This NY Times article reports that Mel Weiss and Bill Lerach received good news and bad news earlier in the week regarding the longstanding criminal investigation against the two men and the Milberg Weiss Bershad & Schulman law firm over allegations of paying kickbacks in connection with class action lawsuits that the firm handled over the past decade.
The good news is that federal prosecutors have apparently informed Weiss and Lerach’s individual counsel that they will not seek an indictment against the two men.
The bad news is that the prosecutors still may go Arthur Andersen on the Milberg Weiss firm.
According to the Times article, two top Milberg Weiss partners — David Bershad and Steven Schulman — appear to be the main targets of the investigation. The heat on Milberg Weiss and its current and former partners was turned up last year when prosecutors indicted 78 year-old Seymour Lazar, a retired Southern California Palm Springs lawyer who was a plaintiff in at least 50 Milberg Weiss securities cases, with fraud and conspiracy. Prosecutors alleged that Lazar was involved in an alleged scheme with Milberg Weiss in which the firm secretly funneled him about $2.5 million for being the class representative in class action lawsuits that the firm handled. Lazar and Milberg Weiss contend that the payments were legal referral fees and deny that there was any effort to conceal them.
As noted in my previous posts on this matter, despite the irony that Weiss and Lerach are embroiled in a criminal investigation that is strikingly similar to the prosecution of agency costs that Weiss and Lerach profit from in connection with a good number of their class action securities fraud cases, I have great reservations about the government criminalizing the plaintiff’s lawyers’ conduct in these cases. Larry Ribstein shares those concerns, and notes with his usual keen insight:

To the extent that a goal of the case is to curtail securities class actions, this is not the way to do it. . . . Lerach and company are just products of the system that has been created by current law. Real reform requires changing the game, not just the players. How about this solution: getting rid of the ìfraud on the marketî theory?

Meanwhile, Bruce Carton has more on the ubiquitous Lerach in this second excerpt from Joseph C. Goulden’s new book, The Money Lawyers (previous excerpt here), which includes Lerach’s description of how his first meeting with Weiss transformed him from a boring Pittsburgh defense lawyer into an exciting plaintiff’s lawyer:

“Mel sat there like the complete master of the universe. He was barking orders right and left, saying which lawyer would do what, laying out the scenario for what would happen in court the next day. He was in complete charge, and all of us sat there saying, ‘Yes, Mel, you’re right, whatever you want. . . .’ Man, I was impressed. Mel was the smartest lawyer I had ever seen. I was used to dealing with the uptight, stuffy defense lawyers. Now I was definitely on the other side of the spectrum.”

The downtown Federal Detention Facility is not normally the destination of choice for U.K. bankers traveling to Houston, but it is looking increasingly as if that’s where three former U.K. bankers embroiled in a transaction devised by former Enron CFO Andy Fastow will be spending a considerable amount of time in the near future.
As this Forbes article reports, former NatWest bankers David Bermingham, Giles Darby and Gary Mulgrew lost their High Court appeal to avoid extradition to Houston to face charges that they bilked their former employer of $7.3 million in one of the schemes allegedly engineered by former Enron CFO Andrew Fastow and his right hand man, Michael Kopper (previous posts are here). After the High Court’s decision was announced, the three ex-bankers said that they intend to appeal to the House of Lords, the U.K.’s highest court.
The case is particularly interesting because NatWest — the institution that the Enron Task Force contends was bilked by the three former bankers — never sought to recover the allegedly bilked funds from the three men, never pursued criminal charges against them in England, and neither the Crown Prosecution Service, the Financial Services Authority nor the Serious Fraud Office in the UK found sufficient evidence to prosecute. Had a trial taken place in the U.K., the three men could not be extradited to the U.S. because of the principle of double jeopardy, but since no British trial has taken place, the British Home Secretary has granted the Enron Task Force’s request under the Extradition Act of 2003, which was passed to facilitate extradition of suspected terrorists to the U.S. Under that legislation, the Home Secretary can extradite British citizens without the U.S. authorities having to make a prima facie case — they need only set forth a statement of the facts that they hope to prove. Moreover, the Extradition Act is not recipricol — to extradite an American citizen from the U.S., the British still need to provide evidence that the American citizen has committed an extraditable offense.
Thus, if the bankers lose their appeal to the House of Lords and are extradited to Houston, they will be forced to prepare the defense of their case while imprisoned in Houston’s Federal Detention Facility. Meanwhile, their main accusers — Fastow and Kopper — remain living comfortably in River Oaks and Montrose.
Chalk it up as another example of the high price of asserting innocence.

During its four year existence, the Enron Task Force has always been better at bludgeoning plea bargains and villifying former executives in the media than actually obtaining convictions in court.

One of the former Enron executives who stood up to the Task Force is Sheila Kahanek, the former mid-level Enron accountant who was acquitted of fraud and conspiracy charges in the Task Force’s controversial Nigerian Barge prosecution. That case resulted in the questionable convictions of four former Merrill Lynch executives on charges that they assisted Enron in manipulating its finances in connection with a sale of an interest in some power-producing barges off the Nigerian coast.

In this important U.S. News interview, Kahanek tells her compelling story about being falsely accused of a crime and the ordeal involved in defending herself with limited resources against a prosecution team that has no such limitations. The entire interview is a must-read, but Kahanek’s answers to the following questions about the government tactic of preventing exculpatory testimony from coming to light and the high price of asserting innocence are particularly interesting:

The defense attorneys for Lay and Skilling have complained that the prosecution is scaring witnesses away from testifying for their clients. Did this happen to you?

It was extremely rare if you could get someone to return a call, much less answer your questions. Prosecutors have absolute power in deciding whom to indict, regardless of what the law says concerning the not-so-grand jury. It is an unfortunate reality that most people will not risk their freedom for that of another, particularly if they have a spouse or children.

So weren’t you tempted to plead guilty and limit your losses?

Absolutely not. Dan [her defense attorney, Dan Cogdell] and I got that clear from the start. A plea deal was not an option. It wasn’t an option. I had to know I fought for what was right. I had to be able to look myself in the mirror and know that I never compromised myself or the truth. Every day I had to dig into myself and find the strength to fight another day. I have asked a number of people with children: Would you stand up and fight if it meant you might not see your kids for 24 years, when you can take a deal for five years? No one has said absolutely that they would fight it. Someone told me: “When you have children it is not about you anymore.”

Read the entire interview, and then give some thought to the plight of William Fuhs, the former mid-level Merrill Lynch executive who was convicted in the same trial in which Kahanek was acquitted and who had virtually the same level of involvement in the transaction that formed the basis of the prosecution as Kahanek (Fuhs was the ministerial scrivener of the transaction and had no involvement in either the structuring or the negotiation of the deal).

Fuhs — who is in his early 30’s with a wife and two young children — now sits in federal prison awaiting disposition of his appeal for merely having documented a legitimate transaction that the government criminalized because of matters in which Fuhs was not involved.

What our Justice Department has done to Kahanek, Fuhs and the other Merrill Lynch executives involved in the Nigerian Barge case — and how the government is handling the Lay-Skilling prosecution — is a radical abuse of our criminal justice system, and the extraordinary damage to the individuals and families involved cannot be responsibly dismissed as a trade-off of an imperfect system.

As we watch principles of justice and the rule of law trampled upon in such cases, contemplate whether — as Sir Thomas More asked Will Roper in A Man for All Seasons — “Do you really think you could stand upright in the winds [of abusive state power] that would blow” if the government were to set its sights on you?