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Hindsight is unkind to John Torkelsen. Ten years ago, the renowned expert witness was basking in the cash he made testifying for plaintiffs in stock fraud suits. He had Aretha Franklin sing at his 50th birthday party, the funk band War perform for a crowd of tuxedoed lawyers at his Christmas gala, and he gave extravagant gifts � like tropical vacations � to attorneys he worked with. But now Torkelsen is out of business, and lost in a miasma of federal criminal and civil investigations that cast a pall over his entire career. Earlier this year, his wife, Pamela, agreed to spend about three years in prison � and to cooperate with ongoing investigations � in connection with a scheme to defraud the government via the investment fund.
William LerachLerach
Several federal efforts are investigating securities plaintiff lawyer William Lerach and his former partners at Milberg Weiss Bershad Hynes & Lerach. The Washington, D.C., investigation of John Torkelsen could prove helpful to both, sources suggest.� Los Angeles: In recent months, a probe into payments allegedly made by Milberg Weiss to a former client has picked up. The client � Palm Springs lawyer Seymour Lazar � was indicted in June, accused of taking kickbacks from Milberg Weiss. The investigation hasn’t produced charges against any of the plaintiff lawyers, but the investigation is expected to pick up.� Philadelphia: In 2003, several newspapers reported that prosecutors there were looking into allegations that Milberg Weiss and other plaintiff firms � most significantly, Barrack, Rodos & Bacine � were making political contributions in exchange for business from elected officials.

And Torkelsen himself is now negotiating with prosecutors, according a source with knowledge of the investigation. Torkelsen couldn’t be reached for comment, and his attorneys did not return calls. Government civil suits contend Torkelsen used his venture capital fund to steal millions of dollars from investors that included the federal government. Many of the limited partners in the Acorn Technology Fund were plaintiff lawyers who used Torkelsen’s expert testimony to help secure stock fraud settlements. Torkelsen ran the fund, for which he earned 2.5 percent of the fund’s value. The fund reported a value exceeding $50 million at one point But despite years of trying to discredit Torkelsen in court, securities defense lawyers apparently never found out about it. Some lawyers who’ve used Torkelsen as a witness say the prospect of his cooperating with the government is a worrisome one: They say he knew the inner workings of the plaintiff bar’s biggest players, most notably the firm formerly known as Milberg Weiss Bershad Hynes & Lerach � which is already the subject of federal criminal probes looking at their handling of money. “Flipping Torkelsen would be the end of the semblance of order as we know it,” said one plaintiff securities lawyer, speaking on condition of anonymity. His sentiment was echoed by lawyers throughout the plaintiff bar, including three former Milberg Weiss partners. POTENTIAL FALLOUT Torkelsen became the pre-eminent plaintiffs’ expert in the 1980s. His aggressive and convincing damages model withstood many courtroom tests, and many within the securities bar still refer to plaintiff damages assessments as “Torkelsen damages.” The Torkelsen model was a key cog in the workings of Milberg Weiss, whose success in the 1980s and ’90s made it a top enemy of large corporations � and a tempting target for prosecutors seeking high-profile indictments. In addition to the L.A. probe, the lawyers are also the subject of an ongoing federal investigation in Philadelphia. In recent months, L.A. prosecutors have stepped up their pursuit of Milberg Weiss � they indicted a former Milberg client in June, and sources familiar with the investigation say they’re preparing to bring witnesses before a grand jury next week. But to many plaintiff and defense lawyers, the June indictment � based on old allegations that Milberg Weiss paid the client illegal kickbacks � reeks of a stale investigation. They suspect that prosecutors are trying to salvage five years of work � and flipping Torkelsen may help them do that, say former Milberg partners. And the former witness’s current situation suggests he has little to lose: His venture fund is in receivership, his wife is cooperating with a federal investigation of the fund, and prosecutors are looking to cut a plea deal with Torkelsen, said a source familiar with the Washington, D.C.-based criminal probe. Such a deal, several plaintiff lawyers speculated, is likely to involve information Torkelsen may have on Milberg Weiss and its former attorneys, including San Diego-based William Lerach. He split from Milberg last year to form his own firm, Lerach Coughlin Stoia Geller Rudman & Robbins. Former Milberg Weiss partners familiar with the L.A. investigation say Torkelsen’s value stems from the millions of dollars he was paid in expert fees. “So much money moved through Torkelsen’s firm,” said a former partner who worked on cases with Torkelsen, “that he knows where the bodies are buried.” The partner and several other lawyers said Torkelsen � whose job was to analyze damages to stockholders caused by stock fraud � was integral to the firm’s success. “Torkelsen’s very bright,” said Joseph Tabacco Jr., a partner at the San Francisco-based plaintiff firm Berman DeValerio Pease Tabacco Burt & Pucillo. “He was a tremendous expert, a tremendous witness.” Defense and plaintiff lawyers say he had a remarkable ability to explain in simple terms a complex damages estimate. And this � combined with the routinely massive size of his estimates � made defense lawyers extremely wary of allowing him to go in front of a jury. Better to negotiate a settlement for a fraction of his estimate, several defense lawyers said, than give him the chance to persuade jurors to award the entire thing. “Torkelsen was a common denominator, like a hub, for a lot of people,” said the former Milberg partner who spoke on condition of anonymity. “We all did business together, and one of the things Milberg Weiss brought to the table was a ready-to-go damages expert, which is a pretty valuable thing.” In addition to his knowledge of plaintiff firm cash flow, lawyers have long suspected Torkelsen was being paid on a contingency basis. That is, he would only get paid if a case was successful. That would severely compromise his independence, legal ethicists say, and is prohibited under California Rules of Court. “There’s no question in my mind that he was being paid on a contingent basis,” the former Milberg partner said. “If a case didn’t succeed, he didn’t get paid.” In transcripts of L.A. defense lawyer Marshall Grossman’s deposition of Torkelsen in 1998, the witness said that this was sometimes the case. While such revelations may sully Torkelsen’s reputation, Acorn’s is unsalvageable. “Obviously,” Tabacco � an investor � said. “It was a lousy investment.”

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