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Milberg's Weiss May Face Indictment in Kickback Case
By Nathan Koppel
The Wall Street Journal
Thursday, September 20, 2007


Having secured a plea agreement this week with one of its biggest targets in the criminal prosecution of the Milberg Weiss law firm, the government is moving forward against another.

Melvyn Weiss, co-founder of the plaintiffs firm and a pioneer in the field of securities class-action cases, is expected to be indicted today in Los Angeles, according to people familiar with the situation.  An indictment would come more than a year after Milberg and two then-name partners were charged with fraud for allegedly paying kickbacks to clients to induce them to serve as lead plaintiffs in lucrative securities class actions and shareholder suits.

The firm released a statement saying it understood a new indictment would be issued that would include new charges against it and Mr. Weiss.  Mr. Weiss, 72 years old, will stop participating in firm management to focus on his defense, the statement said.  He will remain available to counsel clients and attorneys.

It is expected that the indictment will charge Mr. Weiss with helping to steer secret payments to clients who served as lead plaintiffs in class actions;  it will also raise a charge new to the case -- that Mr. Weiss allegedly obstructed justice by failing to turn over a document subpoenaed by prosecutors, according to people familiar with the case.

Benjamin Brafman, counsel to Mr. Weiss, said, "I will not respond to substantive questions about an indictment I have not yet seen.  If indicted, however, Mr. Weiss intends to vigorously fight the charges and will bring to that fight all of the talent and resources that have made him one of the most extraordinary lawyers of this generation."

Mr. Weiss didn't respond to requests for comment.

While the federal indictment of Milberg made headlines last year, many have long suspected that the government's main targets were Mr. Weiss and William Lerach.  The two men helped build Milberg into a juggernaut that once dominated the market in securities class actions, in which investors who suffer losses typically claim that executives misled them about a company's financial condition.  Corporations came to loathe the suits, seeing them as nuisance cases without merit.  Mr. Weiss and his firm maintained the suits helped keep corporations accountable.

Mr. Weiss stood out among competitors for his willingness and ability to invest in and litigate complex financial cases.  Sometimes arranging for financing, lawyers say, he hired forensic accountants, investigators and teams of contract lawyers and paralegals to help his firm file cases in droves, often more quickly than the competition.  "He is one of the architects of the present securities class-action bar," says Stephen Best, a lawyer who has opposed Mr. Weiss in suits.  "He made this a very viable business."

For many years, Milberg dominated the field.  In 2003, the firm had 65 class-action settlements as a lead counsel, with the next-highest firm having 14, according to Securities Class Action Services, a subsidiary of Institutional Shareholder Services Inc.

Since the indictment, the firm has initiated fewer suits, effectively reducing its "inventory" of fee-producing cases.  Many lawyers have left for competitors.  The firm offered higher bonuses to induce people to stay, according to a lawyer there.  A spokeswoman said she couldn't confirm that the firm had offered higher bonuses.

While the government indicted two other partners last year, it didn't charge Messrs. Lerach and Weiss.  The prosecution gained steam earlier this year when one of the other partners, David Bershad, pleaded guilty and agreed to cooperate with the government.  Earlier this week, Mr. Lerach agreed to plead guilty to a felony conspiracy charge.  People familiar with the situation say the second indicted lawyer, Steven Schulman, is close to a plea agreement.

Write to Nathan Koppel at nathan.koppel@wsj.com

http://online.wsj.com/article/SB119023281900832759.html?mod=hps_us_whats_news