As expected, Milberg Weiss founder Melvyn Weiss and the firm were charged in a second superseding indictment (available below) with conspiracy, RICO conspiracy, mail fraud, and obstruction of justice, and Weiss was accused of making a false statement (Sec. 1001) to agents investigating the firm.  While the basic allegation of paying representative plaintiffs in class actions in which the firm served as lead counsel remains the same, the obstruction and false statement charges add a new wrinkle to the case.  Weiss, and through him the firm, are accused of hiding a 1990 fax from one of the plaintiffs to David Bershad, a named partner in the firm, that discusses checks from the firm.  The government subpoenaed the document in January 2002, and the indictment states that from 2003 until August 2007 Weiss obstructed justice by "causing [the fax] to be withheld from production in response to the Grand Jury Subpoena."  Apparently, his refusal to comply with the subpoena was a continuing obstruction of justice. For the Sec. 1001) charge, Weiss alone is accused of lying to agents in August 2003 about his discovery of the document, and subsequent assertion of the self-incrimination privilege to withhold it.  According to the indictment, the fax was a business record of Milberg Weiss and not subject to a Fifth Amendment claim. 

The false statement count shows the benefit of Bershad’s cooperation, because the government alleges that he gave the fax to Weiss, information that clearly comes from Bershad.  This is the first time that I have seen an assertion of the self-incrimination privilege as the basis for a false statement charge, with the government claiming that Weiss knew the document was not a personal record and therefore he could not resist production on that ground.  The obstruction and false statement counts likely are designed to help show Weiss’ intent to hide the payments to the plaintiffs, an attempt to undermine any claim that he was unaware of what was going on or blaming others for the conduct. 

The forfeiture count seeks $251 million from Milberg Weiss and Weiss, which is the government’s estimate of the fees earned from the cases with the improper payments, what the indictment terms the "tainted attorneys’ fees."  (ph)

Download us_v_milberg_weiss_second_superseding_indictment_sept_20_2007.pdf

With the impending superseding indictment of Melvyn Weiss and his firm, Milberg Weiss, the prosecution of the firm and its members for paying secret kickbacks to plaintiffs is nearing its denouement.  The plea agreement (available below) of William Lerach, the symbol — for good or evil, depending on your point of view — of aggressive class action attorneys has drawn considerable attention and criticism for the sentence and lack of a cooperation requirement.  The deal puts his sentencing range at one to two years along with an $8 million fine, and if the district court does not accept its terms then the agreement can be scuttled by either side.  An additional aspect of the sentence is that no more than half can be served in community confinement, i.e. a halfway house, or home detention, i.e. in the living room.  That means Lerach could serve as little as six months in jail, and it will likely be in a prison camp or similar minimum security federal facility.

Some have criticized the sentence as too light compared to those received by other well-known white collar defendants, such as the 25 years received by Bernie Ebbers or Jeffrey Skilling’s 24+ year term, which he is serving even while his appeal is before the Fifth Circuit.  Even Andrew Fastow’s comparatively mild sentence for his role in the Enron debacle was six years, far more than Lerach will serve.  The Wall Street Journal, which has never particularly cared for Lerach and his ilk, criticized the $8 million fine he will pay in an editorial (here), asserting that "It’s hard to put a number on the money Mr. Lerach took off shareholders over the past three decades or so, but it’s safe to say that $8 million isn’t close. Even after his fine and minimal jail sentence, he will presumably remain a rich man."

In any discussion of a criminal sentence, it is important to remember that it has to be based on the crime of conviction, in this case conspiracy to obstruct justice and make false statements to the court.  The Milberg Weiss case has never been a fraud prosecution, at least in the sense of depriving victims of money or property.  While the convictions of Ebbers and Skilling/Fastow involved significant accounting fraud, it is not entirely clear whether the Milberg Weiss kickbacks paid to the representative plaintiffs necessarily provided a direct monetary benefit to the firm in excess of what it recovered in the cases.  The plea agreement states that the payments allowed the firm to file its cases earlier, and the degree of oversight exercised by the named plaintiffs was non-existent, in all likelihood, so Milberg Weiss was free to pursue its legal strategy unfettered by any client demands.  An earlier defense filing in the case assailed the government’s theory as trying to stretch a violation of the professional responsibility rules into a crime.  While making false statements to the court is certainly criminal, and the kickbacks were not only unethical but likely crimes given the representations the class counsel must make about its representation, what Lerach and others who have entered guilty pleas did was not necessarily a scheme to defraud.  While the WSJ may bemoan Lerach’s tactics, due process limits the sentence to conduct related to the criminal offense, and it’s hard to see how claims of ripped-off shareholders relates to a conspiracy to mislead judges.

The absence of a cooperation provision in the plea agreement has aroused suspicion because the government usually requires it as part of a deal.  The Ideoblog (here) notes that "it’s still possible that the government made an implicit, non-disclosed deal with Lerach."  While there is good reason to be suspicious, I suspect the government does not have much interest in using Lerach in the prosecution of Weiss and the firm, so prosecutors may well have been willing to drop any cooperation demand in the bargaining to get Lerach to plead guilty.  It gives him a small point to argue in the future — "I’m not a rat" — at little cost to the government.  Lerach as a witness against Weiss would bring significant baggage, mainly the negative relationship he has with Weiss that led to the breakup of Milberg Weiss in 2004.  Moreover, I doubt prosecutors would trust having Lerach on the stand because he does not strike me as a witness who can be controlled or trusted to maintain his temper on cross-examination.  The key to the case against Weiss is his former partner David Bershad, who was in charge of the firm’s finances and paying the representative plaintiffs.  Lerach would be more of a distraction at a trial, so garnering his cooperation would not be worth much while it could be foregone for other benefits during the negotiations.

Whether the sentence (and fine) is "light" or "harsh," the prosecution is a watershed because the government pursued a case against attorneys who sought to take advantage of the system through a long-term pattern of abuse.  That said, not every case in which Milberg Weiss was counsel was tainted, and the firm remains in business.  Lerach certainly should lose his law license, and I doubt many judges will ever welcome him into their courtrooms as a lawyer again.  There’s always a danger in asking how a symbol should be punished, and comparing one case with another risks overlooking important differences between them.  (ph)

Download us_v_lerach_plea_agreement_sept_18_2007.pdf

Fortune is reporting (here) that Melvyn Weiss, a name partner at Milberg Weiss, will be indicted shortly on charges related to secret payments to representative plaintiffs in class actions filed by the firm.  Former partner William Lerach just entered a guilty plea to a conspiracy charge that will call for a one- to two-year sentence, while another former name partner, David Bershad, entered a guilty plea earlier that appears to have been the key breakthrough in the investigation.  In addition, Steven Schulman, whose name was put on the firm more recently, reportedly will also enter a guilty plea after fighting the charges for over a year.  The firm itself was also indicted in 2006, and it too is likely to plead guilty at some point.  In its heyday, the firm was called Milberg Weiss Bershad Hynes & Lerach before the 2004 break-up, which means that three of the five "names" in the firm — Schulman’s was added after Lerach left — will be involved in federal charges related to its conduct.  Lawrence Milberg died in 1989, well before the practices at issue in the case occurred.  (ph)

UPDATE: The Wall Street Journal Law Blog (here) quotes a press release issued by Milberg Weiss confirming that Melvyn Weiss and the firm will be the subject of charges issued in a superseding indictment by a Los Angeles grand jury:

Milberg Weiss understands that a second superseding indictment will be issued tomorrow that will include new charges against the Firm and also Melvyn Weiss. Mr. Weiss has decided to discontinue his participation in Firm management in order to focus on the defense of the charges against him. The Firm’s other partners, none of whom is alleged to have been involved in any wrongdoing, will be responsible for its management and litigation activities. Mr. Weiss will remain available to counsel clients and Firm attorneys. The Firm remains proud of Mr. Weiss’s and the Firm’s accomplishments over the years and will continue to fight for its clients and class members and to produce the excellent results for which it is known. We do not anticipate any interruption in our work and we look forward to putting this difficult period behind us.

With Weiss no longer taking an active management role at the firm, it may be that Milberg Weiss will seek to resolve the charges rather than continue to fight them. (ph)

Famed class action attorney William Lerach is set to plead guilty in Los Angeles to one count of conspiracy related to payments to representative plaintiffs in cases filed by his former firm, Milberg Weiss.  The long-running investigation of the firm has picked up steam in the past few months as former name partner David Bershad entered a guilty plea that outlined how he maintained a cash fund drawn from contributions from other Milberg Weiss partners that was used to make secret payments to the plaintiffs.  In late August, Lerach announced his retirement from his new firm, Lerach Coughlin, in which he acknowledged "my mistakes" and said that the investigation would end soon, which apparently it will for him (see earlier post here).  According to a Bloomberg article (here), the plea agreement does not include a cooperation provision, which likely means Lerach will not be called on to testify against the firm or another former named partner who remain under indictment.  The agreement calls for a prison sentence of one to two years and an $8 million fine.  A key question now is whether prosecutors will bring a case against Melvyn Weiss, who along with Lerach has been the recent focus of the federal investigation.  (ph)

What had been rumored for a few weeks has finally come to pass — former Milberg Weiss name partner David Bershad entered into a plea agreement with federal prosecutors and will cooperate in the investigation of the firm.  According to a press release (available below) issued by the U.S. Attorney’s Office for the Central District of California, Bershad will plead guilty to one count of conspiracy.  The plea agreement requires him to forfeit $7.75 million and pay a $250,000 fine.  The plea agreement (available below) puts the Sentencing Guidelines range at 27-33 months, but there is also a 5K1.1 provision allowing the government to move for a lower sentence based on Bershad’s cooperation.

With Bershad’s guilty plea, the law firm is likely to be the next defendant to settle because it has no real defense to the charges now that one of its partners admitted guilt.  The key issue is whether former Milberg Weiss leaders Melvyn Weiss and William Lerach will be charged.  The statement of facts (available below) filed with the plea agreement refers to Milberg Weiss partners A, B, E, F, and G being involved in the payments to class action plaintiffs — presumably Bershad and co-defendant Steven Schulman were C and D on that list.  Whether Weiss and Lerach are among the unidentified partners remains to be seen, but they are certainly targets of the investigation.  Bershad played a major role in the firm’s finances, and has extensive knowledge of how payments were structured and the involvement of other partners in the firm’s class action cases.  His cooperation may well be a key turning point in the case. (ph)

Download milberg_weiss_press_release_usao_cdcal_july_9_2007.pdf

Download us_v_bershad_plea_agreement.pdf

Download us_v_bershad_statement_of_facts_july_9_2007.pdf

The Los Angeles Daily Journal is reporting that prosecutors offered a plea deal to leading class action attorneys Melvyn Weiss and William Lerach related to allegedly illegal kickbacks paid to representative plaintiffs.  The report also indicates that former Milberg Weiss name partner David Bershad is cooperating in the investigation of his former firm, which was indicted along with him and another firm partner in 2006.  The investigation of the firm has been tortuous, to say the least, having lasted now since about 2000.  At one point, Weiss and Lerach were identified as targets, but then in February 2006 the U.S. Attorney’s Office in Los Angeles apparently notified them they were no longer targets (see earlier post here).  Now they may be back on the list, and indeed much more than mere targets but the principle focus of the case.  If Bershad does plead guilty, there is little the firm can do to fight the charges, and it may be in the interest of the remaining partners to end the prosecution with some type of settlement agreement. 

One hang-up with the reported plea offer is that it would have required Weiss and Lerach to serve a term in prison, which neither is amenable to at this point.  When prosecutors make plea offers this far into an investigation after securing the cooperation of another defendant, it may well be a sign that the government will move against the two lawyers in the near future.  A Reuters story (here) discusses the Daily Journal report (which is available only by subscription).  (ph)