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Milberg loses bid to dismiss charges

A judge rejects the law firm's contention that it didn't illegally pay kickbacks to plaintiffs.

August 07, 2007|Molly Selvin | Times Staff Writer

A federal judge Monday denied motions to dismiss charges against a New York law firm, a former partner in the firm and two other defendants in a fraud and conspiracy case scheduled for trial in Los Angeles next year.

U.S. District Judge John F. Walter rejected the defendants' arguments that payments lawyers at Milberg Weiss made to some plaintiffs in class-action lawsuits weren't illegal kickbacks.

Milberg Weiss helped pioneer securities class-action cases during the 1970s and 1980s, recovering more than $45 billion on behalf of shareholders and others. Milberg's enormous success was attributable in part to the fact that the firm often was the first to sue a company, thereby taking the lead in a case and grabbing the largest share of the fees.

Prosecutors allege that Milberg Weiss won the race to the courthouse because it kept a stable of plaintiffs on standby and paid them kickbacks, often through intermediaries.

The firm and two former partners were indicted last year. The 20-count indictment didn't name firm co-founder Melvyn I. Weiss or another former partner, William S. Lerach, but the two are believed to be the "Partner A" and "Partner B" referred to throughout the document. Lerach left Milberg Weiss in 2004 to open his own San Diego-based class-action practice.

Last month, another former partner, David Bershad, pleaded guilty to conspiracy, saying that he and others had pooled their money in a fund he maintained that was tapped for the "secret payments." His plea raised speculation that additional defendants could be named.

In Monday's hearing, William Taylor, who represents Milberg Weiss, told the judge that he was concerned that a sealed filing made by the prosecution Friday might raise "possible mootness issues" and wondered whether the indictment might change form and defendants.

Walter answered that he didn't think it was unwise to proceed.

Court observers called the filing unusual and said it could be a courtesy notice alerting the judge that a new indictment might soon be filed.

Herbert Stern, a lawyer for former Milberg Weiss partner Steven G. Schulman, argued Monday that the alleged kickbacks were compensatory payments to the named plaintiffs in suits that eventually won class-action status. Those plaintiffs have more responsibilities than others, performing such tasks as giving depositions and appearing in court.

The payments came out of the firm's fees in a case, not out of the judgment awarded to class members and as a result, Stern's argument went, there was no intent to defraud other plaintiffs.

"If Milberg Weiss made hundreds of millions of dollars [in fees], the class members made billions," Stern said.

Walter was not persuaded, saying that "it seems to me that this scheme, as alleged by the government" was a "classic kickback scheme." He added, "Whether the government can prove these allegations remains to be seen."

Walter denied other dismissal motions filed by Seymour M. Lazar, a frequent plaintiff in Milberg cases, and his attorney, Paul Selzer. Lazar is accused of receiving kickbacks and Selzer of serving as an intermediary for those payments.

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molly.selvin@latimes.com

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