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An arbitration panel has handed Milberg LLP an award stemming from convicted former partner David Bershad’s participation in a kickback scheme — but Bershad has come out ahead financially. The panel in January ruled that Bershad was liable for $11.5 million of the $41 million that Milberg spent defending itself over the kickback allegations. But the panel also said the firm owed Bershad sums including unreturned capital. As a result, Bershad will come out $2.9 million ahead. In the arbitration, Bershad won a finding that he was entitled to $8.27 million in capital and $3.94 million in money the firm typically pays partners upon their withdrawal from the partnership. That money, which the firm refused to pay after Bershad pleaded guilty, will be paid out on a monthly basis. The arbitration was the second of three involving Milberg and the partners who were convicted as part of the prosecution of the firm. Milberg settled with the government for $75 million, and admitted that senior partners paid plaintiffs kickbacks in at least 165 lawsuits from the 1970s through 2005, netting about $239 million in legal fees. A previous arbitration had already occurred between Milberg and Steven Schulman, a onetime name partner and executive committee member. Another arbitration is pending with the firm’s co-founder, Melvyn Weiss. The results of arbitration with Bershad, a former managing partner of Milberg, became public following the firm’s decision to file papers in state trial court in New York City in late January to confirm the award. The firm had sought to have the case kept under seal, on the ground that it involved “the private financial and other affairs of the parties that are of de minimis public interest.” The arbitration panel also deemed its award confidential, they noted. But on Thursday, the state judge overseeing the case, Justice Eileen Rakower, declined to restrict access to the file. Justice Rakower noted the panel wanted to keep it confidential because it did not want its award to have “any preclusive effect or bind any subsequent panel” — namely, in the anticipated arbitration with Weiss. “It did not consider the public interest at all when directing the confidentiality and restricting the public dissemination of the award,” Rakower wrote. A spokesman for Milberg said the firm would offer no comment. Robert Luskin of Patton Boggs, who represented Bershad, said in an interview that “we were disappointed in some aspects of the award and gratified by others,” but had no plans to challenge the outcome. “This is part of the process of closure that began with Mr. Bershad’s criminal plea,” Luskin said. “We’re happy to have this behind him.” Following an investigation that began in 1999, a federal grand jury in 2006 indicted Milberg Weiss Bershad & Schulman and Bershad and Schulman individually for their role in paying millions of dollars in kickbacks to people who would serve as name plaintiffs in class actions and derivative lawsuits. Weiss was subsequently indicted in September 2007, just days after former Milberg partner William Lerach reached a plea deal and two months after Bershad did the same. Weiss ultimately pleaded guilty in March 2008. Lerach split from Milberg in 2004 to form Lerach Coughlin Stoia & Robbins. The firm, which after losing various name partners as the prosecution unfolded, adopted the name Milberg LLP, agreed in June 2008 to the $75 million settlement. As part of the deal, the firm admitted that senior partners paid plaintiffs kickbacks. Bershad in December received court approval for an early termination to the three-year supervised release that followed the six-month prison sentence he received in October 2008. The others have also been released from jail. The arbitration papers lift the curtain on some of the drama within Milberg attending the prosecution. For example, Bershad claimed that the $75 million settlement could have been smaller had the firm gone along with a deal prosecutors offered in spring 2007. As part of the written offer, prosecutors in the U.S. Attorney’s Office for the Central District of California proposed that if Milberg would accept responsibility for the kickbacks, and Bershad and Weiss pleaded guilty to one count of conspiracy, the total criminal penalty for all three would have been $50 million, with the firm paying $34 million. Bershad, in the arbitration papers, said he wanted to accept the offer, but the firm and Weiss refused. Representatives of Milberg told Bershad’s lawyers that if the firm settled with the government, Weiss, then refusing to negotiate a deal, would be prejudiced. Weiss’s criminal lawyer, Benjamin Brafman, referred a request for comment to his client’s son, Stephen Weiss of Seeger Weiss, who did not return a call or e-mail seeking comment. Milberg, meanwhile, in its demand claimed that Bershad and the other partners who later were convicted “did not disclose their misconduct or the full nature of the investigation” to the other partners. Bershad and the other three also did not promptly disclose when they became individual targets in the investigation, which began in 1999, the firm alleged. When the full scope of the investigation became clear sometime in 2004 or 2005, Bershad, Weiss and Schulman assured their other partners that they and the firm were not guilty. They contended the accusations were “politically motivated,” and the other partners relied on those representations, the arbitration demand said. The arbitration with Bershad formally began in July 2008, about a month after the firm reached its settlement deal with the government. Bershad initially turned to the New York courts, attempting to stay the arbitration, but Justice Richard Lowe III in April 2009 granted Milberg’s motion to dismiss. The arbitration panel held two days of hearings in October 2008, according to the court papers. In its arbitration demand, Milberg contended that Bershad for years concealed the illegal kickback scheme from other “innocent partners.” Had he acted honestly, Milberg contended, the firm “would not have been indicted.” Bershad counterclaimed that Milberg owed him $14 million for, among other things, unreturned capital and legal fees the firm promised under an agreement reached when he took a leave of absence. Bershad claimed that after he told the firm in May 2007 that he intended to plead guilty, the firm largely stopped paying. A large amount of the money Milberg sought from Bershad represented his share of the $75 million settlement, the arbitration papers show. But the arbitration panel sided with Bershad and did not make him pay any part of it, a decision that the award says is similar to what happened in Schulman’s arbitration. The bulk of the $75 million was termed a “criminal monetary penalty,” the panel noted, and while no current partner or associate at Milberg was criminally culpable, the entire firm profited from the kickback scheme. “The criminal penalty, it appears, was intended to disgorge that profit from the ‘entire firm,’ and therefore should not be shifted from it,” the panel held. Bershad was less successful in terms of Milberg’s $41 million in legal bills. The panel held he was liable for $11.5 million, a number that the panel came to by looking at the size of prison sentence and penalty Bershad paid compared to the other three former partners. (The panel said Schulman, who had the smallest sentence and monetary policy, was liable for $3.38 million.) As for what Bershad said he was owed, the panel rejected Milberg’s contention that the ex-lawyer’s criminal conduct barred him from recovering the money. The panel instead said that Bershad would only have to forfeit an amount of his “termination year payment” and his capital account that was proportionate to the percentage of fees the firm earned from 1995 to 2005 that were “tainted” — 6.9%. Bershad’s arbitration followed one with Schulman, the decision said. Schulman filed papers in New York state trial court in May 2009 to confirm an arbitration award against the firm, although Justice Marilyn Diamond ordered that case sealed. He had earlier in 2007 filed a petition for a preliminary injunction in aid of arbitration after Milberg stopped paying his legal fees; a judge denied that request. Larry Hutcher, Schulman’s lawyer at Davidoff Malito & Hutcher, declined to discuss the results of the arbitration. But he confirmed the accuracy of his Web site biography, which said he represented Schulman in a dispute with Milberg “in recovering substantial sums due him under” the firm’s partnership agreement. That leaves Melvyn Weiss as the last convicted partner to face arbitration with Milberg. Weiss in December 2008 filed a petition in New York state trial court to stay the arbitration that Milberg in later papers said it launched in July 2008 “to recover the damages for its losses flowing from Weiss’s criminal misconduct while he was a partner at the firm.” Leslie Corwin of Greenberg Traurig, who represented Weiss in that proceeding, declined to comment. Milberg in the Weiss case was represented by John Kenney of Hoguet Newman Regal & Kenney. In November, the trustee in the bankruptcy of Bernard Madoff’s investment company sued Weiss and Bershad seeking $20.4 million in alleged false profits from Madoff’s Ponzi scheme. Nate Raymond can be contacted at [email protected].

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