As anticipated by this post from earlier this week, a federal grand jury indicted Milberg Weiss Bershad & Schulman yesterday in Los Angeles for allegedly funneling kickbacks to plaintiffs in dozens of securities class-action cases over a 20-year period. The indictment represents the first prosecution since the Enron Task Force’s dubious decision to prosecute Arthur Andersen out of business in 2002 that the Justice Department has charged a major firm with a crime because of the alleged misconduct of principals in the firm. Previous posts on the longstanding investigation of Milberg Weiss are here.
The indictment probably means sayonara for the firm, although the firm’s partners are initially saying that they will continue operating while fighting the charges. The indictment came on the heels of intense negotiations between the firm and the Justice Department over a proposed deferred-prosecution agreement under which the firm would have operated under a court-appointed monitor, admitted responsibility and paid a fine of about $40 million. However, negotiations apparently broke down over the DOJ’s demand that the firm waive its attorney-client privilege, a demand which is becoming de jure these days in the government’s criminalization of business.
Inasmuch as it is generally illegal for a class representative to be paid more than what other members of the class receive from the lawsuit (except for reimbursement of out-of-pocket expenses), the indictment charges that the firm paid more than $11 million in kickbacks to class action representatives and disguised those payments as legitimate referral fees or other legal payments. The indictment includes counts alleging conspiracy, racketeering, mail fraud, money laundering and filing of false tax returns, and includes charges against two of the firm’s more prominent partners — David Bershad and Steven Schulman — for allegedly being directly involved in making secret payments to plaintiffs.
Interestingly, the indictment alleges that Bershad used cash from a safe in his credenza to pay kickbacks to plaintiffs. Gee, I thought that only big-time college football and basketball coaches engaged in that sort of thing with their star players. ;^)