Milberg Weiss Partners to Be Indicted Within Month, Lawyer Says

Feb. 23, 2006
Bloomberg
By Jef Feeley

Steven Schulman and David Bershad, partners in New York's Milberg Weiss Bershad & Schulman, were told by prosecutors that they will be indicted within the next month on charges they participated in a scheme to pay kickbacks to clients, Schulman's lawyer said.

Assistant U.S. Attorney Richard Robinson told Schulman and Bershad on Feb. 20 that they are facing indictment on wire fraud and money laundering charges over the fees, according to Edward Hayes, who represents Schulman in a federal criminal probe over the payments. Robinson told the two men they could be indicted in the next 30 days, Hayes said in an interview yesterday.

A lawyer for Melvyn Weiss, the firm's lead partner, said Feb. 21 that prosecutors told Weiss and William Lerach, Weiss's former partner, that there are no plans to charge them in the five-year probe of possible kickbacks. The two men run firms that accounted for 57 percent of securities fraud settlements last year, according to a Cornerstone Research survey.

"Mr. Schulman absolutely denies he was involved in any kickback scheme and that any referral fees involved in his cases were 100 percent legitimate,'' Hayes said. Neither Bershad, a founding member of Milberg Weiss, nor his attorney, Andrew Lawler, were immediately available yesterday to comment on Hayes's statements. Tom Mrozek, a spokesman for the U.S. attorney's office in Los Angeles, which has been conducting the investigation, declined to comment on "any aspect'' of the investigation.


Federal prosecutors have been investigating claims that Milberg Weiss Bershad Hynes & Lerach, the biggest firm representing shareholders in securities fraud cases before it split in two in 2004, illegally paid shareholders to file the suits. At the time of the breakup, Milberg Weiss had represented clients in half of all securities class actions filed in the past decade. The firm took part in suits that paid clients $30 billion in settlements.

Hayes said prosecutors allege Schulman knew about a scheme to pay referral fees to lawyers who sent them clients with securities-fraud claims. Some of the fees allegedly later made their way to the clients, he added. "The government contends there are millions in fees'' at issue in the case, Hayes said.

Schulman will be charged with fraud over allegedly knowing about the fee scheme and not taking steps to stop it, Hayes said. He'll face money laundering charges because he knew some lawyers were reportedly helping plaintiffs hide the source of money they received from the fees, Hayes said.

A referral fee is paid from one firm to another for referring a client and splitting up the work, said George M. Cohen, a law professor and legal ethics teacher at the University of Virginia at Charlottesville. "In many cases, it's not really a huge issue,'' Cohen said, though problems may arise if such fees are used by "lawyers who are less competent and can't get business in a legitimate way.'' "Basically, the rules say you can have some kind of referral fee as long as both lawyers are contributing to the representation or they agree to a joint representation,'' Cohen said. "Then it's OK, as long as the client understands that this is what's going on.''

The Milberg case may be a little different, and the claim "is that they were making payments to a named plaintiff in various class actions, that he was getting extra payments to bring the claims in class actions,'' Cohen said. "The argument is that if the person is paid extra for serving in that capacity, they may not necessarily act in the best interests of the class, but may act in the best interest of themselves or the law firm.''

Investigators are relying on accusations made by two former Milberg partners about the kickback scheme, Hayes said. "We don't believe these individuals have any legitimate proof of any wrongdoing,'' Hayes said. "Every document they've pointed to is inconsistent with the allegations'' over the fees, he said.
Hayes added the charges are an attempt to pressure Schulman and Bershad into cooperating with prosecutors in their continuing investigation of Weiss's and Lerach's actions. Lerach now leads San Diego-based Lerach Coughlin Stoia Geller Rudman & Robbins. Weiss leads New York-based Milberg Weiss Bershad & Schulman.

Before 1995, law firms that were the first to file suits against companies whose stock declined often received most of the legal fees when the cases were settled. A change in the law that year gave control of shareholder suits to firms that represent the biggest shareholders.

On Milberg Weiss's Web site, Bershad is listed as a securities and commercial litigator. The site said he has negotiated "more than 100 complex class-action settlements,'' including cases against Lucent and Rite Aid that brought in a total of $900 million for investors. Schulman also is listed as a securities fraud litigator on the site and recently represented Disney investors seeking to recoup former company President Michael Ovitz's $140 million severance.

Two other men already have been indicted in connection with the federal investigation of referral fees among securities lawyers. Paul T. Selzer, a California lawyer, and Seymour Lazar, a retired attorney, have been charged with money laundering in connection with the alleged kickback scheme. Selzer is accused of helping to funnel illegal payments to Lazar, who served as lead plaintiff in securities fraud cases. Selzer allegedly used referral payments made to him by Milberg Weiss to settle Lazar's legal bills with his firm and to make political contributions on his behalf.

Labels: Melvyn Weiss, Milberg Weiss, money laundering