This New York Sunday Times article provides the most detailed report to date on the three-year investigation into whether prominent class action securities plaintiffs lawyers — William Lerach and Melvin I. Weiss — and their former New York law firm — Milberg Weiss Bershad & Schulman — paid illegal kickbacks to class representatives in connection with various class action cases over the years. Earlier posts on the matter are here and here.

After noting that both Messrs. Weiss and Lerach recently declined a government request to enter into a tolling agreement regarding the statute of limitations on possible crimes involved in the criminal investigation, the Times article provides the most specific description of the possible basis of the government’s criminal investigation of the former Milberg Weiss lawyers. Referring to the recent indictment of California lawyers Seymour M. Lazar and Paul T. Selzer

. . . the payments outlined in the indictment [of Messrs. Lazar and Selzer] were referral fees paid to law firms representing Mr. Lazar – fees that are common throughout the plaintiff’s bar. But legal analysts say that if the fees were paid to the law firms with the unspoken understanding that the money would be given to Mr. Lazar, then that would be improper.
“They’re supposed to be a representative of the class itself, or are supposed to be similarly situated to the other class members,” said George M. Cohen, a law professor at the University of Virginia, about lead plaintiffs in class-action suits. “If they are getting lots of money from the law firm, then they are more likely to do things that are good for the law firm and bad for the class.”

If this is all the government has, then my sense is that the government has a very difficult case against the Milberg Weiss lawyers. Not only are many of the alleged overt acts far beyond the applicable statute of limitations (prosecutors will probably try to bootstrap those acts through a conspiracy charge), proving that referral fees paid to law firms were really disguised kickbacks for Mr. Lazar will be problematic, to say the least. Those referral fees were almost certainly approved by the courts overseeing the class action settlements under which they were paid, so prosecutors are going to have to prove that the Milberg Weiss lawyers simply used the law firms receiving the referral fees as a conduit to pay Mr. Lazar undiclosed payments for serving as a class representative.
In short, the government’s theory of criminal liability is based on an undiclosed oral side deal. Sound familiar?
Note that Professor Ribstein also thinks this investigation sounds strikingly similar to the criminalization of agency costs that has been going on for some time in regard to the Enron, Tyco, AIG, etc.