The best-known shareholder law firm in the country agreed on Monday
to pay $75 million to dodge a criminal trial, ending a seven-year
investigation that tarnished the profession’s image.
The law firm, long known as Milberg Weiss Bershad Hynes & Lerach, has shrunk in size and now calls itself just Milberg. One of its most famous partners, William S. Lerach, is in prison, and the other, Melvyn I. Weiss, is headed there under previously announced guilty pleas.
The firm, though, will survive under the latest agreement with prosecutors.
guilty pleas and the firm’s agreement represent a stunning change of
fortune not just for the convicted lawyers, but also for a certain
legal culture of braggadocio and excess — always in the name of justice
for the investors that they represented.
conservative courts impose tougher standards on shareholder claims. The
reputation of the lawyers who file such suits has suffered. The image
of Mr. Lerach brandishing shredded documents from Enron, taking a stand
against corporate corruption, has been eclipsed by sordid revelations
of these lawyers’ conspiracies to fool the courts and by confessions of
“The field has gotten a black eye, which of
course is very unfortunate,” said Richard S. Schiffrin, who recently
retired as a founding partner at the shareholder law firm of Schiffrin
Barroway Topaz & Kessler in suburban Philadelphia. Changes in the
law, though, have had more of an impact on cases, he added.
the agreement, a copy of which was provided by Milberg, the firm will
have five years to complete the $75 million payment to the government,
one of the largest fines ever levied against a law firm. Prosecutors
will ask a court to dismiss the indictment of the firm.
conclusion that no current lawyer at the firm had any involvement in
the wrongdoing will enable us really to move forward,” said Sanford P.
Dumain, a partner at Milberg, in an interview on Monday. He added that
the firm was considering whether to seek recovery of some of the money
from its former partners to pay the government.
been investigating secret payments to lead plaintiffs in securities
class-action suits brought by Milberg. The payments rewarded what
prosecutors described as a “stable” of ready clients who held stock in
The payments meant that the lead plaintiffs stood to
receive more money than they would if they had simply been members of
the class, and that as a result they might not have looked out for the
best interests of the entire class, as lead plaintiffs are supposed to
“The settlement with Milberg reflects the seriousness of what
was probably the longest-running scheme ever conducted by a law firm,”
said Thomas P. O’Brien, a United States attorney. According to his
office, Milberg paid secret kickbacks to plaintiffs in more than 165
lawsuits over 25 years that garnered nearly $240 million in legal fees.
prison walls have not ended Mr. Lerach’s trademark bravado. In a recent
article for the business magazine Portfolio, he wrote, “Paying
plaintiffs was an industry practice.”
The reverberations from the
investigation of past conduct by former Milberg lawyers are felt
outside the courtroom. Several Republican lawmakers have cited Mr.
Lerach’s claim that misconduct was widespread as cause for concern and
have called for further investigation.
“The Milberg Weiss scandal has revealed a clear and present threat to our nation’s prosperity,” Representatives John A. Boehner, Republican of Ohio, and Lamar Smith, Republican of Texas, wrote in a letter to the Democratic chairman of the House Judiciary Committee, John Conyers Jr. of Michigan, in May.
Both Mr. Lerach and Mr. Weiss pleaded guilty to roles in the kickback
scheme. Mr. Lerach was required to forfeit $7.75 million and was
sentenced to two years in prison; Mr. Weiss was required to pay a
penalty of $250,000 and forfeit $9.8 million, and was sentenced to 30
The revelations of misconduct by the lawyers “poisoned
the well,” said one longtime New York shareholder lawyer. He insisted
on anonymity out of fear of retaliation by other lawyers; such is the
powerful reputation of Milberg still.
“Any judge you come
before expects that you’re a crook, too,” this lawyer said. “There are
judges that I’ve appeared before for many years who are frosty all of a
The higher standards that courts have begun imposing on
shareholder suits are not directly related to the Milberg
investigation, but instead have much to do with the positions adopted
by the Supreme Court and intermediate appellate federal courts.
the number of shareholder lawsuits has not dropped greatly. Last year,
176 suits were filed, up from 118 in 2006, but down from a high of 497
in 2001, according to the Securities Class Action Clearinghouse at
Stanford Law School. So far this year, 101 suits have been filed.
fraud filing activity is very robust this year,” said Joseph A.
Grundfest, founder of the Stanford Clearinghouse. “There is no
This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.