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Top class-action lawyer may plead guilty in kickbacks

William Lerach won billions of dollars in judgments in securities cases against major corporations.

September 18, 2007|Molly Selvin | Times Staff Writer

Celebrated securities lawyer William S. Lerach, who recouped billions of dollars for defrauded shareholders and collected billions in legal fees, has agreed to plead guilty to one count of conspiracy in an alleged kickback scheme and could serve as long as two years in prison, people familiar with the situation said Monday.

Lerach, who resigned last month from the San Diego law firm that he founded in 2004, will pay a fine of several million dollars under the terms of the deal he made with federal prosecutors in Los Angeles, these people said.

They said that he had refused to cooperate with the government in its case against Milberg Weiss, the firm where he made his name, but that he could be called to testify at a trial scheduled to begin in January.

If the agreement, which was first reported on the Wall Street Journal website, is filed today as planned, Lerach's guilty plea will be the fifth in the case against the New York firm that was indicted last year in connection with the alleged payment of $11.3 million in illegal payments to clients who agreed to act as plaintiffs in class-action lawsuits.

Neither Lerach nor the firm's co-founder, Melvyn Weiss, were named in the 20-count indictment but are widely believed to be the "Partner A" and "Partner B" referred to throughout the document, which claims that the firm paid clients kickbacks so it could become the leads in class-action litigation and therefore win a larger share of legal fees.

Neither Lerach nor Weiss returned phone calls.

Laurie Levenson, a former federal prosecutor who teaches at Loyola Law School, said the deal with Lerach indicated that "prosecutors are clearing the underbrush to ensure that he can't at least support the other side."

Lerach, 61, has been viewed as perhaps the most successful and certainly one of the most outspoken plaintiff lawyers in the country. While at Milberg Weiss, he and Weiss targeted some of the largest U.S. companies, including AT&T; Lucent; WorldCom; Sears, Roebuck; Microsoft; Prudential Insurance; and Lincoln Savings & Loan.

When he left, Lerach took much of Milberg Weiss' securities litigation with him, including shareholder suits against Enron -- eventually winning a record $7.1 billion on behalf of Enron investors. His Enron fees alone could total $1 billion.

As the federal investigation into his actions at Milberg Weiss heated up, Lerach resigned from what is now called Coughlin Stoia Geller Rudman & Robbins, saying he wanted to work on "putting the matter behind me once and for all."

The deal he struck shields that firm from being charged in the Milberg Weiss case, according to several people.

His resignation was triggered by a plea agreement made in July by David Bershad, who was named in the indictment. The former Milberg Weiss partner -- who pleaded guilty to conspiracy and agreed to cooperate with prosecutors -- admitted that as the partner primarily responsible for overseeing Milberg Weiss' financial affairs, he kept track of illegal cash payments to clients, 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.

Another defendant, former Beverly Hills ophthalmologist Steven Cooperman, pleaded guilty to conspiracy and obstruction of justice, saying that he and some of his relatives and associates had agreed to serve as named plaintiffs in approximately 70 class actions Milberg Weiss filed. In the plea agreement he signed, Cooperman also said he conspired with "Partner A" and "Partner B."

The firm itself and three other defendants -- former partner Steven Schulman, frequent plaintiff Seymour Lazar and Lazar's lawyer Paul Setzer -- have pleaded not guilty.

Last month, a federal judge denied motions to dismiss charges against those defendants, rejecting arguments that payments lawyers at Milberg Weiss made weren't illegal kickbacks.

One defense lawyer argued 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.

Since the indictment was handed down last year, dozens of lawyers have defected from the firm.

Lerach has been a generous Democratic donor and hasn't been shy about trying to leverage that largess, aggressively lobbying President Clinton in 1996 to veto a measure that would have made it harder to file shareholder suits. Clinton acquiesced but Congress overrode his veto.

In the last decade, Lerach has given almost $1 million to federal campaigns and candidates, including President Clinton, and far more to California campaigns. Earlier this year, Lerach and his former law firm partners in San Diego gave Democratic presidential hopeful John Edwards more than $80,000.

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molly.selvin@latimes.com

Times staff writer Dan Morain contributed to this report.

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