Federal prosecutors may be closer to a possible indictment of renowned class-action lawyer William S. Lerach, attorneys said Thursday.
A possible guilty plea from a major defendant in the fraud probe of class-action law firm Milberg Weiss & Bershad could signal that prosecutors may be closing in on founding partner Melvyn Weiss as well as Lerach, a former Milberg partner long regarded as one of its marquee attorneys.
Lerach reportedly told clients and others this week that he was leaving the San Diego plaintiffs' law firm he founded three years ago after parting ways with Milberg Weiss. His departure may indicate that he expects to be indicted soon and doesn't want to damage the firm, lawyers familiar with the case said.
If Lerach is leaving, it means "that he wants to separate himself from the firm or the firm wants to separate from him," said Laurie Levenson, a former federal prosecutor who teaches at Loyola Law School. The fingerpointing could be beginning in earnest, she said.
Milberg Weiss and two of its partners were indicted last year as part of an eight-year investigation of alleged kickbacks and money laundering.
David Bershad, the Milberg Weiss attorney prosecutors said was primarily responsible for overseeing the firm's financial affairs, faces a deadline today to file a motion to dismiss the fraud and conspiracy charges filed against him last year.
Steven Schulman, the other Milberg partner indicted last year, filed a dismissal motion last month.
"Not filing a motion to dismiss ... means [Bershad] is in the process of settling," said John Coffee, a Columbia Law School professor who studies class actions.
Bershad's possible willingness to plead guilty could also mean that "Lerach's feeling the pressure," Levenson said. Bershad could produce evidence implicating Lerach, attorneys said.
The plea talks were first reported in the Wall Street Journal on Thursday.
Milberg Weiss pioneered large-scale federal class actions beginning in the 1980s, netting $45 billion in settlements on behalf of investors and consumers in fraud suits against Lincoln Savings & Loan, WorldCom Inc. and Enron Corp. among other major corporations.
The 20-count indictment accuses Bershad, Schulman and the law firm of paying at least $11.3 million in kickbacks over a 25-year period to clients who agreed to act as plaintiffs.
Prosecutors accuse the defendants of concealing the kickbacks by paying the plaintiffs in cash or through intermediary law firms. 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, according to the indictment.
Paid plaintiffs, including Palm Springs resident Seymour M. Lazar, 79, allegedly recruited friends and family members to serve in similar roles. Lazar was indicted in 2005. He, like Schulman, Bershad and the firm, pleaded not guilty.
If Bershad negotiates a guilty plea, it would be "a major development in this long-running saga," said Jan Handzlik, a former federal prosecutor now in private practice in Los Angeles.
Robert Luskin, a lawyer who represents Bershad, declined to comment on the reports.
Government lawyers alleged that Bershad used cash from a safe in his office credenza to pay kickbacks to plaintiffs. Access to the safe "was strictly limited," according to the indictment.
His cooperation "might enable prosecutors to finally determine who was responsible for these practices," Handzlik said.
If Bershad cooperates, "it will be relatively easy for him to implicate the firm's founder, Melvyn Weiss, as the person who gave him control over this alleged secret slush fund," Coffee said.
Given the close relationship between the two men, the decision "has to be an agonizing dilemma for Bershad," he added.
If convicted, Bershad and the other defendants could face decades in federal prison. Bershad probably would expect to negotiate a reduced sentence in exchange for a guilty plea.
Reports that Lerach, who has collected billions of dollars on behalf of shareholders alleging corporate wrongdoing, is planning to leave his firm surfaced Wednesday on Fortune magazine's website.
Many consider Lerach to be the government's ultimate target and the "Partner B" participant in the alleged kickback scheme, referred to throughout the 102-page indictment unsealed last year. Ongoing efforts to implicate him may be one reason prosecutors stated during a November hearing that they might expand their investigation.
Calls to Lerach were not returned. Thom Mrozek, a spokesman for the U.S. attorney's office in Los Angeles, declined to comment on the reports. A spokeswoman for Milberg Weiss said she had no information on the news reports.