David J. Bershad, a name partner at securities plaintiffs law firm Milberg Weiss & Bershad, has pleaded guilty to federal charges that he conspired in the payment of illegal kickbacks to individual class action plaintiffs.
The guilty plea by Bershad, entered Monday afternoon in federal court in Los Angeles, raises the stakes for his co-defendants, former fellow name partner Steven G. Schulman and the Milberg Weiss firm itself, as well as the other major Milberg Weiss figures, Melvyn I. Weiss and William S. Lerach, who have so far escaped indictment.
As part of his plea agreement, Bershad, 67, admitted to obstructing justice by "corruptly influencing" the administration of justice and making false statements in court. He also agreed to forfeit $7.75 million, pay a $250,000 fine and cooperate in the government's ongoing investigation and prosecution of other figures in the conspiracy. He is scheduled to be sentenced in June 2008.
See the plea agreement and the statement of facts in support of the plea agreement.
The former managing partner of New York-based Milberg Weiss, Bershad was alleged in the May 2006 indictment to have kept the cash the firm used to pay plaintiffs in a credenza in his office. Prosecutors claim Milberg Weiss partners paid more than $11 million to three individuals who acted as name plaintiffs in scores of class action suits brought by the firm over the past 20 years.
The plaintiffs were allegedly promised a share of the $200 million in legal fees the firm received in the cases. Such agreements are illegal because named plaintiffs in class action suits owe a fiduciary duty to other class members and are not permitted to have a separate interest in the outcome of a case.
Two of the plaintiffs who allegedly received payments from Milberg Weiss, Steven G. Cooperman and Howard J. Vogel, have already agreed to cooperate with prosecutors. Cooperman was to formally enter his guilty plea, announced in February, this morning.
Bershad was one of the first lawyers to join the fledgling law firm founded in 1965 by Weiss and the now-deceased Lawrence Milberg. According to the indictment, he was responsible for managing firm finances and held an 18 percent equity stake in the firm, a position that garnered him $160 million in profits over the past two decades.
The firm issued a statement Monday stating that Bershad's relationship with the firm had been terminated. He had taken a leave of absence shortly after being indicted in May 2006. Schulman, who took a leave of absence at the same time before formally resigning from the firm in January, is continuing to fight the charges, recently filing a motion to dismiss the case against him.
The guilty plea and promise of cooperation by Bershad raises the possibility that prosecutors will move forward with indictments of Weiss and Lerach, long thought to be the original targets of the investigation. Lawyers for the two men did not return calls seeking comment Monday.
The Daily Journal, a California legal newspaper, recently reported that Weiss and Lerach had rejected plea deals that would have required each of them to serve between three and four years in prison.
Among the most well-known lawyers in America, Weiss and Lerach together oversaw a firm that came to dominate the securities class action arena. Widely regarded as one of corporate America's greatest opponents, Milberg Weiss won billions in settlement of countless shareholder suits, extracting huge fees along the way.
In 2004, Milberg Weiss split along bicoastal lines, with Weiss continuing at the head of Milberg Weiss and Lerach launching San Diego-based Lerach Coughlin Stoia Geller Rudman & Robbins. Both firms continue to have active practices, though the indictment has led some judges to drop the firms from cases and has also caused a considerable number of partners to depart the New York firm.
Lerach Coughlin said last month that Lerach may retire by year's end, raising speculation that its top partners' continuing legal problems may be hampering the firm.
The indictment of the Milberg Weiss firm, which also has reportedly discussed a settlement with prosecutors, has been subject to criticism similar to those raised about the indictment of accounting firm Arthur Andersen, which collapsed following its indictment on charges relating to its work for Enron Corp.
Though a much smaller employer than Arthur Andersen, Milberg Weiss has said the indictment unfairly jeopardizes the jobs of many employees who were not involved in the cases at issue in the prosecution.
In its statement Monday, the firm said: "We remain confident that [Mr. Bershad's] actions will have no effect on the firm's commitment to its clients and its ongoing work to protect public shareholders and consumers."