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Back in April, Milberg Weiss partners David Bershad and Steven Schulman withdrew from a securities class action in Maryland, but that wasn’t enough to keep the firm on the case after it was indicted for an alleged kickback scheme on Thursday. The partners had been representing the Ohio Tuition Trust Authority in a class action, but a day after L.A. prosecutors indicted the firm, Ohio Attorney General Jim Petro moved swiftly to fire Milberg Weiss Bershad & Schulman from the case, citing the firm’s indictment as the reason. It was perhaps the first concrete sign of the obstacles the firm’s lawyers will face as Milberg Weiss gears up to defend itself against the charges, but it is unlikely to be the last. Within a day, speculation was already rippling through the legal community about what the first criminal indictment against a leading class action plaintiff firm could mean for its clients, its competitors, its employees � and its equity partners. Less than 24 hours after the U.S. attorney in Los Angeles announced the indictment, Petro sent a letter to partner Melvyn Weiss to inform him that his firm was being removed from a case in a federal court in Maryland on behalf of the Ohio Tuition Trust Authority, “effective immediately.” As of late Friday, Petro had not picked new outside counsel, a spokesman said. “It was still up in the air before yesterday, about whether the firm would be indicted,” said spokesman Mark Anthony. “Since it went in this direction, we thought that that deserved prompt action.” Contacted for comment, a spokeswoman for Milberg Weiss e-mailed a statement saying the firm “regrets” the request that it leave the case on which it was lead counsel for two years. The firm will seek the court’s guidance on what role, if any, it should continue to have, the statement said, adding that the firm had worked “vigorously and effectively” and “stands ready to provide services to the class in this case.” Just how many clients, if any, will follow Ohio out the figurative door was unclear by late Friday afternoon. “These events cannot help Milberg, either in attracting new clients or in keeping existing clients,” said Stanford Law School professor Joseph Grundfest, a former commissioner for the Securities and Exchange Commission. Lead class members will have to consider their duty to the rest of the class in any given case, he said, but much may also depend on how far along a case is. “There are many facts that would have to be taken into consideration.” There’s also speculation that Milberg Weiss’ competition for lead counsel in long-resolved cases might now seek compensation for what might have been. “Will we see lawsuits by firms that will argue that they [would] have been lead plaintiff, but for the allegedly fraudulent or illegal payments made by Milberg?” Grundfest said. “In today’s world, where lots of lawyers have lots of imagination about bringing claims, almost anything is possible.” The federal government wants to make Milberg Weiss forfeit the $216.1 million in “tainted attorneys’ fees” that prosecutors say the firm gained through alleged misconduct from at least 1981 through 2005. The indictment accuses the New York-based firm and the two partners of securing the lucrative lead counsel position in more than 150 class actions and shareholder derivative actions by paying at least $11.3 million in illegal kickbacks to a stable of named plaintiffs. Some are also wondering whether nervous partners or associates at Milberg Weiss might be freshening up their resumes. “The biggest problem right now is there’s tremendous uncertainty over what this indictment means,” said one California-based recruiter. As people look for analogous situations to guide them, the most unsettling may be Arthur Andersen, where tens of thousands of employees lost their jobs. The accounting firm closed its doors in 2002 after an accounting fraud conviction that has since been overturned. The recruiter, who requested anonymity, noted that indictments of at least some Milberg partners have long been anticipated, and speculated that lawyers at other plaintiff firms in the intimate securities class action field probably began making discreet calls to try poaching friends or respected attorneys at Milberg months ago. Now that the firm has been indicted, the phone lines are likely to heat up. “You probably called the person six months ago and they said, ‘Eh, I’m going to ride this out.’ [Now] you call them again,” the recruiter predicted Friday. “I’d be stunned if those calls have not been made, and are not being made as we speak.” The indictment may also provide ammunition for corporate interests that might want to make securities class actions less attractive by, perhaps, capping the attorneys fees the plaintiff’s side can collect, said John Coffee, a professor at Columbia Law School whose specialties include securities litigation. “I think there is a real possibility of a backlash against the plaintiffs bar, orchestrated by those business lobbying groups that have seen their constituency significantly hit by securities class actions in the post-Enron era,” Coffee said. Or, Grundfest speculated, maybe their reaction won’t be quite that constructive. “I think the main reactions from the business community,” he said, “will be a tsunami of schadenfreude.”

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