar, that didn't bother them either. Seymour had long proved a wily prey.

There were other distractions too. In 2004, Weiss was being sued by one Labib Labib, a waiter at the New York Palace Hotel. In legal papers, Labib, a 34-year-old Egyptian immigrant, claimed he had arrived to provide room service to Weiss on June 25,2003, when an "unruly and wild" dog made him trip and break his foot. Labib says he was taken to the hospital and missed three months of work.

The dog, a Maltese, actually belonged to Paris Gordon, a 46-year-old Manhattan fashion designer who was in Weiss's room at the time, according to Labib's complaint. The waiter asked for $1 million in damages. There was a rich irony in Mel Weiss getting sued by an aggressive plaintiffs lawyer demanding a princely sum on behalf of a humble man. Gordon, who told Fortune she was visiting Weiss to discuss a legal matter, accuses Labib of engaging in a shakedown, seeking "a relief program for his life" because "Mr. Weiss is so rich."

But Labib and his lawyer, Howard Ross, say Weiss strung the case along through repeated court postponements; Ross says Weiss finally settled the case for "close to 50 grand" in 2005 on the eve of his scheduled deposition. In a written statement, Weiss lawyer Benjamin Brafman states, "Mr. Weiss was represented by counsel assigned by his insurance company, and the case was settled for nuisance value. Paris Gordon Inc. was both a client and a company in which Mr. Weiss invested." Nuisance value, of course, is precisely what corporate America says it settles Milberg class-action suits for.

Amid all these issues, Milberg Weiss itself split in two.

Weiss and Lerach had long been on a slow-moving collision course over money, power, and credit. Where Lerach seemed to relish being loathed, Weiss craved respect and reveled in his role as dean of the plaintiffs bar. The final straw came in June 2003, after Lerach - frustrated in repeated attempts to control yet another big class action - threatened to sue two Milberg rivals who had been named co-lead counsel in the WorldCom case, firing off a letter demanding to know how much malpractice insurance they carried.

In fact, the rival firms were representing a key client in other cases for Milberg's New York office. Weiss wrote the rival firms, advising that they should consider Lerach's demand for the insurance information "withdrawn" and apologizing "for any inconvenience that it may have caused."

The divorce became official in May 2004. Lerach got the California offices for his San Diego-based firm, now called Lerach Coughlin Stoia Geller Rudman & Robbins. Weiss got everything else, in what was renamed Milberg Weiss Bershad & Schulman. Ongoing cases would be split up, with the ultimate recovery to be apportioned between the two firms.

Inside Milberg Weiss, many felt that the departure of Lerach offered an opportunity to establish a modicum of democracy within the partnership, which had always been run as an autocracy. Weiss agreed to establish a new management committee, but real power remained in the hands of the name partners - Weiss and Bershad had veto power over any decision.

There was also relief in New York that with Lerach gone, the firm had gained some distance from the criminal investigation. Cooperman and Lazar both had been in California; whatever crazy stuff had gone on was surely under Lerach's watch. In any case, it looked as if the prosecutors were coming up dry. As best anyone could tell, they'd done little more than issue wave after wave of subpoenas since 1999. Says a former Milberg partner: "They took years to get their d*** out of their pants."

But by 2004 the investigation was taking a surprising turn. Robinson, the methodical assistant U.S. attorney who had launched the case, had been joined by an aggressive colleague, Bob McGahan, whom one government witness describes as "your typical mad-dog Irish prosecutor." A third prosecutor would soon come aboard.

In June 2005 the first big blow fell: Lazar and Selzer were indicted, baring the framework of the alleged paid-plaintiff scheme by a "New York law firm." A former Milberg partner named Bob Sugarman, granted immunity from prosecution, soon found himself in front of the grand jury. The former head of the case-starting department in New York, he would prove a jaw-dropping witness, pointing the prosecutors to a third serial Milberg plaintiff.

The Goldilocks plaintiff : Not too sleazy, not too cranky

It seems improbable that the criminal prosecution of Milberg Weiss should rest so heavily on the slight, 61-year-old shoulders of Howard Vogel, a retired mortgage broker living in Florida. He's a bent, bookish-looking man who survived a childhood bout with polio and suffers from severe arthritis, leaving his hands permanently curled.

But to prosecutors, he was the Goldilocks plaintiff: not too sleazy, like Cooperman; not too cantankerous, like Lazar. Vogel seemed just right, with a clean past and a healthy dose of remorse. After Sugarman sent prosecutors his way, Vogel, who had failed to pay taxes on the money he had received, quickly cooperated. He'd offer damning accounts of dealings with Bershad, Steve Schulman, and even Weiss.

Most remarkable, Vogel had told prosecutors he'd received payments from Milberg as late as 2005. If true, this meant the firm was continuing its dubious practices years after it knew a criminal investigation was underway. (Vogel and his Washington attorney, Mark Rochon, declined to comment.)

Vogel's involvement with Milberg Weiss dated back to 1991. Then living with his wife, Eugenia, in Englewood, N. J., Vogel liked to play the market, and he was furious when his stake in Valero Charts), a Texas energy company, plunged. He called Milberg's office and was soon talking to Sugarman about serving as plaintiff for a class action. Howard J. Vogel v. Valero Energy was filed in San Antonio on Aug. 20,1991 - but only after Vogel had received Sugarman's assurance that he would get a piece of Milberg's fee.

According to the statement of facts accompanying Vogel's plea, he met with Bershad and Schulman months later to negotiate the amount: 14% of the firm's take, plus $10,000 to cover his loss on Valero. Vogel says the two men also instructed him to find a lawyer to serve as an intermediary because Milberg could not pay him directly.

Vogel recruited Gary Lozow, his fraternity brother at Indiana University. Lozow was a criminal lawyer in Denver - he had represented the family of Columbine killer Dylan Klebold - but had nothing to do with securities litigation. He'd also done nothing to refer Vogel to Milberg Weiss; the case had already been filed. No matter. In October 1992, Milberg sent Lozow a retainer agreement, promising to pay him 14% of its Valero fee "on the basis of your efforts in this matter and your having shared in the work and responsibility." Two months later, after Milberg collected $4.75 million for the case, it sent Lozow a check for $637,223. Lozow sent the money to Vogel.

Vogel - along with his wife and stepson - went on to serve as plaintiff in about 40 Milberg cases, receiving $2.49 million, according to the government. Usually the money went through Lozow or a New York real estate lawyer Vogel knew; on one occasion, he says, Sugarman gave him an envelope stuffed with cash.

Vogel's biggest windfall came in the giant Oxford Health Plans case. Viewing the health insurer as a juicy target for yet another Milberg lawsuit, Vogel had spent $3,918 to buy 50 shares for his retirement plan in 1997. Sure enough, the stock plummeted, and Milberg filed a class action in Connecticut, with the Howard Vogel Retirement Plan as plaintiff. Vogel signed a sworn declaration that he hadn't purchased the Oxford shares to participate in litigation and would not accept any special payment for serving as plaintiff. In 2003, when Milberg received $40 million in attorneys' fees from Oxford, Vogel was told by Schulman that his payment would have to be negotiated with Weiss. After Vogel sent a memo on the subject to Weiss's office, Schulman told him Weiss wouldn't discuss the matter on the phone; Lozow would need to come to New York to talk with Weiss. The two men met for about 30 minutes on Nov. 10, 2003. The allegations of paying plaintiffs were apparently much on Weiss's mind. "We're under investigation," Weiss volunteered at one point, according to a source.

But that didn't alter Milberg's arrangements. In mid-December, the firm sent Lozow a check for $1.1 million, citing their "joint representation" of Vogel in Oxford. A second $120,000 check, for a case where Vogel's stepson had served as plaintiff, went out the same day. In January, Lozow wired $1,205,932 to a bank account Vogel had set up. (Brafman, Weiss's lawyer, says Weiss believed he was merely negotiating a "lawful referral fee" for Lozow. Lozow's attorney says his client is "working closely" with prosecutors.)

Milberg kept filing lawsuits - and paying Vogel - for two more years. Vogel bought shares of companies that might be buyout targets, opening them up to shareholder derivative suits in Delaware, a specialty of Milberg partner Steve Schulman. Schulman even had some of the lawsuits drafted ahead of time, so that they'd be ready to file at a moment's notice - "shelf complaints," they called them.

Vogel eagerly offered ideas, as in 2000, when he bought 100 shares of Infinity Broadcasting in anticipation of Viacom making a takeover bid, and wrote Schulman, "As we just discussed, [Eugenia] owns shares of Infinity Broadcasting.... I feel that a complaint should be drafted and ready to go." Sure enough, Viacom announced the acquisition, and Milberg filed its lawsuit seeking a higher buyout price that very day, with Vogel's wife as plaintiff. When Milberg banked $2.5 million in attorneys' fees, it sent $86,923 to Vogel's New York lawyer, who forwarded most of the money to Vogel.

The last payment from Milberg Weiss, for $10,800, was sent to Lozow, as a "referral fee" for Eugenia Vogel's role as plaintiff in a Delaware case against BarnesandNoble.com on May 19, 2005 - five years after the criminal investigation began.

Indictments: The Feds get angry

By late 2005, prosecutors were furious at Milberg's response to the investigation. When a company finds itself under criminal scrutiny, it is expected to halt the suspect behavior, cooperate with investigators, launch its own inquiry, and bar anyone under investigation from dealing with the problem, to make sure he doesn't jeopardize the business by trying to save his own neck. These are among the Justice Department's specific criteria for deciding whether to indict a corporate entity.

As prosecutors saw it, Milberg flunked on every score. It was refusing to turn over key materials, citing attorney-client privilege. Weiss, Bershad, and Schulman were still calling the shots. Worst of all, the firm had kept paying kickbacks. "When they know we're looking at them, and you still have activity all the way into 2005, it's extremely problematic," says Debra Wong Yang, U.S. attorney for the district that includes Los Angeles.

In mid-2005, the government had issued target letters to Weiss, Lerach, Bershad, Schulman - and Milberg Weiss. On Dec. 29, prosecutors wrote Milberg's outside legal team - led by Bill Taylor, a partner with Washington's Zuckerman Spaeder - that the firm would be indicted unless it pleaded guilty. Taylor protested. No law firm Milberg's size had ever been charged with a crime. Indicting the firm would surely be devastating, and as even the government acknowledged, only a handful of Milberg's 365 employees played a part in the alleged kickbacks. But as the feds saw it, the dirty players at Milberg were the ones who ran the place - and they were still showing no sign of contrition.

Weiss repeatedly reassured the partnership that it faced no danger. After Lazar's indictment, Edith Kallas, who served on the firm's management committee, had pressed Weiss to bring in an outside firm to investigate Milberg. He refused. Management committee members urged Weiss to turn over all decisions about the investigation to the nontargeted partners on their committee - that meant excluding Weiss, Bershad, and Schulman. But Weiss wouldn't do that either. (Taylor insists that many key decisions were turned over to nontargeted partners.)

Weiss and Taylor began presiding over a string of partnership meetings, each less comforting than the last. Nothing terrible was on the horizon, Taylor insisted in early 2006. The investigation was to be carried out in "phases," and the firm couldn't be charged unless the prosecutors in L.A. first sent a proposed indictment to the Justice Department for review - and that hadn't been done.

At the next meeting, Taylor seemed less sanguine. A partner named Elaine Kusel asked him directly: Had the investigation reached the next "phase"? Had a draft indictment of the firm been sent to Washington? Taylor acknowledged that it had. "At that point, there was a shock wave in the room," recalls a former partner. As the crisis deepened, a few lawyers talked about rallying the partnership's rank and file to challenge Weiss themselves. But ultimately, no one had the stomach to rush the cockpit. Says one former partner: "It was Mel's world, and everyone else just lived in it." (Taylor says he cannot discuss his legal advice to the firm.)

In February the California prosecutors had officially informed lawyers for Bershad and Schulman to expect their indictments; Weiss and Lerach had been told they wouldn't face charges - for now. The scene shifted to Washington, where, the partners were told, Milberg was making the moves needed to save the firm. There were weeks of back-and-forth negotiations, aimed at hammering out a deferred-prosecution agreement that would allow the firm to escape indictment.

But Milberg, controlled by the people in the crosshairs, refused to meet prosecutors' demands, which included a public statement acknowledging that the government had "substantial evidence" of misconduct by individual partners; limited waivers of attorney-client privilege to give the government access to specific documents; and removing Bershad and Schulman. There was talk of a $100 million fine, but money was never the stumbling block. Giving the prosecutors whatever evidence they wanted would, of course, make it easier to bring a case against Weiss - as would angering Bershad or Schulman, which might prompt them to seek a deal. "These guys had each other over a barrel," says a former Milberg partner. "And nobody was going to pull the trigger on the other."

Some frustrated partners concluded that Weiss was playing a game of chicken, risking the firm to save himself. "All of us were just in the dark," says one. "We had no ability to make choices, and have our choices control the firm's destiny." Weiss, it seemed, also simply didn't believe that the feds would indict. He was acting like a plaintiffs lawyer - expecting to extract a better deal by refusing to give an inch. Instead, it antagonized the prosecutors. With the Bershad and Schulman indictments looming, the issue of their removal came to a head at an angry four-hour all-hands meeting on April 24.

Weiss, who'd viewed the issue as a bargaining chip with prosecutors, vowed he wouldn't make them go. After the meeting, still clinging to hope of avoiding the firm's indictment, some partners began collecting petition signatures to forcibly remove Bershad and Schulman under a never-used provision of the partnership agreement that allowed two-thirds of those holding an equity stake to oust a partner. But before the rebellious partners got the necessary signatures, Bershad announced he was taking a leave of absence on May 16. Schulman would soon follow.

Not everyone was happy to see Bershad go. Despite the government's allegations, he was widely respected as a skilled deal closer and a man who kept his word. Far fewer tears were shed for the gifted but volatile Schulman. Former colleagues recount horror stories of his volcanic temper - on one occasion, he sprayed a mouthful of scrambled eggs while berating one of his partners. As one lawyer who counts himself as a Schulman friend says, "He has the world's worst people skills."

That reputation had been cemented a few years ago, when a woman showed up in the lobby of Milberg's New York offices near Penn Station and began handing out fliers. The woman was a former exotic dancer and the mother of Schulman's infant daughter; the fliers displayed a snapshot of Schulman in a bathrobe, and complained about the big-shot partner at Milberg Weiss who wouldn't support his child. After causing a stir in the lobby, the woman was persuaded to leave. (Schulman's spokesmen say he later reached a generous settlement with her.)

As it turned out, the departures of the two name partners didn't change anything. On Thursday, May 18, the Justice Department announced the criminal indictment of Bershad, Schulman, and the law firm Milberg Weiss.

Exit the clients... and half the partners too

The reaction to Milberg Weiss's indictment was devastating. Key institutional clients, including the state public pension funds of New York and Ohio, fired the firm. A federal judge in Minnesota summarily tossed a Milberg lawyer off the plaintiffs' steering committee in litigation against Medtronic, noting, "Few would select an indicted, as opposed to an unindicted, law firm." Eliot Spitzer, running for governor of New York, returned political contributions from Milberg Weiss and its partners. Though there were plenty of old cases to manage, by October half the partnership had melted away.

Weiss battled back, hiring a PR consultant retained by Michael Milken and Jack Abramoff and setting up a special website, milbergweissjustice.com. In statements, the firm complained that the government had insisted on "impossible concessions" - including waiving attorney-client privilege - "as a condition to avoiding indictment," and had acted recklessly in moving against the firm. There were the inevitable accusations that the Justice Department was motivated by politics - the firm took out an ad in the New York Times to publish a letter from four Democratic Congressmen calling the indictment "a very thinly veiled attempt by the Bush administration to accomplish by bullying and intimidation what it has not been able to do by law - to end class-action lawsuits...."

Momentarily clear of the storm, Bill Lerach voiced his public sympathy for his former partners' plight, even while moving quickly to exploit Milberg's weakness. With 180 lawyers, Lerach's San Diego firm was by far the biggest left standing. He immediately made an audacious grab for the legal fees in a case where Milberg and another firm were co-lead counsel.

Prosecutors are still gunning for Lerach and Weiss, their original prey. If Schulman or Bershad were to cut a deal, they could well end up on trial. And there's at least one other shoe to drop that could also prove devastating.

One last flip? What if Torkelsen turns?

A silver-tongued graduate of Princeton and Harvard Business School, John Torkelsen served for years as Milberg Weiss's favorite "damages expert." He made tens of millions by delivering reports in securities cases that justified huge awards. Prosecutors came to focus on Torkelsen because of suspicions that Milberg paid him on a contingency basis (experts aren't supposed to have a financial stake in the outcome of litigation) - and gave him extra in cases with big recoveries to make up for giving him nothing in cases that came up dry.

As prosecutors saw it, this would amount to theft: stealing money from one class of investors to pay Torkelsen for his work on behalf of another. Torkelsen thus offers the prospect of opening a powerful new front in the Milberg prosecution - as well as a direct line to Lerach, with whom he'd long been close. "Stealing from investors" sounds worse to a jury than "deprivation of honest services," which is what the existing indictment claims.

Torkelsen would seem an ideal prospect to cut a cooperation deal. A famously extravagant spender - his Christmas parties for lawyers were legendary - Torkelsen and his wife, Pam, had spiraled into financial and legal trouble. In 2003 the U.S. Small Business Administration, citing shady dealings, seized a venture capital firm that Torkelsen had launched with the help of $32 million in SBA loans - and millions more from plaintiffs lawyers, including Lerach. That mess led to a criminal investigation, in which both Torkelsens, accused of embezzlement, pleaded guilty to felony charges.

In the throes of a bitter divorce from her husband, Pam struck a deal to help prosecutors in the Milberg case; she remains free, awaiting her sentence. According to one former Milberg partner, prosecutors have documents from Torkelsen's files that bear handwritten notations directing his bookkeepers to shift a six-figure sum from the bill for one class action to another. To bring charges against Lerach, they would, of course, have to prove he knew Torkelsen actually was doing this. Pam, who helped with the books, testified before the Milberg grand jury in June.

But Torkelsen, now 61, has thus far refused to cooperate. In a divorce filing, he said Pam was engaged in a "crusade" to destroy him, and cooperating in the Milberg investigation to reduce her sentence "regardless of the lies that she has to tell." In March 2006 he was sentenced to 70 months in prison. He entered federal prison in Morgantown, W.Va., on June 22.

In August, Torkelsen was transferred to a detention center in downtown L.A., near the federal courthouse where the Milberg grand jury was meeting. This triggered speculation that he had cut a deal. Attorneys in the case say he was officially moved only to provide handwriting samples; noting that this could have been done in West Virginia, they suggest that the unofficial reason was to pressure him to flip.

Torkelsen's refusal thus far to do so may come from a belief that Milberg did nothing wrong, or maybe it's loyalty to Weiss and Lerach. While Weiss officially issued a firmwide ban on using Torkelsen as an expert after bailing him out of a previous financial mess during the 1990s, records seized from Torkelsen's office by the FBI show him listing Milberg Weiss as one of his "major clients" in November 2001, with work "in progress" on six cases. The firm continued using his services even after he came under criminal scrutiny.

Prosecutors have prepared other evidence, in what promises to be a brutal fight, should it go to trial. In a recent court hearing they projected calling 80 government witnesses, a group that will likely include several repeat Milberg plaintiffs, as well as three sitting federal judges, who will testify that knowing Milberg was paying kickbacks would have influenced whom they appointed to run class actions. "How much longer can you possibly investigate?" asked Judge John Walter during a September hearing. Prosecutors said they were still considering adding to the indictment - either fresh names to existing charges or a whole new set of crimes. In any event, a trial would not start until late 2007.

In the meantime, that will probably leave Mel Weiss to watch the law firm he built - once a unique assemblage of legal talent, money, and power, gathered in the name of the public good - slowly slip away. "Until the very end, it was always Mel's firm," says one former partner. "He's welcome to it."

REPORTER ASSOCIATE Doris Burke

From the November 13, 2006 issue

  NY Judge Backs Indicted Firm for Spot in Backdating Case

By Anthony Lin
New York Lawyer
New York Law Journal
July 26, 2006

Milberg Weiss, Name Partners
Plead Not Guilty as More Lawyers Head for the Exits

By Anthony Lin
New York Law Journal
New York Lawyer
July 18, 2006

As his former firm and two of its partners yesterday pleaded not guilty to paying illegal kickbacks to class action plaintiffs, the former head of the corporate practice of Milberg Weiss Bershad & Schulman announced he has joined New York's Epstein Becker & Green.

Arnold N. Bressler has become a partner in Epstein Becker's business law practice. He specializes in representing middle-market companies in general corporate matters, securities offerings and mergers and acquisitions. Mr. Bressler first joined Milberg Weiss in 1983 and has headed the corporate department since 1985.

Also a former management committee member at Milberg Weiss, Mr. Bressler is one of a number of lawyers who have left the securities class action firm in the wake of its indictment over the alleged payment of $11 million in kickbacks to individual class action plaintiffs.

The firm and partners David Bershad and Steven Schulman were arraigned yesterday in Los Angeles federal court. Epstein Becker, best known for its labor and employment and health care practices, has sought to expand its transactional practice.

Another Milberg Weiss corporate partner, Wai Y. Chan, and an associate will also join Epstein Becker's business law practice with Mr. Bressler.

If a Dwindling Milberg Is Convicted, Who Pays the Price?

Leigh Jones
New York Lawyer
The National Law Journal
July 12, 2006

With some Milberg Weiss Bershad & Schulman partners heading for the exits following the indictment of the class action law firm and two of its partners, it is unclear who-or what-will be left for prosecutors to pick through if the firm is convicted.

At least 10 partners have fled Milberg Weiss since U.S. Attorney Debra Wong Yang in Los Angeles announced in May a federal grand jury indictment against the 125-attorney firm and senior partners David Bershad and Steven Schulman. In addition, some of the firm's top clients, including the New York State Common Retirement Fund, have replaced Milberg Weiss since the indictment.

Those events have some observers wondering what a conviction, or even a settlement, would mean against the law firm that could be a mere husk of its once-robust operation by the time it is all over.

"Clearly, we don't know if the firm will survive," said Elizabeth Ainslie, a former federal prosecutor who is a partner at Philadelphia-based Schnader Harrison Segal & Lewis.

But less clear, Ainslie said, is who could be on the hook at an indicted law firm if the government prevails.

"I've never seen that addressed," she said. "All I can say is that the judge has a great deal of discretion in the days following the demise of the mandatory [sentencing] guidelines in fashioning an appropriate punishment."

Ainslie was referring to a U.S. Supreme Court decision last year in U.S. v. Booker, 543 U.S. 220, which granted judges more latitude in determining punishment by finding that the Federal Sentencing Guidelines were unconstitutional.

The U.S. Attorney's Office for the Central District of California charges that New York-based Milberg Weiss and the two partners paid millions of dollars in secret kickbacks to individuals serving as lead plaintiffs in more than 150 class actions and shareholder derivative lawsuits. Prosecutors allege that the firm received more than $200 million in attorney fees from the lawsuits in the last 20 years.

Bershad and Schulman, who have taken leaves of absence from the law firm, are charged with conspiracy, obstruction of justice, perjury, bribery and fraud. Some clients serving as plaintiffs in the class actions have pleaded guilty to receiving kickbacks.

A spokesman for Yang's office said the government will seek penalties against the law firm that could include monitoring it during a probation period. He also said it would pursue monetary fines.

"You can't incarcerate an institution," said the spokesman, Thom Mrozek.

Former Milberg Partners Seek Capital, Fees

By Anthony Lin
New York Law Journal
June 9, 2006

As the legal community ponders whether the criminal indictment of Milberg Weiss Bershad & Schulman will eventually lead to that firm's dissolution, two of its former partners are arguing that the firm actually dissolved two years ago at the time of its bi-coastal split. They claim they are now owed millions of dollars in returned capital and unpaid fees as a result.

If the timing of the claims is awkward, the identity of the ex-partners making them is more so. They are Alan Schulman and Robert P. Sugarman, both of whom have been widely reported to be key cooperating witnesses in the prosecution's case against the firm over the alleged payment of kickbacks to class action plaintiffs.

It is unclear if and how the two matters will proceed together. The lawyers representing the two sides in the monetary dispute both said Friday they were not aware of their clients' strategies in the criminal case. But one source close to the investigation said the ex-partners' claims showed they had a strong financial interest in "bringing the whole firm down."

The survival of the firm has indeed been called into question by the indictment last month of the firm and individual partners David J. Bershad and Steven G. Schulman, who is not related to Alan Schulman. Several lawyers and clients have left the firm since the announcement of criminal charges, increasing parallels with accounting firm Arthur Andersen, which was obliterated by defections months before its trial on criminal charges relating to work it performed for Enron Corp.

Both Alan Schulman and Sugarman have been cooperating with federal prosecutors in Los Angeles for some time, said the source close to the investigation. The two partners first raised the money issue with the firm in February 2005.

Milberg Weiss' partnership agreement requires such partner disputes be arbitrated but the matter surfaced publicly in Manhattan Supreme Court a few months ago when Schulman and Sugarman moved to compel arbitration on the grounds that Milberg Weiss was not cooperating in efforts to select an arbitrator.

The partners both left the firm then known as Milberg Weiss Bershad Hynes & Lerach in 1999. Schulman become the head of the San Diego office of class action rival Bernstein Litowitz Berger & Grossman while Sugarman became a solo practitioner in Uniondale, N.Y. Neither returned calls for comment.

In 2004, the firm split into the present New York-based Milberg Weiss, headed by Melvyn I. Weiss, and San Diego-based Lerach Coughlin Stoia Geller Rudman & Robbins, headed by William S. Lerach. Schulman and Sugarman claim this breakup constituted a dissolution of the firm and, under the partnership agreement, requires the accelerated payment of returned capital and deferred compensation. They are currently receiving some money but it is in small installments designed to be spread over several years.

The alleged unpaid compensation stems from legal fees earned while the two were partners at the firm but not received by the firm until after they left. The two do not specify in court documents how much they are owed except to say the amount is in the millions.

The claims are against both Milberg Weiss and Lerach Coughlin. The firms' position is that the 2004 split was not a dissolution but that the Lerach Coughlin partners withdrew from the partnership in the same manner as Schulman and Sugarman. The distribution of work at the firm was covered by comprehensive agreements, which took over a year to work out.

The parties had agreed that J. Lawrence Irving, a former federal judge in San Diego, would mediate the matter. But Irving withdrew unexpectedly last December. He did not return a call seeking comment.

Milberg Weiss had suggested possible replacements in former New Jersey U.S. District Court Judges Alfred M. Wolin and Nicholas H. Politan, as well as New York University President John E. Sexton, but the ex-partners rejected all three as unacceptable due to their "well-known close ties to Mel Weiss."

They did not elaborate on those ties, but both judges have overseen settlements involving Milberg Weiss and Weiss is a major benefactor and member of the board of trustees at NYU School of Law, from which he graduated in 1959.

In court papers, Schulman and Sugarman, who are represented by Allen D. Black of Philadelphia's Fine, Kaplan & Black, pushed for the appointment of a three-lawyer arbitration panel and attributed difficulties in selecting a sole arbitrator in part to the "small and close-knit world" of the securities class action bar.

"Many otherwise qualified single arbitrators (including many with impeccable credentials) have close ties to one or the other of the parties," they said. "Of the few neutral and potentially acceptable candidates, many want no involvement in this dispute."

The parties agreed last month to have a three-lawyer panel arbitrate, with each side picking one arbitrators, and those two lawyers picking the third.

Henry G. Miller of White Plains, N.Y.-based Clark Gagliardi & Miller, the lawyer representing Milberg Weiss and Lerach Coughlin in the dispute with the ex-partners said the matter was just getting started and issues beyond the question of dissolution had not yet been explored. He also said he was uncertain how the arbitration would be affected by the ongoing criminal case.

William W. Taylor of Washington, D.C.'s Zuckerman Spaeder, the chief criminal defense lawyer for Milberg Weiss, did not return a call seeking comment. The spokesperson for the Los Angeles U.S. Attorney's Office also did not return a call.

Federal prosecutors charged the firm and the two indicted partners with paying three individuals more than $11 million pursuant to secret agreements giving them a percentage of legal fees of more than $200 million the firm received in class actions in which the individuals served as plaintiffs.

Such agreements are illegal because name plaintiffs in class action suits are not permitted to have interests above those of other class members, to whom they owe a fiduciary duty.

Two of the alleged kickback recipients, Steven G. Cooperman, 64, of Connecticut and Howard J. Vogel, 61, of Florida, have been cooperating with prosecutors. Vogel, who has said he worked with Sugarman as well as Bershad and Steven Schulman, pleaded guilty in April to receiving $2.5 million for serving as a Milberg Weiss plaintiff.

Both Alan Schulman and Sugarman were reported to have left Milberg Weiss under stormy circumstances. Schulman, once considered Lerach's top lieutenant, told Fortune magazine in 2000 that he thought Lerach had engaged in unethical conduct and was "reckless," "vindictive" and "dangerous."

Politico Aims to Ax Embattled NY Firm

By The Associated Press
June 1, 2006

ALBANY, N.Y. -- New York's state comptroller said Thursday he would ask to have a major New York law firm, under federal indictment for alleged kickbacks, replaced as lead counsel in a case against pharmaceutical giant Bayer AG.

Comptroller Alan Hevesi, acting as sole trustee of New York's $140 billion public employee pension fund, said he was also removing Milberg Weiss Bershad & Schulman from the state's list of law firms eligible to serve as the pension fund's counsel in future lawsuits.

On May 18, Milberg Weiss and two of its top partners were indicted by a federal grand jury in Los Angeles on charges they were involved in a scheme that paid kickbacks to get people to serve as plaintiffs in class-action lawsuits. The indictment's 20 counts included conspiracy, money laundering and mail fraud.

The firm, one of the major players in the world of shareholder lawsuits, has denied any wrongdoing.

In a statement, Hevesi said Milberg Weiss "had achieved outstanding results" for the pension fund in the past." The comptroller said he was acting "given the nature of the charges."

Milberg Weiss is currently lead counsel in a class action suit, in which Hevesi is the lead plaintiff, that claims Bayer misled investors by making false statements about the safety of Baycol, a cholesterol-lowering drug suspected of playing a role in at least 100 patient deaths. Hevesi has said that as a result of Bayer's securities law violations, the pension fund lost more than $22 million.

A statement issued by Milberg Weiss said the firm regretted Hevesi's decision.

"As Comptroller Hevesi stated, Milberg Weiss has always obtained outstanding results on behalf of the New York state fund as it has for all of its clients," the statement said. "The firm will continue to provide the highest level of legal representation to its clients, the vast majority of whom continue to stand by the firm."

                
Lawyer Signs Deal to Sing About Milberg

By Justin Scheck
The Recorder
New York Lawyer
May 23, 2006

Los Angeles insurance lawyer Richard Purtich's specialty was bad faith.

L.A. federal prosecutors say that's not the case in a plea deal in which the lawyer has agreed to cooperate with the prosecution of securities class action firm Milberg Weiss Bershad & Schulman.

In exchange for his cooperation, Purtich despite the government's contention that he faced several other types of criminal exposure--admitted to one tax-related felony charge that could allow him to avoid disbarment.

In a plea agreement filed Monday, Purtich admits to taking payments from Milberg Weiss and passing them on to Steven Cooperman--the L.A. ophthalmologist and lead client in several Milberg Weiss securities class actions.

Milberg Weiss Fired From Case After Indictment

By Pam Smith
The Recorder
New York Lawyer
May 22, 2006

Back in April, Milberg Weiss partners David Bershad and Steven Schulman withdrew from a securities class action in Maryland, but that wasn't enough to keep the firm on the case after it was indicted for an alleged kickback scheme on Thursday.

The partners had been representing the Ohio Tuition Trust Authority in a class action, but a day after L.A. prosecutors indicted the firm, Ohio Attorney General Jim Petro moved swiftly to fire Milberg Weiss Bershad & Schulman from the case, citing the firm's indictment as the reason.

It was perhaps the first concrete sign of the obstacles the firm's lawyers will face as Milberg Weiss gears up to defend itself against the charges, but it is unlikely to be the last. Within a day, speculation was already rippling through the legal community about what the first criminal indictment against a leading class action plaintiffs firm could mean for its clients, its competitors, its employees -- and its equity partners. v Less than 24 hours after the U.S. Attorney in Los Angeles announced the indictment, Petro sent a letter to partner Melvyn Weiss to inform him that his firm was being removed from a case in a federal court in Maryland on behalf of the Ohio Tuition Trust Authority, "effective immediately." As of late Friday, Petro had not picked new outside counsel, a spokesman said.

"It was still up in the air before yesterday, about whether the firm would be indicted," said spokesman Mark Anthony. "Since it went in this direction, we thought that that deserved prompt action."

Contacted for comment, a spokeswoman for Milberg Weiss e-mailed a statement saying the firm "regrets" the request that it leave the case on which it was lead counsel for two years. The firm will seek the court's guidance on what role, if any, it should continue to have, the statement said, adding that the firm had worked "vigorously and effectively" and "stands ready to provide services to the class in this case."

Just how many clients, if any, will follow Ohio out the figurative door was unclear by late Friday afternoon.

"These events cannot help Milberg, either in attracting new clients or in keeping existing clients," said Stanford Law School professor Joseph Grundfest, a former commissioner for the Securities and Exchange Commission. Lead class members will have to consider their duty to the rest of the class in any given case, he said, but much may also depend on how far along a case is. "There are many facts that would have to be taken into consideration."

There's also speculation that Milberg Weiss' competition for lead counsel in long-resolved cases might now seek compensation for what might have been.

"Will we see lawsuits by firms that will argue that they [would] have been lead plaintiff, but for the allegedly fraudulent or illegal payments made by Milberg?" Grundfest said. "In today's world, where lots of lawyers have lots of imagination about bringing claims, almost anything is possible."

The federal government wants to make Milberg Weiss forfeit the $216.1 million in "tainted attorneys' fees" that prosecutors say the firm gained through alleged misconduct from at least 1981 through 2005. The indictment accuses the New York-based firm and the two partners of securing the lucrative lead counsel position in more than 150 class actions and shareholder derivative actions by paying at least $11.3 million in illegal kickbacks to a stable of named plaintiffs. Some are also wondering whether nervous partners or associates at Milberg Weiss might be freshening up their resumes.

                          Law Firm in $11m Scam

By Derek Rose
New York Daily News
May 19, 2006

A New York law firm that struck fear into corporate boardrooms across the country was indicted yesterday, along with two of its top partners, in an alleged $11 million kickback scheme.

Milberg Weiss Bershad & Schulman LLP, which brought class-action lawsuits on behalf of shareholders, faces 20 counts of conspiracy, money laundering and mail fraud.

Two partners - Steven Schulman, 54, of New York, and David Bershad, 66, of Montclair, N.J. - were also indicted by a federal grand jury in Los Angeles.

"The government's allegations of wrongdoing have been categorically denied by the indicted partners," Milberg Weiss wrote in a statement, "and the firm intends to join with them in vigorously defending against the charges."

The government said Bershad and Schulman secretly paid $11.3 million in kickbacks to three friends and relatives to get them to join 150 shareholder lawsuits.

The "paid plaintiffs" would buy stock in the companies - knowing it would decline - so they could be named as plaintiffs and Milberg Weiss could file suit, the indictment alleges. The law firm made $216 million in attorney fees off the suits, the feds say.

The kickbacks included $250,000 for a lawsuit against United Airlines and $430,000 for a suit against Denny's, the indictment says.

It's illegal to pay people to file lawsuits or to split attorney fees with nonlawyers. The paid plaintiffs also lied under oath about their connection to Milberg Weiss, the indictment says.

                  Milberg, Former Partners Indicted

TSF Staff
thestreet.com
May 18, 2006

A Prominent Law Firm Prepares for Indictment

Julie Creswell
The New York Times
May 17, 2006

For years, the securities class-action law firm of Milberg Weiss Bershad & Schulman sparked fear and uncertainty in executive suites and corporate boardrooms across the country.

These days, however, the firm finds itself on the hot seat as it faces the possibility of an indictment in connection with a six-year federal investigation into whether the firm made illegal payments to clients. An indictment, while it would not prevent the firm from practicing law, would have dire consequences for its business.

Negotiations to avert an indictment of the firm have stepped up in recent weeks. But by this week, hopes for a settlement were quickly fading as both sides remain far apart on several crucial points surrounding any so-called deferred prosecution agreement, including the waiver of client-attorney privileges; new compliance and monitoring systems and personnel the firm would be required to put in place; and the size of any potential payments, according to several lawyers involved in the talks.

Federal prosecutors were initially seeking a payment of more than $100 million, the lawyers said. A payment of that size would either require individuals inside the firm to put up the cash themselves or the firm to commit to pay it from future earnings, the lawyers said.

The talks have been complicated by the Justice Department's reluctance to indict a firm since it came under fire for putting the accounting firm Arthur Andersen out of business after it was indicted on obstruction of justice charges in 2002. (The firm's conviction was later overturned by the Supreme Court.) Since then, the accounting firm KPMG and the drug maker Bristol-Myers Squibb, among others, have reached deferred-prosecution agreements with Justice.

Furthermore, in the dog-eat-dog world of class-action securities law, Milberg Weiss has one of the biggest barks.

It has survived and thrived despite attempts by lawmakers to eradicate it over the years. It has recovered billions for shareholders in sometimes belligerent white-knuckle negotiations with high-profile defense firms.

Indeed, if the firm is indicted, one of its founders, Melvyn I. Weiss, is gearing up for a brawl.

"Mr. Weiss believes very strongly that neither he nor any of his partners have violated the law. He is confident that whatever legal proceedings must be dealt with in the days ahead will be vigorously and successfully defended," said Benjamin Brafman, a high-profile defense lawyer representing Mr. Weiss. "Mel Weiss is known throughout the legal community as a fighter, not a quitter," he added.

Lawyers involved in the talks said a decision whether to indict the firm could come as early as tomorrow or next Thursday, the day of the week a federal grand jury in Los Angeles has been meeting to hear evidence in the case, lawyers said.

Any charges against the firm would probably be included in a revision of an indictment that was originally handed up last summer. The initial indictment accused Seymour M. Lazar, a retired California lawyer, of fraud and conspiracy. He is accused of receiving more than $2.4 million in payments for appearing as the lead plaintiff in more than 50 Milberg Weiss cases over 25 years.

It is illegal for a plaintiff in a lawsuit to receive a portion of the legal fees because lead plaintiffs in class actions cannot have incentives that might persuade them to enter into a settlement that may not be best for the class.

Milberg Weiss made a last-ditch effort to stave off indictment late last week when David J. Bershad and Steven G. Schulman, two of its most senior attorneys and members of its executive committee, agreed to take leaves of absences, according to lawyers involved in the talks. Both men are likely to face individual criminal charges for their roles in the suspected kickback scheme.

Statements from the firm said the two men agreed to the decision and would use the time to focus on their defense if charges against them were filed.

People briefed on the firm's contingency planning said cases that the two partners were working on were being reassigned to other lawyers.

William W. Taylor III, a lawyer with Zuckerman Spaeder who represents Milberg Weiss, said: "We hope that the Department of Justice will not seek an indictment of the firm because of the incalculable harm that it would inflect on its partners, employees and clients. If it is indicted, however, the firm will continue to represent its clients, victims of corporate wrongdoing, just as it always has and without any impact on current and future cases."

But prosecutors on the West Coast, who have combed through decades of documents and interviewed dozens of witnesses, including Mr. Bershad's assistant, who was brought across the country twice by train as she has a fear of flying, appear to be leaning toward an indictment, said lawyers involved in the talks.

The United States attorney in Los Angeles, Richard Robinson, the lead prosecutor in the case, said he was not authorized to respond to questions about any current investigations or negotiations.

One of the largest and most prominent securities class-action law firms in the country, Milberg Weiss is at a crossroads, and either path could ultimately lead to a dead end.

From a legal standpoint, if the firm is indicted, it can still continue to represent clients and appear in courtrooms, said Leslie D. Corwin, a lawyer with Greenberg Traurig, who has represented law and accounting firms in disputes, mergers and liquidations.

"If there were to be an indictment tomorrow, they could still practice law unless there was some sort of action by a disciplinary committee," he said.

Additionally, the firm and partners in the firm would continue to be paid or receive portions of recovered fees for any work they have done on cases, Mr. Corwin added.

From a practical standpoint, however, an indictment would be a huge blow for the firm, which celebrated its 40th anniversary last year. Clients could seek out its competitors to represent them; defense lawyers could use the indictment as leverage in negotiations; and some of the firm's 120 lawyers could head for the exit doors.

The same situation, however, could exist if the firm signs a deferred-prosecution agreement, lawyers involved in the talks said. Lawyers from competing firms could use that agreement against Milberg Weiss in their efforts to grab prospective clients or seize the lead plaintiff status in a class-action lawsuit.

"Somebody will pick up the slack," said Jerry W. Markham, a law professor at Florida International University. "The business will go elsewhere. I don't expect there will be any pause in class-action lawsuits."

Indeed, lawyers in the plaintiffs bar have been buzzing for weeks that one of the biggest beneficiaries from an indictment of the Milberg Weiss firm could be Mr. Weiss's former partner, William S. Lerach.

Boisterous and with a penchant for grandstanding, Mr. Lerach ran Milberg Weiss's West Coast operations, nicknamed "Milberg West," for years.

After a contentious split with Mr. Weiss in 2004, Mr. Lerach started a competing law firm, Lerach Coughlin Stoia Geller Rudman & Robbins.

The two firms dominate the securities class-action business, capturing 57 percent of the number of cases settled last year, according to Cornerstone Research.

In February, Mr. Weiss and Mr. Lerach were told that they were not going to be indicted at this time, but that they remained targets of the investigation.

The investigation into the firm was begun nearly six years ago after an ophthalmologist, Dr. Steven G. Cooperman, was convicted on art fraud charges.

A frequent plaintiff in shareholder lawsuits filed by Milberg Weiss, Dr. Cooperman offered to provide evidence to prosecutors against Milberg Weiss in exchange for a reduced sentence.

A major breakthrough occurred last month when a former client, Howard J. Vogel, admitted that he or members of his family were paid more than $2.4 million by lawyers inside Milberg Weiss from 1991 to as recently as May 2005 to act as plaintiffs in more than 40 class-action securities lawsuits, according to a plea agreement that was filed in late April.

Robin Hoods or Legal Hoods?

By Timothy L. O'brien and Jonathan D. Glater
The New York Times
July 17, 2005

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