Results matching “milberg”

Inside Milberg's Credenza - PointOfLaw Columns

By Walter Olson

(Reprinted from The Wall Street Journal, 6-22-06)

As the nation's premier filer of class action lawsuits, Milberg Weiss Bershad & Schulman LLP has long presented itself as a fearless watchdog of America's financial markets. Milberg lawyers are famed for their skill at seizing on missteps by the businesspeople they sue—a missed earnings projection, an omitted disclosure, a too-rosy accounting practice—and portraying them as evidence not of inadvertent or technical slip-ups, but of systematic and brazen crookedness.

All the while, if one is to credit the 102-page indictment by a federal grand jury in Los Angeles last week, Milberg Weiss was passing at least $11 million in payoffs under the table to plaintiffs in its suits. Since such payoffs are baldly illegal, prosecutors claim the firm took elaborate steps to keep them concealed from judges and others. They say Milberg funneled much of the money through law-firm cut-outs and other channels, including casinos, and drew on a stash of money kept in a safe located in a credenza in partner David Bershad's New York office, "to which access was strictly limited." Again and again, prosecutors add, the firm submitted sworn statements on behalf of its clients denying any receipt of the sorts of payments they were in fact receiving. The payoffs helped Milberg reap some $216 million in attorneys' fees from the cases prosecutors say they know about; others remain under investigation.

Milberg and partners David Bershad and Steven Schulman (who have taken leaves of absence from the firm) flatly deny the charges and say they're victims of overzealous prosecution. There's irony in this—since the firm is known for zealous tactics akin to those it's now facing, such as the use of charges under the RICO (Racketeer Influenced and Corrupt Organizations) law. Even so, some of the firm's complaints will resonate with critics of today's trend toward criminalizing business practice. The firm's defense Web site, MilbergWeissJustice.com, goes so far as to link approvingly to editorials in this newspaper.

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When is a cash payment to someone an improper "kickback" or "payola"? Sometimes it is hard to discern the line. If you're a record producer who pays radio execs to spin a Jennifer Lopez disc, Eliot Spitzer will land on you with full force. But if you're a publisher who pays book chains to give prime display to your new hardcover thriller, you're safe. Economists and legal analysts typically consult a range of factors, including whether the person taking the payment owes some third party a duty of loyalty or independent judgment, whether an agent discloses his acceptance of a payment to his principal, whether a type of payment is accepted as customary in a given trade, and so forth.

Milberg Weiss lawyers have been in the forefront of efforts to define kickbacks broadly and punish them with rigor. The firm's Web site boasts that it "has sued major providers of private mortgage insurance for kickback violations, resulting in substantial settlements." Melvyn Weiss and others at the firm have expressed indignation at, and filed lawsuits over, alleged kickbacks in the contexts of Wall Street initial public offerings, mutual fund sales, insurance brokerage commissions and doctors' prescribing of pharmaceuticals.

Although there are many debatable cases, concealed payoffs to named plaintiffs in class actions aren't one of them: They're clearly improper under virtually any analysis. As the indictment states, both plaintiffs and their lawyers are under obligation 1) not to place a named plaintiff's interests above those of absent class members; 2) not to behave deceitfully or unethically toward the court or absent class members; and 3) not to withhold from the court "any fact" that might call into question the representativeness of the plaintiff (a financial dependence on the lawyer would be one such fact). As a class action proceeds, plaintiffs repeatedly swear under oath to these matters. Bonus payments to compensate named plaintiffs for their time and trouble are permitted at settlement, but they must be disclosed to absent class members and approved by the judge.
These rules have a purpose. With other class members absent, named plaintiffs are one of the few watchdogs against self-dealing or misconduct by the lawyers—specifically, the pursuit of settlements that result in high legal fees, whether or not they serve the interest of the class. It's true that law firms do seek docile, loyal or merely clueless persons to serve as their named plaintiffs, which means it's rare (though not unheard of) for them to contribute an independent point of view in a case. But if the Justice Department's allegations are correct, Milberg was taking no chances on the watchdogs staying pacified: It threw regular chunks of raw liver into their cages. Significantly, Justice alleges that payoffs were computed not as a share of the class's eventual recovery, but as a share of Milberg's own fee haul—incentivizing the named plaintiff to side with Milberg's interests should the two clash.

Every so often someone will suggest that since the named plaintiff operates as the lawyers' tool 99% of the time, why not dispense with the rigmarole and let law firms seek class action status without having to qualify any particular client as representative? But imagine for a moment a defendant's trying to argue that, because certain legal rules are economically inefficient, it should be okay to break those rules. Imagine what a skilled plaintiff's lawyer, like those at Milberg, would say in response to such an argument. Lawyers, of all professionals, are the last ones who should claim a privilege of ignoring the law.

A more likely source of sympathy for Milberg is its complaint—in common with that of many business defendants—of rough handling by prosecutors. To begin with, the Justice Department, following the line laid down by the now-infamous Thompson memorandum, insisted that Milberg waive attorney-client confidentiality if it wanted a favorable plea deal. The business community is in an uproar over the Thompson rules, with the U.S. Chamber of Commerce joining with groups like the ACLU and National Association of Criminal Defense Lawyers to challenge the waiver provisions as unfairly arm-twisting defendants into yielding up their employees' rights.

As a talking point for Milberg's defense, however, this one is likely to fade—precisely because the firm did hold out rather than cave. Nor is there an issue of favoritism, since the Justice Department subjects conventional businesses to the same unseemly pressure daily.

* * *

Should the feds have indicted the firm as distinct from individual partners? Memories are fresh of the indictment of Arthur Andersen, the accounting giant whose conviction was overturned by the Supreme Court three years later—far too late to save the firm, given the reluctance to let an indicted accountant do a company's books. Defending her Milberg decision, U.S. Attorney Debra Wong Yang cited the firm's lack of repentance: Not only had the "pattern of deception" gone on for decades, but "the conduct occurred all the way up to last year, when they knew we were looking at them."

The probe, in fact, had dragged on for six years, having met with implacable resistance from the Milberg side; prosecutors finally got their break this spring, in the person of businessman Howard Vogel, who, with his family members, had acted as plaintiff in about 40 suits. Mr. Vogel sang, admitting to more than $2.4 million in Milberg payments in a guilty plea, and others have reportedly begun to sing, too, which means further indictments are possible.

In short, the prolonged lack of interest in cooperating with law enforcement may cost the firm as dearly in the long run as the underlying offense. (Yes, now that you mention it, Milberg was the lead counsel in the suits against Martha Stewart.) The two celebrity lawyers who made Milberg famous, Melvyn Weiss and the now-departed William Lerach, have thus far escaped indictment: Of course, if they were prosecuting such a case, they would miss no opportunity to insinuate that misconduct by part of a team of top executives must have been at least tolerated by the others, that the rot goes straight to the top, that senior partners turned a convenient blind eye to signs of misconduct because they profited handsomely from that misconduct, and so forth. Messrs. Weiss and Lerach must count themselves lucky that such reasoning did not lead to their inclusion as defendants.

If they are consistent, those who cherish due process for white-collar defendants should spare some pangs for the many talented lawyers at the Milberg firm who, like Arthur Andersen accountants, may face professional shipwreck even though no one has charged them with the least bit of complicity in legal wrongdoing. And if they are consistent, those who applaud the crackdown on business misconduct of recent years should acknowledge that the Milberg prosecution embodies, for better or worse, many of the premises of that crackdown. Those are big "ifs."

H.R. 5491 - PointOfLaw Forum

On Wednesday, June 28th, Rep. Richard Baker will be leading a hearing entitled "Investor Protection: A Review of Plaintiffs' Attorney Abuses in Securities Litigation and Legislative Remedies." H.R. 5491 is a bill that has been gestating in the House since May 25th, a bill aimed at preventing and discouraging the kind of abuses brought to light by the Milberg indictments. There's been little media coverage of H.R. 5491 (one wonders if this has something to do with the industry it's aimed at.) The results of this hearing ought to be interesting.

Milberg Weiss scandal: the Vogel guilty plea - PointOfLaw Forum

Howard J. Vogel's "Statement of Facts" that he admitted to as part of his guilty plea is available on the Web.

Peter Lattman is asking why two plaintiffs' law firms suddenly withdrew a motion asking a federal court to consider whether the Milberg indictment has any impact on choosing a Milberg spin-off, Lerach Coughlin, as lead counsel in a securities class action.

One wonders what antitrust violations an aggressive plaintiffs' law firm would infer from the information that two corporations withdrew from a bidding war within hours of being publicly criticized by a third competitor.

Perhaps even bigger news comes from the Chicago Tribune, which reports that pension fund legal advisor William Cavanagh received $750,000 in legal fees from Milberg Weiss that wasn't disclosed to the courts handling class actions. The Tribune quotes two judges who say that information would have been material to their lead counsel decisions. (via Lattman)

Milberg ReLieff - PointOfLaw Forum

According to Justin Scheck, reporting in the Recorder, prominent San Francisco plaintiffs' firm Lieff Cabraser is in negotiations with Milberg to take on wholesale a group of fleeing Milberg partners. Another SF attorney, Melvin Goldman, thinks this is a good idea:

"I don't think anyone who works there is particularly tainted by working there," he said. Rather, it's the firm itself that's got the taint. And by vacating the firm, Milberg partners would have an easier time keeping clients made skittish by the federal charges.

He may be right. And, as Scheck notes, this grab would really power Lieff Cabraser up in securities law. But it seems just as likely that it could cut the other way, and that the Milberg taint won't vanish. Wait and see.

More Milberg - PointOfLaw Forum

According to the invaluable Amanda Bronstad of the NLJ:

Federal prosecutors who indicted Milberg Weiss Bershad & Schulman last month are in talks with a Denver lawyer whose testimony could sharpen the investigation's focus toward Melvyn Weiss, founding partner of the New York-based law firm, according to sources familiar with the government's probe.

Read the whole thing here.Things just keep getting worse for the firm. An indictment against the founding partner would make the already severe damage they have suffered even more grave. Stay tuned for further developments.

Milberg recusals galore - PointOfLaw Forum

Too many of the judges have presided over Milberg Weiss cases, or had dealings with the law firm when previously in private practice.

Also, the WSJ today runs a letter from Leon Silverman of Washington, D.C., former assistant deputy attorney general and former president of the American College of Trial Lawyers, responding to my May 23 op-ed "Inside Milberg's Credenza" and to a Journal editorial.

What to do about bad litigation? - PointOfLaw Forum

Here�s some thoughts, inspired by Milberg and Lerach. It's about fixing the law and the judges, and not just the lawyers.

From A Sinking Ship - PointOfLaw Forum

The Recorder's Justin Scheck chronicles the exodus from Milberg Weiss in the aftermath of last week's indictment of David Bershad and Steven Schulman. This desertion includes the heads of Milberg's healthcare and corporate practice groups, as well as less prominent members of the firm. And it raises the question of what, exactly, will happen to those members of the firm who decide to stay.

KPMG lead plaintiff: I was offered inducements - PointOfLaw Forum

Today the snoozing New York Times rouses itself and actually reports a bit of fresh news possibly relevant to the Milberg scandal: "A lead plaintiff in a proposed tax shelter settlement that was brokered by the class-action securities law firm of Milberg Weiss Bershad & Schulman indicated that he was offered a financial incentive to serve as plaintiff, according to documents filed yesterday in federal court in Newark." The exact significance of the disclosure, however, is far from clear at the moment; the plaintiff in question, Claude Gerald Harris, "said that 'while these statements are largely true, they are taken out of context,'" and a Milberg spokesman claims the KPMG affair is wholly irrelevant to the charges in last week's federal indictment of the law firm.

Hevesi's Milberg connection - PointOfLaw Forum

The political spotlight has been aimed mostly at Milberg campaign beneficiary Eliot Spitzer, who's opted to return the donations, but his less famous Albany colleague, State Comptroller Alan Hevesi, should be squirming at least as nervously, as this New York Sun editorial notes:

...Hevesi accepted $100,000 from the firm for his 2002 campaign, as well as $13,500 each from senior partners Melvyn Weiss and William Lerach....after winning re-election in 2002 in part with a cash infusion from Milberg Weiss, Mr. Hevesi just happened to hire the firm to represent the state's public-employee pension fund in - you guessed it - a shareholder suit against Bayer AG.

New York's Republican Governor George Pataki has taken Milberg money for his campaigns too. More on Hevesi's connections: OL May 14 and Dec. 10, 2004 and Apr. 14, 2005 and this site, Oct. 25, 2004.

Milberg kickbacks defensible? - PointOfLaw Forum

At Concurring Opinions, law professor Dave Hoffman (Temple) writes that he "[doesn't] particularly understand the economics of outrage" over the alleged kickbacks paid by Milberg Weiss and wonders about the strength of at least some of the arguments against the kickbacks. He generously invited me to respond; my response (which ran in the comments there too) follows after the break.

Milberg Weiss: Where was Eliot Spitzer? - PointOfLaw Forum

That's what Dave Hoffman and Peter Lattman are asking. Spitzer has returned $124 thousand in donations from Milberg Weiss attorneys, who have given millions of dollars to Democratic candidates over the years.

In responding to Jonathan Wilson's latest post, I think it's useful to discuss the defects of lawyer licensing in terms of its distinct objectives.

1. Protecting clients from dishonest and incompetent lawyers.

As I said in my initial post, licensing communicates little useful information to the client and serves mainly as an entry barrier. Indeed, the exhaustive research that I did for Lawyers as Lawmakers: A Theory of Lawyer Licensing, 69 Mo. L. Rev. 299 (2004) revealed no credible arguments or data in support of the client protection rationale for lawyer licensing. Of course legal training provides important skills, as Jonathan argues in his recent post, and as I said in my post. But that doesn�t support licensing. Clients could be protected by markets, including certification by private organizations.

The challenge in defending lawyer licensing is that it's not enough to argue that licensing addresses the problem of incompetent and immoral lawyers. This is true. The question is whether legally enforcing the lawyer cartel does a better job than markets alone would � a much more dubious proposition.

Jonathan says the poor and middle class will be hurt if they can hire unlicensed practitioners. But, again, there�s no evidence that licensing is a cost-effective remedy for this problem.

I can�t guarantee that the legal profession and journalists won�t demand regulation when the inevitable horror stories occur. But that�s an argument for appropriate skepticism about such demands, not for regulation.

2. Protecting against abusive and irresponsible litigation.

As I argued Monday, there is no reason to believe that our current licensing system protects against excessive litigation. Anybody with a grievance can find somebody to argue it. I suggested some possible reforms, but whether they would work or are politically feasible is tangential to the present debate.

3. Enforcing ethical rules.

The legal profession has been notoriously lax at disciplining itself. Bribing litigants, as alleged in the Milberg case, is serious misconduct (though I don�t think the nuclear option against the firm is appropriate). Where was the state bar? Where, indeed, is Eliot Spitzer? Even with lawyer licensing we had to rely on federal criminal prosecutors. Moreover, as I�ve argued in Ethical Rules, Agency Costs and Law Firm Structure, 84 Virginia Law Review 1707 (1998), ethical rules often disable the very market mechanisms that could provide real protections.

4. Ensuring that lawyers fulfill their obligations to the public, as by monitoring corporate clients.

The appropriate extent of such obligations is an open question, in my view. In any event, since the bar has refused to impose meaningful obligations in this regard, we now have SOX 307.

5. Giving lawyers incentives to engage in lawmaking.

This is the argument I made in my lawyer licensing article. Some would say that if licensing encourages lawyers to make law, that�s a reason not to have licensing, given lawyers� perverse effects on the law. I agree that this argument for licensing is a close call. In any event, even if I�m right, this argument supports only a limited licensing requirement for high-end law practice, mainly for transactional lawyers. It would not impose significant constraints on the availability of legal services for the poor and middle class.

* * *

Having said all that, I�m hardly sanguine about the prospects for meaningful reform of our current system, supported as it is by our most powerful interest group. Nevertheless, I support Jonathan�s recommendation of a blue ribbon commission. However, I would argue that we need a commission focused on problems in the market for legal services, not just one for abusive litigation. The commission I have in mind would be explicitly tasked with analyzing the functions of lawyer licensing, and whether it is fulfilling its goals. The case for such a commission is made, in my view, by concerns about excessive litigation and by significant changes in the markets for legal services and the functions of lawyers. These changes should prompt a reexamination of our more than 100-year-old system that the profession, on its own, would be unlikely to undertake.

Third Milberg guilty plea - PointOfLaw Forum

Attorney Richard Purtich has admitted to passing on under $879 thousand in referral fees to Milberg plaintiff Steven Cooperman as kickbacks. Intriguingly, the indictment names "Partner B" as involved in the transactions, with leaks naming B as former Milberg lawyer William Lerach, who hasn't been indicted. Prosecutors had alleged payments were $3.5 million, and agreed as part of the plea not to allege perjury before the grand jury (which could result in Purtich's disbarment), so Purtich is perhaps giving something back in return—which could include an agreement to giving damning testimony that spreads the scandal further. Per Walter's post below, the New York Times' coverage is straight out of Bloomberg News' perfunctory account, but Justin Scheck of The Recorder has more detail, including the tasty anecdote that Purtich used to be the attorney for Overlawyered favorite Rex DeGeorge of the Exploding-Yachts DeGeorges.

NYTimes: what Milberg story? - PointOfLaw Forum

In recent years the New York Times, especially its Sunday business section, have positioned itself as the most tireless of diggers on the business corruption and white-collar-crime beat. In the early days of many scandals, from Enron on down, the paper has provided saturation coverage which signaled to the rest of the press that the stories were of long-lasting importance. At the same time, given the Times's fondness for stories lamenting the fate of victimized investors, it was perhaps inevitable that the law firm of Milberg Weiss featured regularly as a source in its news columns, lawyers from that firm being showcased favorably with some frequency.

So what has happened in the four days since Milberg was itself the subject of a dramatic 20-count federal indictment?

You might think that by now the Times would have published a whole raft of news stories on the scandal. There would be profiles of the firm itself and of indicted partners David Bershad and Steven Schulman; news analyses on the implications for Milberg, its competitors and the companies it sues and has sued; reaction roundups based on interviews with other lawyers, legal ethicists, and business people; explanatory graphics and sidebars on the mechanics of how class actions work; and feature profiles of interesting personalities in the case such as informant Howard Vogel and U.S. Attorney Debra Wong Yang. There would be a sternly moralistic editorial or two suggesting that however the case turned out, the industry of class-action-filing clearly needed its stables cleaned out. Columnists and op-ed writers would have chimed in.

In fact, none of this has happened. According to a search of NYTimes.com, the following is the sum total of what the Times has published since last Thursday on the Milberg case:

"Inside Milberg's Credenza" - PointOfLaw Forum

I've got a lengthy op-ed in today's Wall Street Journal (sub-only) discussing the indictment of Milberg Weiss. A few excerpts:

Since such payoffs are baldly illegal, prosecutors claim the firm took elaborate steps to keep them concealed from judges and others. They say Milberg funneled much of the money through law-firm cut-outs and other channels, including casinos, and drew on a stash of money kept in a safe located in a credenza in partner David Bershad's New York office, "to which access was strictly limited." Again and again, prosecutors add, the firm submitted sworn statements on behalf of its clients denying any receipt of the sorts of payments they were in fact receiving. ...

With other class members absent, named plaintiffs are one of the few watchdogs against self-dealing or misconduct by the lawyers -- specifically, the pursuit of settlements that result in high legal fees, whether or not they serve the interest of the class. ... if the Justice Department's allegations are correct, Milberg was taking no chances on the watchdogs staying pacified: It threw regular chunks of raw liver into their cages. ...

The two celebrity lawyers who made Milberg famous, Melvyn Weiss and the now-departed William Lerach, have thus far escaped indictment: Of course, if they were prosecuting such a case, they would miss no opportunity to insinuate that misconduct by part of a team of top executives must have been at least tolerated by the others, that the rot goes straight to the top, that senior partners turned a convenient blind eye to signs of misconduct because they profited handsomely from that misconduct, and so forth. Messrs. Weiss and Lerach must count themselves lucky that such reasoning did not lead to their inclusion as defendants.

The Journal also has an editorial today on the subject.

Our earlier coverage: OL May 20 and links from there, May 21, as well as many posts at Point of Law. When The Economist profiled Melvyn Weiss three years ago, I told them, "A distinguishing characteristic of the Milberg Weiss approach is that the clients became tokens to be moved around a game board� (Jan. 17, 2002)(cross-posted from Overlawyered).

Blogs on Milberg indictment, cont'd - PointOfLaw Forum

More reactions and commentary: Peter Henning explores the possibly relevant distinction between fraud and dishonesty, especially as regards the offense of "deprivation of honest services", and sketches out a possible defense for Milberg, namely to argue that "the victim really never lost anything and the defendants didn't get more than what a judge and opponent said they deserved". Betsy Newmark thinks the "story should be as big as Enron". Ed Morrissey at Captain's Quarters traces the political implications, Milberg being a heavy-hitting donor to elected officials. Larry Ribstein criticizes the decision to indict the firm as a whole. Independent Sources isn't impressed with the Milberg defense website. Right Thinking Girl links to a Bloomberg piece on the Arthur Andersen parallel. I've got a roundup at Overlawyered with reactions from Stephen Bainbridge, Evan Schaeffer and others, and also a post noting a peculiarly ill-timed announcement.

Milberg Weiss Indictment Roundup - PointOfLaw Forum

Tom Kirkendall and yours truly have posts discussing the Milberg Weiss indictment.

Milberg Weiss Indictment - PointOfLaw Forum

According ($$$) to the WSJ, Milberg Weiss has been indicted as a firm, along with partners David Bershad and Steven Schulman. Looks like the deferred-prosecution deal fell apart. Read the text of the indictment here ($$$).

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