In a development that drips with irony, this NY Times article (see also here) reports that David Bershad and Steven Schulman — two of the top partners in the class action plaintiffs firm, Milberg Weiss Bershad & Schulman LLP — have left the firm as a part of a strategy to persuade the Justice Department not to go Arthur Andersen on the firm over its involvement in an alleged kickback scheme relating to cases that the firm pursued. Previous posts on the longstanding investigation of Milberg Weiss are here.
As the previous posts note, the investigation has focused on whether some of the class representatives in securities class-action cases that Milberg Weiss pursued were paid illegal kickbacks by the firm in addition to whatever damages they received as members of the class. Last month, a retired New Jersey mortgage broker named Howard Vogel — who, along with his wife, was a class representative in about 40 Milberg Weiss class action cases — pled guilty to accepting kickbacks from the firm in some of those cases. In pleadings in Vogel’s case, prosecutors contend that Schulman and Bershad — described in the pleadings as “partner D” and “partner C” — assisted Vogel in taking $1.2 million in kickbacks for initiating securities-fraud class actions against Oxford Health Plans Inc. and Baan Co., both of which were were settled in 2003.
The irony in this situation is that Milberg Weiss is squarely in the crosshairs of a criminal investigation that is strikingly similar to the criminalization of agency costs that Milberg Weiss has profited from in connection with a large number of the firm’s class action securities fraud cases over the years. Although an indictment and resulting meltdown of the Milberg Weiss firm will not have close to the negative economic impact of the Justice Department’s similar destruction of Arthur Andersen, an indictment and resulting demolition of the firm — particularly before even one of the courts in any of the firm’s class action cases has determined that the firm did anything wrong in connection with its financial arrangements with class representatives — would be a gross injustice. Milberg Weiss is simply a product of the rather confused theoretical basis of our system for handling class action securities fraud cases; prosecuting that firm out of business will not result in any meaningful reform in that system.
Update: Peter Lattman passes along Bershad’s farewell memo to Milberg Weiss employees.