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Lawyer admits to kickbacks

Class-action attorney's plea could help the U.S. snag a bigger fish.

July 10, 2007|Molly Selvin | Times Staff Writer

A former senior partner of a pioneering law firm that won billions for clients in securities fraud cases pleaded guilty Monday to conspiracy, giving prosecutors ammunition to go after the lawyer widely regarded as the master of shareholder class actions.

The plea agreement by Milberg Weiss ex-partner David Bershad in what the government has described as a kickback scheme ratchets up the pressure on William S. Lerach, another former partner of the firm, as well as on firm co-founder Melvyn I. Weiss.

The New York-based firm made its name launching shareholder suits against major corporations and recovered more than $45 billion for investors in such cases.

Lerach left Milberg in 2004 to open a San Diego-based practice that quickly became one of the top securities class-action firms, recovering billions on behalf of shareholders at Enron Corp., WorldCom Inc., AT&T Corp., Apple Computer Inc. and many other companies. In the process, he won the admiration of shareholder groups and the enmity of corporate executives. He also became a generous Democratic Party contributor.

Bershad was indicted last year along with former Milberg partner Steven Schulman and the law firm itself. The 20-count indictment didn't name Weiss or Lerach, but they are widely believed to be the "Partner A" and "Partner B" referred to throughout the document.

The two reportedly have been in talks with prosecutors and rejected plea agreements that would have required them to serve as many as four years in prison.

Bershad's plea in Los Angeles federal court "makes it practically inevitable" that the prosecutors will indict Lerach and Weiss, said John C. Coffee, a Columbia Law School professor.

"This is playing out with the slow inevitability of a Greek tragedy," Coffee said.

Milberg's enormous success was attributable in part to the fact that the firm often was the first to file a lawsuit against a company and thus became the lead lawyers in a class action against it. Prosecutors have alleged that Milberg won the race to the courthouse and a larger share of legal fees because it kept a stable of plaintiffs on standby to whom it paid kickbacks, often through intermediaries.

Appearing Monday before U.S. District Judge John Walter in Los Angeles, Bershad, dressed in a dark suit and red tie, stood beside one of his lawyers as prosecutors read a statement in which he admitted to participating in a scheme to make secret payments to repeat plaintiffs. He acknowledged that he, "Partner A and Partner B" and others "pooled their personal cash into a fund Bershad maintained in his office at Milberg Weiss, which was used by the conspiring partners to supply cash for secret payments to paid plaintiffs and others."

As the partner primarily responsible for overseeing Milberg Weiss' financial affairs, the 67-year-old New Jersey resident said, he kept track of the cash payments, helped conceal them from the state and federal judges responsible for approving the firm's class-action fee awards and caused the firm to provide false and misleading tax information to the Internal Revenue Service.

Lerach, 61, is planning to retire this year as head of his firm, Lerach Coughlin Stoia Geller Rudman & Robbins, according to reports published Monday. Dan Newman, a spokesman for the firm, said Lerach hadn't set a date for his departure, but "he's promised to retire before he will allow the Milberg Weiss matter to become a distraction to this firm."

In last year's indictment, a Los Angeles grand jury accused Bershad, Schulman and Milberg Weiss of illegally paying at least $11.3 million over a 25-year period to clients who agreed to act as plaintiffs.

The recipients of the payments were recruited to buy stocks in anticipation that they would fall in value, according to the indictment, positioning themselves and Milberg Weiss to take the lead in securities fraud cases and collect extra fees.

Schulman and Milberg Weiss have denied the charges.

Bershad's decision to plead guilty to one count of conspiring to obstruct justice and making false statements under oath appears to cut much of the ground out from under the other defendants.

His admissions specifically implicate three former Milberg plaintiffs in the kickback scheme, including Palm Springs resident Seymour M. Lazar, retired real estate investor Howard J. Vogel and Steven G. Cooperman, a former Beverly Hills ophthalmologist. Lazar and his attorney, Paul T. Seltzer, have been charged with conspiracy. Both men have pleaded not guilty.

Vogel pleaded guilty last year to making a false statement and awaits sentencing. Cooperman has agreed to plead guilty to a conspiracy charge. He is scheduled to enter his guilty plea today, also before Judge Walter. Neither Vogel nor Cooperman were indicted.

Standing beside Christine Arguedas, one of his attorneys, during Monday's 45-minute proceeding, Bershad agreed to forfeit $7.75 million, pay a $250,000 fine and cooperate with the government's investigation. He made no statement beyond responding to the judge's questions.

Bershad is scheduled to be sentenced in June of next year. The conspiracy charge to which he agreed to plead guilty carries a maximum statutory penalty of five years in federal prison.

The investigation has left the fate of the 40-year-old Milberg firm in question. The firm has 76 lawyers, down from 125 before last year's indictment. The firm's name has shrunk as well, from Milberg Weiss Bershad & Schulman last year to its current name, Milberg Weiss LLP.

The trial of the remaining defendants is scheduled to begin Jan. 8.

molly.selvin@latimes.com

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