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With some Milberg Weiss Bershad & Schulman partners heading for the exits following the indictment of the class action law firm and two of its partners, it is unclear who-or what-will be left for prosecutors to pick through if the firm is convicted. At least 10 partners have fled Milberg Weiss since U.S. Attorney Debra Wong Yang in Los Angeles announced in May a federal grand jury indictment against the 125-attorney firm and senior partners David Bershad and Steven Schulman. In addition, some of the firm’s top clients, including the New York State Common Retirement Fund, have replaced Milberg Weiss since the indictment. Those events have some observers wondering what a conviction, or even a settlement, would mean against the law firm that could be a mere husk of its once-robust operation by the time it is all over. “Clearly, we don’t know if the firm will survive,” said Elizabeth Ainslie, a former federal prosecutor who is a partner at Philadelphia-based Schnader Harrison Segal & Lewis. But less clear, Ainslie said, is who could be on the hook at an indicted law firm if the government prevails. “I’ve never seen that addressed,” she said. “All I can say is that the judge has a great deal of discretion in the days following the demise of the mandatory [sentencing] guidelines in fashioning an appropriate punishment.” Ainslie was referring to a U.S. Supreme Court decision last year in U.S. v. Booker, 543 U.S. 220, which granted judges more latitude in determining punishment by finding that the Federal Sentencing Guidelines were unconstitutional. The U.S. Attorney’s Office for the Central District of California charges that New York-based Milberg Weiss and the two partners paid millions of dollars in secret kickbacks to individuals serving as lead plaintiffs in more than 150 class actions and shareholder derivative lawsuits. Prosecutors allege that the firm received more than $200 million in attorney fees from the lawsuits in the last 20 years. Bershad and Schulman, who have taken leaves of absence from the law firm, are charged with conspiracy, obstruction of justice, perjury, bribery and fraud. Some clients serving as plaintiffs in the class actions have pleaded guilty to receiving kickbacks. A spokesman for Yang’s office said the government will seek penalties against the law firm that could include monitoring it during a probation period. He also said it would pursue monetary fines. “You can’t incarcerate an institution,” said the spokesman, Thom Mrozek. Milberg Weiss has denied the charges. William Taylor, a partner with Washington’s Zuckerman Spaeder who serves as lead counsel to Milberg Weiss, said that the departure of some attorneys and clients represented an “adjustment period” following the indictment, and that the firm’s leadership is “committed to staying the course.” He added that a trial in the government’s case was “inevitable.” “We’re ready to rumble,” Taylor said. But the federal indictment of the law firm, considered by practitioners and scholars to be extremely rare, itself could be the undoing of the firm as partners and clients depart, even if the government fails to secure a conviction. Robert Mintz, a former federal prosecutor who is a partner with Newark, N.J.-based McCarter & English, said that the losses created at the outset by indictments against businesses are one of the reasons prosecutors avoid them. “The entity is often decimated to the point that there’s little left,” he said. “That’s the reason why you don’t see it done more.” But in the event that the case proceeds to trial, observers are relying on a relatively short list of indictments against professional-service limited liability partnerships for guidance in helping predict what will become of Milberg Weiss, which at the time of the indictment had 240 employees in addition to its lawyers. Andersen could shed light The conviction of Arthur Andersen may shed some light, despite the fact that the U.S. Supreme Court last year in Arthur Andersen v. U.S., 544 U.S. 696, overturned the conviction on the ground of faulty jury instructions. Charged with shredding documents pertaining to auditing it did for Enron Corp., Arthur Andersen was convicted of obstruction of justice and fined $500,000 in connection with Enron’s accounting fraud scandal. Before that, Andersen surrendered its license to practice as certified public accountants. The indictment and the conviction resulted in about 28,000 Andersen employees in the United States losing their jobs. The $500,000 in fines the government won initially would have come from the firm’s assets, including accounts receivables, furnishing and computers. But the indictment of Arthur Andersen and the ability of federal prosecutors to recover from the firm-at least at the trial court level-were easier tasks for the government than in the Milberg Weiss case, said Stephen Gillers, a professor at New York University School of Law. He said that “more of a paper trail” existed at Arthur Andersen that pointed to firmwide wrongdoing, something he said was likely missing in the Milberg Weiss case. In addition, Gillers said that the U.S. Supreme Court’s reversal of the Andersen conviction, while a narrow ruling, sent a broader message that indictments against businesses are not favored, a sentiment that may not bode well if the case goes to trial. And if there is a conviction, Gillers said that the government will not have much monetarily to gain. “Unlike some businesses, [Milberg Weiss] has no patents that the government can own, no copyright, trademark or product. Everything of value is the intellectual capacity of the lawyers,” he said. The chances for the government to recover penalties from departed lawyers not individually indicted are slim, he said. In addition, seeking disgorgement from attorneys who were partners of the firm at the time of the alleged illegal conduct but who were not charged is unlikely, Gillers said. Changes at Milberg Weiss over the years further complicate the issue. Taylor, lead counsel for Milberg Weiss, said that the demographics of the firm have changed dramatically since 1998, adding that the bulk of the government’s claims allege that the misconduct occurred prior to 1998. Of Milberg Weiss’ 118 full-time partners, 90 came to the firm in 1998 or later, he said. Furthermore, many of partners previously with the firm before former partner William Lerach formed his own practice now work for Lerach. John Hasnas, a business professor at Georgetown University and a former law professor at George Mason University School of Law, said that unindicted partners who practiced at Milberg Weiss at the time of the alleged wrongdoing possibly could be held responsible. “You can’t escape liability by leaving the partnership after the offense,” he said. Yang’s office is not likely concerned with how much money the government can wrest from what may remain of Milberg Weiss if a conviction occurs, said Ainslie, with Schnader Harrison. Rather, it hopes to send a message. “The government, in deciding to prosecute, does not look at the pecuniary motive,” she said. “They are looking to deter behavior.”

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