The Hunter Becomes the Hunted

May 18, 2006 7:57 PM

Indicted! No, not him. Today the "most prestigious and recognized plaintiff law firm in the United States" was indicted (.pdf) on federal charges of obstruction of justice, perjury, bribery, and fraud.
posted by brain_drain (20 comments total)

The gist: Class actions are brought by individual plaintiffs who often seek to become class representatives.
Plaintiff-side class action firms compete for plaintiffs to represent in these cases, particularly those with
large investments that are likely to be appointed as a lead plaintiff (which gives their lawyers the title of lead counsel
and usually more money). Class representatives are not permitted to be paid anything other than what they
recover as a class member, plus their expenses and possibly a "bonus" to be determined by the court.

Here, Milberg Weiss allegedly paid secret kickbacks through intermediaries to some of its most frequent lead plaintiffs . Two of the firm's partners were also indicted, who together made over $225 million in profits from the firm's cases during
the relevant time period.

It's unusual to see an organization indicted at all these days, let alone a large law firm that regularly brings
business fraud lawsuits.
posted by brain_drain at 7:59 PM on May 18, 2006

(apologies for the formatting glitches in the previous comment)
posted by brain_drain at 8:00 PM on May 18, 2006

No!!! Don't aplogize, the sharks can smell blood.
posted by IronLizard at 8:11 PM on May 18, 2006

Denny Crane.
posted by weretable and the undead chairs at 8:16 PM on May 18, 2006

Indicted name partner David Bershad’s share of the firm’s profits from 1983 to 2005 totalled $160.9 million, paragraph 3 of the indictment.

Insane.
posted by JekPorkins at 8:21 PM on May 18, 2006

I never thought of Milberg Weiss as being prestigious. Successful and rich, yes, prestigious, no.
posted by caddis at 8:50 PM on May 18, 2006

Oops.
posted by delmoi at 8:59 PM on May 18, 2006

Why is that any more insane than anything else in our ridiculous culture, JekPorkins? As far as comparison goes, it would have only taken Michael Jordan (at his peak) three or four years to pull down what Bershad made from his profit participation in twenty-two.
posted by adamgreenfield at 9:00 PM on May 18, 2006

Slight derail, but I am logging on the net early tomorrow morning to see if there is another Fitzmas Miracle in store. . .

Not that I'll be crushed if there isn't.
posted by Danf at 9:00 PM on May 18, 2006

because, adamgreenfield, that's an outrageously huge amount of money compared to what partners at other successful firms make.
posted by JekPorkins at 9:04 PM on May 18, 2006

It's like if Jordan had made a Billion a year.
posted by JekPorkins at 9:05 PM on May 18, 2006

That's not outrageously huge in my experience, but maybe I know different folks than you do.
posted by adamgreenfield at 9:28 PM on May 18, 2006

I guess. Outside of Dickie Scruggs and a few others, what attorneys do you know who have made an average of $7 Million a year for 22 years?

I know attorneys who make that much in investments, but making that from the practice of law is pretty rare. How much does, for example, Joseph Flom make per year?
posted by JekPorkins at 9:39 PM on May 18, 2006

I got 28¢ from a class action suit of which I was totally unaware. Guess I should have gone to law school.
posted by Cranberry at 10:54 PM on May 18, 2006

Did you have to mail a cheque to a Nigerian to have the funds released?
posted by UbuRoivas at 11:19 PM on May 18, 2006

I, with my short attention span, really appreciate your summary of the story. Thanks!
posted by aubilenon at 12:28 AM on May 19, 2006

Check out Milberg's website set up to defend itself: Milberg Weiss Justice. I'm on the defense side of the securities litigation bar, and I defend against Milberg suits all the time. I was going to post this last night, but I had already blown my post for the day. In any case, here's my analysis, also available on my site here.

First, a little backstory. The investigation into Milberg started in the late 1990s with the prosecution of Steven Cooperman, a successful opthalmalogist who was indicted for insurance fraud--engineering the theft of paintings from his own collection in order to collect the insurance proceeds, amounting to a little over $17 million. Eager to strike a deal, Cooperman offered prosecutors information about illegal kickbacks allegedly paid to him by Milberg Weiss. The investigation grew from there, and in 2002, federal prosecutors in Los Angeles issued sub poenas to several law firms that worked regularly with Milberg. In 2005, the government indicted Seymour Lazar, another repeat plaintiff in Milberg's stable, charging Lazar with accepting millions of dollars in illegal kickbacks from the firm.

At the same time, Milberg was having internal problems, and Bill Lerach and Mel Weiss eventually decided the firm would be better off splitting, despite the more than thirty years they had practiced together. For a short time there was "East Coast Milberg" and "West Coast Milberg," before Lerach named his new firm Lerach Coughlin Stoia Geller Rudman & Robbins. Mel Weiss retained control of Milberg, and the two firms both continue to practice on the plaintiffs' side and compete for much of the same work. Lerach's firm represents the class of plaintiffs in the Enron litigation, as well as in the more recent litigation against Halliburton, and some of the firms' supporters claim that the Milberg investigation is largely political.

Over the last several months, Milberg has been attempting to broker a nonprosecution deal with prosecutors, which wouldn't save Milberg partners from prosecution, but would head off an indictment against the firm as an entity, which would likely sound the death knell for the firm. In an effort to appease prosecutors, David Bershad and Steven Schulman, two partners likely to be indicted, left the firm last week. The prosecutors demands regarding admissions of wrongdoing and nine-figure fines eventually proved too much, though, and apparently talks broke down earlier this week. Here is Bershad's parting memo to Milberg employees.

So, it seems, the Los Angeles U.S. Attorney will announce this afternoon, in a press conference scheduled for 12:30 PM Pacific time, that Milberg Weiss, and perhaps individual partners, have been indicted. How will this affect the securities litigation landscape? Not much, at least in the long run.

It's true that Milberg and Lerach take the number three and four spots on the "SCAS 50" report, which ranks plaintiffs' firms by total dollar amount of settlements generated. The two firms together generated $2,434,590,893 in settlements in 2005, and while there are a couple of firms with larger settlements, there are none with nearly so many. The top ten firms on the report generated 144 settlements; of those 144, more than half, 81, came from Milberg and Lerach. So why do I think there won't be much long-term impact? A number of reasons:

First, as Larry Ribstein notes, the value of Milberg as a firm--aside from any reputational value it might hold--is in its lawyers. If Milberg goes down, the unindicted lawyers will move quickly to other plaintiffs' firms, and securities litigation will continue apace. No doubt the disintegration of the firm will cause temporary dislocations in current litigation, but as lawyers settle at other firms, that disruption will be minimized. No doubt there will be competition among the remaining firms to fill the void left by Milberg, but that kind of competition will likely increase, rather than decrease, the number of filings.

Second, it's not clear to me that Lerach is in any danger. Even if Lerach himself were indicted, the Lerach firm is new and separate from Milberg, and not in any danger of indictment as an entity. It's quite likely that if Milberg implodes as a result of the indictment, many of the lawyers and much of the work there will flow to Lerach, a firm already well positioned to continue litigating in this area.

Finally, the PSLRA itself changed securities litigation practice sufficiently that the kinds of practices targeted at Milberg are likely much less widespread than they were in the 1980s and '90s. Prior to the PSLRA, the first plaintiff to file a securities class action was typically named the lead plaintiff, and his or her counsel became lead counsel for the class. The PSLRA now requires that in most cases the plaintiff with the largest dollar amount of losses be named lead plaintiff. Plaintiffs' firms are now much more aggressive at getting institutional investors on board as plaintiffs. In the Enron litigation for example, Lerach's named plaintiff is the University of California. Institutional investors are more savvy, more capable of retaining control over counsel, and far less likely to engage in the type of kickback schemes alleged against Milberg. Moreover, although we still see repeat plaintiffs in smaller securities class actions, the PSLRA limits the number of times an individual may act as lead plaintiff. The PSLRA may not have curtailed securities litigation as a whole, as some thought it would, but it does make the kind of acts alleged against Milberg more difficult to undertake and less beneficial.

I suspect that the Milberg indictment will make for some interesting dinner theater for those of us on the defense side of the securities litigation bar, and will open room for expansion for smaller plaintiffs' firms, but that's about it. I'm skeptical that an indictment would have any significant long-term effect on the landscape of securities litigation.

posted by monju_bosatsu at 7:05 AM on May 19, 2006

I guess. Outside of Dickie Scruggs and a few others, what attorneys do you know who have made an average of $7 Million a year for 22 years? I know attorneys who make that much in investments, but making that from the practice of law is pretty rare. How much does, for example, Joseph Flom make per year?

Flom's a M&A guy, working at Skadden Arps. Skadden is mostly a transactional firm, and the litigation it does is either defense work or commercial work on the plaintiff's side. In other words, no contingent fees. Certainly the guys at Milberg have been consistently successful for a very long time, but it's not totally out of line with the rest of the top-end plaintiffs' bar. Check out the SCAS 50 Report I linked to above. There are two firms that pulled in more in total settlements in 2005 just in the securities area than both Milberg and Lerach, and several more nipping at their heels. Top-end plaintiffs' lawyers outside the securities area tend to make as much or more. Plaintiffs' work can be very lucrative.
posted by monju_bosatsu at 7:11 AM on May 19, 2006

I guess. Outside of Dickie Scruggs and a few others, what attorneys do you know who have made an average of $7 Million a year for 22 years?
posted by JekPorkins at 11:39 PM CST on May 18


More than you think. I used to work for one that made much more than that. The top dogs in the Plaintiffs bars in Houston and Dallas have several that are billionaires or close to it: guys like Joe Jamail, Frank Branson, Fred Baron, Russel Budd, Scotty Baldwin, and John O'Quinn.

Joe Jamail is the King of Torts for a reason.

(FYI - Dickie Scruggs blows)
posted by dios at 8:17 AM on May 19, 2006

It disturbs me to see Leonard Barrack anywhere near the top of that SCAS 50 list - truly one of the least pleasant human beings I can remember meeting. Dan Bacine I remember marginally more fondly, but Leonard I never cared for.

I grew up pretty close to the heart of the plaintiff's bar. As a matter of fact, it's sort of troubling me to see how many of the name partners in the firms listed I have early memories of. Bernie Gross, David Berger, Sherrie Savett...all these weirdly familiar names, now attached to grotesque sums of money.

Point is, maybe you're right, maybe my expectations are utterly skewed. At a larger level, something unpleasant happened in this particular segment of the litigator community, and I'm hard pressed to put my finger on exactly what it was or when it happened.

On the surface, anyway, the idea of a contingent fee is a noble and a useful one, because it allows people to retain competent counsel who otherwise could not afford to do so; the attorney only gets compensated for their time if they win their case or otherwise successfully recover a settlement. And there's little doubt that if there had been an effective SEC or other functioning mechanism to crack down on corporate abuses, you wouldn't need all these gunslingers out there taking a bead on whatever board of directors put their collective foot in it this week.

But all that said, something I grew up thinking of as a collectively worthwhile and even inspiring enterprise now leaves me with the same bad taste in my mouth it does most everyone else. What's worse, despite a great deal of vicious propaganda aimed at the "trial lawyers" (so bad that it occasionally shades into crypto-antisemitism), there's really nobody to blame for it but the lawyers themselves.

It's just too bad for all of us that corporate directors are so often an even scummier crop of malfeasant shitbirds. It'd be interesting and instructive to compare a list of top corporate compensation packages with that SCAS 50 accounting - and see who decries the obscenity of *that*.
posted by adamgreenfield at 8:42 AM on May 19, 2006