A former partner in a New York law firm accused by the government of paying illegal kickbacks to class-action clients has asked a federal court in Los Angeles to dismiss the fraud charges against him. The motion could undermine much of the government's case against Milberg Weiss & Bershad.
Steven Schulman claims that no one involved in the shareholder lawsuits suffered harm. Although criminal defendants often try to get charges dismissed, the motion Schulman filed last week picks up on questions the trial judge raised about the government allegations.
"If you have a judge expressing skepticism, that helps the defense," said Laurie Levenson, a former federal prosecutor who teaches at Loyola Law School.
Schulman and fellow partner David Bershad were charged last May with conspiracy, mail fraud, money laundering, obstruction of justice and tax violations. The law firm itself also was indicted.
Prosecutors said the defendants paid at least $11.3 million in illegal fees over 25 years to clients who agreed to act as lead plaintiffs in class-action suits. The firm hid the payments by distributing them in cash or channeling them through intermediary law firms, the indictment said.
Schulman and Bershad pleaded not guilty in July.
Milberg Weiss pioneered large-scale federal class actions, netting $45 billion in settlements in fraud suits against WorldCom Inc., Enron Corp. and others.
Schulman contends that the fee arrangement caused no harm or loss to anyone and disputes the claim that shareholders in these suits were deprived of Milberg's "honest service."
U.S. District Judge John F. Walter asked prosecutors last fall whether the fees paid to the lead plaintiffs, which defendants said came out of the lawyers' fees, diminished the monetary recovery paid to the class members. Fees in these cases are determined after trial or as part of a settlement and approved by the judge.
Levenson cautioned that the challenge was far from a slam dunk. Circuit courts have split on the "honest services" theory, she said. Moreover, the broad scope of the Milberg allegations helps the prosecution. "It's hard for the judge to dismiss out a big case."
Schulman's motion is set for a June 4 hearing.