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Lerach, Weiss Avoid Charges; U.S. Builds Case Against Others
By John R. Wilke and Scot J. Paltrow
The Wall Street Journal
Wednesday, February 22, 2006

Federal prosecutors informed prominent class-action lawyers William Lerach and Melvyn Weiss that they don't plan to charge them after a five-year investigation of alleged kickbacks in securities-fraud cases, lawyers close to the case said.

But the U.S. prosecutors based in Los Angeles are continuing to build a case against Mr. Lerach's former law firm, Milberg Weiss Bershad Hynes & Lerach (now known as Milberg Weiss Bershad & Schulman) and at least two senior partners, others briefed on the case said.

A Milberg Weiss spokesman declined to comment; the firm has denied the government's kickback allegations.

Prosecutors have been investigating whether Mr. Lerach and his former partner, Mr. Weiss, conspired to pay kickbacks to witnesses in scores of securities-fraud cases reaching back 20 years. Lawyers for both men were told Friday that they aren't likely to be indicted. The status of the case, which remains active, is under review at the Justice Department.

The two top Milberg Weiss partners who remain under scrutiny and are expected to face indictment along with the firm are David Bershad, who handles most of Milberg Weiss's finances, and Steven Schulman, another longtime partner in the firm, the lawyers and others close to the case said.

Mr. Bershad and his lawyer couldn't be reached for comment. Mr. Schulman's lawyer, Edward Hayes, said his client and his partners have collected billions of dollars in damages from corporations that have cheated shareholders, and "there are people who have very strong financial and personal motives to make false accusations against him [and] the firm."

The outline of a possible case against Milberg Weiss surfaced in indictments handed up by a Los Angeles grand jury in June. It charged Seymour Lazar, a retired Palm Springs, Calif., lawyer who was a plaintiff in at least 50 Milberg Weiss securities cases, with fraud and conspiracy, saying he secretly had been given $2.4 million for taking a leading role in those cases, which in turn generated tens of millions of dollars in fees for Milberg Weiss.

Mr. Lazar's attorney denied the charge and said the payments, which were made by Milberg Weiss to Mr. Lazar's lawyer, were legal and that no effort was made to conceal them. Milberg Weiss also denied wrongdoing, saying payments to lawyers for the plaintiff referrals is legal and common. The firm also has said that the practices under scrutiny were largely eliminated by reforms of securities litigation enacted in 1995.

Lawyers for both Mr. Lerach and Mr. Weiss declined to comment yesterday. William Taylor, who represents Milberg Weiss, said that "the firm has not been told that it is going to be indicted."

After a bitter parting in 2004, Mr. Lerach formed his own firm, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, in San Diego. Since Milberg's breakup, the two firms have become power brokers. Lerach Coughlin is lead counsel in the Enron Corp. securities class action and is seeking court approval for a $7 billion settlement with banks that allegedly aided in the fraud. The new Milberg firm is lead counsel in a proposed $225 million class settlement with KPMG LLP for allegedly selling fraudulent tax shelters.

Milberg Weiss and the Lerach firm have been viewed has as major nuisances by some corporations. The firms file what are derisively called "strike suits" when a company's stock drops, often alleging fraud or misrepresentation.

Messrs. Lerach and Weiss see themselves as champions of investors, standing up against inadequate disclosure and accounting fraud. Both firms have won billions of dollars for investors, but they also have been sharply criticized by courts for sometimes putting their own interests before those of their clients and entering into settlements that brought big fees to the firm but little benefit to the class plaintiffs.

--Nathan Koppel contributed to this article.

Write to Scot J. Paltrow at scot.paltrow@wsj.com

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