A New York law firm that has helped investors recover more than $45 billion in corporate fraud cases was indicted Thursday along with two of its partners on criminal charges of paying illegal kickbacks to clients.
The charges of fraud, racketeering and conspiracy, brought by a federal grand jury in Los Angeles, could ruin Milberg Weiss Bershad & Schulman, one of the nation's wealthiest and most powerful law firms.
Legal experts noted that accounting giant Arthur Andersen collapsed after it was indicted in the Enron Corp. scandal. Vowing not to follow that example, Milberg Weiss predicted it would "beat back these charges."
The case also could have broad implications, potentially casting a cloud over class-action lawsuits and giving ammunition to pro-business groups seeking legislation to limit fraud damages and make it harder for shareholders to sue companies.
In a 20-count indictment, prosecutors contended that Milberg Weiss and partners David Bershad and Steven Schulman paid at least $11.3 million over a 25-year period to clients who agreed to act as plaintiffs.
Milberg Weiss often concealed the payments, prosecutors alleged, by paying the plaintiffs in cash or through intermediary law firms. Prosecutors said the "paid plaintiffs" were recruited to buy stocks in anticipation that they would fall in value, positioning themselves and Milberg Weiss to take the lead in securities-fraud cases and collect extra fees.
Paid plaintiffs, including Palm Springs resident Seymour M. Lazar, 78, allegedly recruited friends and family members to serve in similar roles.
"This case is about protecting the integrity of the justice system in America," said Debra Wong Yang, the U.S. attorney in Los Angeles. "Class-action attorneys and named plaintiffs occupy positions of trust in which they assume responsibility to tell the truth and to disclose relevant information to the court. This indictment alleges a wholesale violation of this responsibility."
The alleged kickbacks gave the paid plaintiffs "financial interests that differed from those of the class," Yang said.
Bershad and Schulman denied wrongdoing and said they would fight the charges. Schulman was the lead attorney for shareholders in a trial last year involving the hiring and firing of former Walt Disney Co. President Michael Ovitz.
