Milberg rides Madoff
crainsnewyork.com
Scandal-plagued law firm rebuilds image, representing Ponzi scheme victims
January 04, 2009
Bernard Madoff is said to have ruined many a fortune, but for one law firm, history's largest alleged Ponzi scheme is opening the door for a comeback.
The law firm formerly known as Milberg Weiss—considered the go-to firm for shareholder class-action suits until a 2006 kickback scandal landed several of its name partners in prison—is once again in demand.
The firm, now called simply Milberg LLP, has signed up more than 100 Madoff victims, the biggest group assembled by any one firm to date. All told, these clients face estimated losses of $1.5 billion to $2 billion. In addition to representing a potential windfall in fees, the cases could help restore the firm's reputation.
Milberg Weiss, which claimed to have collected $45 billion on behalf of defrauded investors over four decades, was once one of the most-feared class-action firms in the nation. The firm served as lead counsel in the Enron class-action suit in 2002, securing a shareholder settlement of $7.2 billion, one of the largest in history. It was also known for public stunts: On one occasion, a partner pushed a wheelbarrow full of shredded documents to the steps of the Enron building.
At its height, the firm had more than 150 lawyers. But a federal investigation that began in 2005 revealed that seven of the firm's partners were secretly paying plaintiffs to join a series of suits, perpetrating a kickback scheme that brought the firm an estimated $251 million in fees.
The guilty former partners have all been sentenced to prison. Milberg Weiss agreed to pay a $75 million settlement, and the government dropped its indictment of the firm.
The firm has since kept a low profile, trying to avoid the theatrics that were once its trademark. Although Milberg has shrunk by about 30%, to 100 lawyers, it has been able to carry on most of its ongoing cases.
“The vast majority of our clients—about 95%—stayed with us, even after the indictment,” says Sanford Dumain, who is a partner at Milberg.
In 2007, the firm recorded 17 settlements totaling more than $3.8 billion. That was enough to put Milberg first on the list of the top 50 class-action firms ranked by RiskMetrics Group, a corporate-governance consulting firm.
Those lawyers who stayed through Milberg's troubles talk of the close working environment and the camaraderie that comes from being “survivors.”
“Unfortunately, there were aspects within the firm that were disappointing,” Mr. Dumain says.
But such dealings are a thing of the past, insist current partners. The remaining attorneys feel a greater need than ever to prove that the firm is legitimately at the top of its game.
“The lawyers that stayed were not implicated or involved in the indictment, and we are going to work just as aggressively as we always have to do the best for our clients,” says partner Ariana Tadler.
What goes around ...
In a twist of fate, the Madoff scandal may be just the thing that wipes away the stain of Milberg's past.
Milberg is working with plaintiffs' firm Seeger Weiss in rounding up Madoff victims; Mr. Dumain notes that even lawyers who have been adversaries in the courtroom are referring Madoff investors to Milberg. The firm is still acknowledged to have the most expertise in financial investigations, with its in-house team of 12 former FBI investigators and forensic accountants.
Steven Bursey, chief of Milberg's investigative team, says he is following a few promising international leads to Mr. Madoff's “inner circle” but declines to elaborate.
Because of the unique circumstances, it is unlikely that Milberg will seek class-action status for the Madoff victims, says partner Brad Friedman.
“In a typical class action, a class member has lost a few hundred or a few thousand dollars,” he explains. The cost of mounting an individual lawsuit may exceed the amount of the investor's loss, so pooling plaintiffs together into a class creates economies of scale.
In the Madoff case, however, each victim claims to have lost millions of dollars, so Milberg may bring cases individually. Also, Mr. Madoff may not be the sole defendant in some instances, since many of the victims invested through third parties.
In addition to raising its profile through the Madoff case, Milberg is on a hiring spree. The firm just announced that famed Harvard Law School professor Arthur Miller and Gibson Dunn & Crutcher bankruptcy chief Jonathan Landers are joining the firm.
Some in the New York legal community think it will take more than a few prominent hires to dissipate the cloud of disdain.
“I'd still feel uncomfortable placing attorneys at Milberg,” says Jack Zaremski, president of legal search firm Hanover Legal Personnel Services Inc. “You don't go from your name partners acting criminally, and the firm negotiating a plea agreement in order to stay in business, to becoming a respected player in the New York legal community in the space of a year.” |
