Weiss, Class Action Dean, Will Plead Guilty in Kickback Case
By David Voreacos and [bn:PRSN=1] Edvard Pettersson []
March 20 (Bloomberg) -- Melvyn I. Weiss, whose law firm engineered securities fraud class actions that forced companies to pay $45 billion, will plead guilty to conspiracy as part of a $251 million scheme to pay clients kickbacks to file lawsuits.
Weiss agreed to serve 18 to 33 months in prison and pay $10 million, defense lawyer Benjamin Brafman said today in a statement. Federal prosecutors accused Weiss, 72, his law firm, Milberg Weiss, and former partners including William Lerach of secretly paying clients to lead suits that brought the firm hundreds of millions of dollars in fees. Before a 1995 law, being the first to file class actions, or group suits, often guaranteed law firms the biggest share of a settlement or verdict.
``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,'' Weiss said in a separate statement.
Weiss, charged with conspiracy, racketeering, obstruction of justice and making false statements, faced as much as 40 years in prison if he was convicted in a trial. He will not be cooperating with the government, a lawyer familiar with the case said. Lerach was sentenced to two years in prison. Milberg Weiss, indicted in 2006, has pleaded innocent.
Fight the Charges
Brafman said last year that his client would fight the charges, which were filed in Los Angeles federal court. In his statement, he noted the judge has discretion to substitute home confinement for as much as half of any prison sentence.
``Weiss provided access to the courts for millions of victims of corporate wrongdoing,'' Brafman said in the statement. ``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.'' He said Weiss will enter his plea in April.
Weiss's plan to plead guilty was reported earlier today by the Wall Street Journal.
His law firm has twice sought unsuccessfully to have the charges thrown out, arguing the government's theory is flawed.
``This prosecution is unprecedented and inappropriate,'' lawyers for the firm said in a Jan. 14 court filing. ``Nothing even remotely approaching the alleged conduct at issue -- sharing court-approved attorneys' fees with named plaintiffs in class- action cases -- has ever been recognized as a valid criminal mail fraud case.''
Flawed Theory
Milberg Weiss argued that the government's underlying ``honest services'' fraud theory is flawed because investors who didn't receive the alleged secret payments weren't harmed and still benefited from the settlements the firm reached.
The firm also claimed that prosecutors tried to create one conspiracy out of four separate payment arrangement to avoid the statute of limitations on the individual arrangements. The firm said it can't be charged with obstruction of justice based on the conduct of Weiss ``in his personal capacity.''
The law firm today said in a statement that it was changing its name to Milberg and that Weiss is quitting.
``Last year, management of the firm was taken over entirely by partners who were neither engaged in nor aware of the wrongdoing,'' it said in the statement. ``None of the lawyers or staff remaining at the firm has ever been implicated in this misconduct.''
`Based in Greed'
Los Angeles U.S. Attorney Thomas O'Brien said in another statement today ``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.'' He added that the government would seek the maximum 33-month sentence under the plea deal. No sentencing date has been set, O'Brien said.
Federal prosecutors have been investigating Milberg Weiss since a Beverly Hills eye surgeon first told them eight years ago about secret payments he received from the firm in 1989 to serve as a lead plaintiff.
Former Milberg Weiss partners David Bershad and Steven Schulman were indicted in 2006. They pleaded guilty last year and are cooperating with the government.
Lerach, 62, left New York-based Milberg Weiss in 2004 to start his own San Diego-based firm, now called Coughlin Stoia Geller Rudman & Robbins. He was sentenced to two years in prison after pleading guilty to conspiracy for his role in the scheme. He is to begin his sentence April 21.
Second Major Plea
Weiss's plea will follow that of another major plaintiffs' lawyer, Richard Scruggs. Made famous by his $206 billion settlement of state lawsuits against tobacco companies, Scruggs pleaded guilty March 14 to trying to bribe a judge in exchange for a favorable ruling in a dispute over legal fees. Scruggs, 61, faces as much as five years in prison at sentencing.
Milberg Weiss was the leading law firm based on the amount of money it recovered for clients in securities fraud cases last year. The firm was lead counsel in 17 suits that settled for a total of $3.8 billion, according to a study by RiskMetrics Group's Institutional Shareholder Services unit.
Milberg Weiss had 26 partners and 52 non-partner lawyers as of September, according to a court filing last year, compared with 45 partners and 72 non-partners in May 2006, when the firm was charged. Today the firm said it employs about 70 attorneys.
Weiss started the law firm in 1965 with Lawrence Milberg. Previously known as Milberg Weiss Bershad Hynes & Lerach, it was the biggest law firm representing shareholders in securities- fraud cases before Lerach left to start his own firm. Weiss headed what was left of the original firm, Milberg Weiss.
Bronx Born
Weiss was born in 1935 in the Bronx in New York City, obtaining a bachelor's degree in accounting from Baruch College in 1957 and a law degree from New York University School of Law in 1959. Along with Lerach, he helped create a tactic for filing securities lawsuits known as the ``race to the courthouse door.''
Before the Private Securities Litigation Reform Act of 1995, shareholder lawyers seeking to lead class action lawsuits against companies whose stock dropped needed simply to be the first to file. Law firms had stables of clients who owned shares in huge companies that were considered susceptible to such litigation.
The lead plaintiff's lawyers, on behalf of their clients, direct the course of such litigation and reap the largest share of fees from a verdict or settlement.
The reform act required plaintiffs with the biggest losses, usually institutional investors such as state pension funds, to assume the lead plaintiff role. The statute also raised the bar for suits, requiring a higher level of proof before allowing plaintiffs' lawyers to seek evidence from companies.
Legal Fees
Even with the restrictions, Weiss's firm collected $1.7 billion in legal fees and expenses between 1995 and 2005, according to a study commissioned by the U.S. Chamber Institute for Legal Reform. The firm also handled 43 percent of the 755 shareholder class actions that settled.
Prosecutors claimed that in 1989 Weiss paid Steven Cooperman, a Beverly Hills eye doctor, $175,000 disguised as a refundable option to buy a Picasso painting, in exchange for serving as a plaintiff in a shareholders case against Newhall Land and Farming Co. Milberg Weiss then funneled payments to Cooperman, who has been cooperating with the investigation, on the understanding he would repay Weiss.
Weiss withheld a key subpoenaed document for more than five years, federal prosecutors said in February. He failed to produce a fax regarding the payment to Cooperman, the government said in court documents. Weiss's lawyer told investigators in 2003 that the document was his client's personal record rather than subpoenaed Milberg Weiss records, according to prosecutors.
The subpoenaed fax detailed Cooperman's repayments to Weiss. Bershad told prosecutors that Weiss took the fax and put in its own safe rather than hand it over, according to prosecutors.
The case is U.S. v. Milberg Weiss, CR05-587, U.S. District Court, Central District of California (Los Angeles.)
To contact the reporters on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net; Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.
Last Updated: March 20, 2008 12:57 EDT |
