This post from last week made the following comment about the “finite risk” insurance transaction that is at the center of Eliot Spitzer‘s investigation of AIG and Berkshire Hathaway unit General Re, and AIG’s former chairman and CEO, Maurice “Hank” Greenberg:

Despite the government’s bludgeoning of various AIG and General Re executives into plea deals and the AIG’s board acquiescence to Mr. Spitzer and other governmental investigators, it still has not been proven that the transaction in question in AIG’s case was even accounted for improperly, much less illegal. Should not the government wait to address possible criminality (and its corresponding negative effect on value) until at least the underlying transaction has been proven to be violative of applicable accounting rules?

In this letter to the editor in today’s Wall Street Journal ($), Mr. Greenberg observes as follows about the same transaction:

That transaction is the subject of litigation so I am not free to respond fully. I can assure you that an appropriate response will be made at a proper time in a proper forum. (I do note that rules for finite reinsurance are opaque and only now have the NAIC and FASB undertaken to clarify these rules.)

The dozens of securities fraud lawsuits against Enron and various other parties are consolidated under the federal multi-district litigation rules in Houston federal court. The legal community involved in those cases is abuzz today with the news that a federal indictment last week of two Southern California lawyers is a sign that the lead plaintiff’s lawyer in the Enron securities fraud litigation — William Lerach — and his former firm (Milberg Weiss Bershad Hynes & Lerach) may also be targets of the investigation. Mr. Lerach and Milberg Weiss split last year, and Mr. Lerach started a new firm based in San Diego.
The indictment of almost 70 pages (press release here) accuses a former Milberg Weiss client — Palm Springs lawyer Seymour Lazar — of taking $2.4 million in kickbacks from a “New York law firm,” presumably Milberg Weiss. Although Mr. Lazar’s personal attorney — Paul Selzer — was also named in the indictment, the indictment contains no formal charges against “the New York firm.” The indictment alleges that the New York firm reaped $44 million in attorney fees from over 50 cases in which Mr. Lazar was the lead plaintiff. As an inducement for Mr. Lazar and his family members to serve as lead plaintiff, the indictment alleges that the New York firm and others secretly paid Mr. Lazar kickbacks out of a portion of the firm’s attorneys fees.
The indictment is the result of an investigation that began in 2002 that resulted in subpoenas being issued to dozens of law firms that have been co-counsel with Milberg Weiss in securities fraud class action cases over the years. Speculation is rampant throughout the plaintiffs’ securities class action bar that the purpose of the indictment of Messrs. Lazar and Selzer is to pressure them to turn on the former Milberg Weiss lawyers.
In addition to observing that it is “saddened” by the indictment, a Milberg Weiss press release stated the following:

“We are also surprised and disappointed that, in the face of recent criticism of the government following the reversal of the Arthur Andersen conviction, the U.S. attorney’s office would risk harming the Milberg Weiss firm and its many fine lawyers and staff by making this accusation in circumstances where the firm cannot defend itself.”

As usual, Professor Ribstein provides insight and caution regarding this latest use of governmental power against an unpopular target (i.e., plaintiffs’ class action securities fraud lawyers) of the day. Moreover, check out Professor Hennings’ thoughts on the differences between the government’s potential case against Milberg, Weiss and the prosecution of Arthur Andersen, and Professor Bainbridge’s comments regarding the implications of the possible indictments on the prosecution of class actions.