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How far was Milberg Weiss Bershad Hynes & Lerach willing to go to become lead counsel, with its promise of a bonanza in legal fees, in the mammoth securities class action against Oxford Health Plans Inc.? Very far, according to a brief filed by Oxford’s counsel, New York’s Sullivan & Cromwell. According to the brief, Milberg Weiss clients filed “misleading” affidavits to “create the appearance that they had suffered substantial losses” from trading in Oxford stock. In fact, one of Milberg’s two clients reaped a huge profit from his trading, while the other suffered much smaller losses than others vying to become “lead plaintiff” and seize control of the litigation under the Private Securities Litigation Reform Act of 1995, the brief alleges. These affidavits were also an effort “to conceal” the fact that Milberg Weiss’ clients were market makers in Oxford options who each engaged in more than 4,000 transactions in Oxford options, the brief alleges. One of the two men also “created the misleading impression” that he owned the stock, when he split the profits and losses with a company and two individuals, the brief says. Sullivan & Cromwell is opposing the appointment of these investors as class representatives. If it succeeds, Milberg Weiss would be left without a client, not to mention the fees. The firm withdrew Gary Weber, the first investor it proposed as a class representative, after Sullivan & Cromwell informed the court that Weber had lied about his criminal record, his history as a defendant in a civil case, and his trading in Oxford securities. The brief was placed on the public record on Sept. 25, after The National Law Journal requested that it be unsealed. U.S. District Judge Charles L. Brieant of White Plains, N.Y., gave the parties until Sept. 5 to “explain to the court why the documents should be sealed.” When a reporter checked the docket on Sept. 7, it was still under seal. That day, after the reporter checked the status of the unsealing with Brieant’s chambers, the court told the parties that they had until Sept. 11 to explain why the document should be kept secret. Milberg Weiss opposed the unsealing but relented after the document was apparently leaked to Fortune. Milberg Weiss’ response, also filed on Sept. 25, contends that Sullivan & Cromwell “distorted the facts and ignored the law, all the while peppering their papers with outrageous and unfounded allegations.” THE ACCUSATIONS The Sullivan & Cromwell brief attacks an affidavit that Patricia M. Hynes of Milberg Weiss filed on May 14, 1998, when 10 law firms were vying to control the Oxford case. The affidavit claimed that Daniel J. Hurley sustained a $3.4 million loss from trading in Oxford common stock, and that Michael Sabbia sustained a $2.01 million loss. When they were deposed by Sullivan & Cromwell’s Robert J. Giuffra Jr., both investors admitted that they had not reviewed the affidavit before it was filed with the court. Hurley said he had “no clue” what his losses were from trading Oxford securities or how his attorneys calculated the figures, according to deposition testimony that Sullivan & Cromwell filed with its brief. Hurley “made huge profits,” Sullivan & Cromwell’s brief asserts: He reaped $444,770 from trading in Oxford common stock alone and $700,747 from his trading in stock and options. Sabbia made a $7.4 million profit from trading in common stock and suffered a loss of $315,000 from his combined trading in stock and options, the brief says. That loss lags far behind the $19 million hit suffered by the Public Retirement Association of Colorado, a pension fund that sought to be the sole lead plaintiff. Sabbia’s loss also pales by comparison to the $1 million in losses sustained by North River Trading Co. Its counsel, Arthur N. Abbey of New York’s Abbey, Gardy & Squitieri, was denied a leadership role in July 1998, when Judge Brieant issued an unusual order requiring the pension fund to work with Milberg Weiss’ clients. Abbey renewed his bid in January, after the withdrawal of Weber, the Milberg Weiss client who allegedly lied about his criminal past. Brieant denied his request, calling it “an unduly drastic remedy.” But he said Abbey could renew his motion, should Hurley and Sabbia “fail to qualify” as representatives for the class. In a new motion, Abbey suggests that designating his client as lead plaintiff “would not be unduly drastic if the allegations about Hurley and Sabbia’s conduct prove to be true.” Milberg Weiss, in its reply papers, accuses Sullivan & Cromwell of employing “three alternative ways” to calculate the plaintiffs’ losses that “yield vastly different results” because they are “desperate to disqualify” its clients. Milberg Weiss does not dispute that its clients failed to disclose their trading in options to the court. The clients signed statements attesting to their transactions in “equity securities” of Oxford. Sullivan & Cromwell contends that with this “carefully chosen phrase,” Hurley and Sabbia submitted “materially misleading” filings. The 1995 law requires lead plaintiffs to disclose “all of the transactions” in “the security that is the subject of the complaint.” Sullivan & Cromwell cites the statute’s definition of security, which includes “any put, call, straddle, option.” Milberg Weiss counters that its complaint sought claims on behalf of purchasers of “Oxford common stock.” To support its argument, Milberg Weiss cites a district court case from 1977, almost two decades before the 1995 act. The public airing of this dispute follows months of private posturing. Sullivan & Cromwell has attempted to use revelations from its extensive investigation of Milberg Weiss’ clients as leverage to settle, according to sources familiar with the case. The parties agreed to several postponements after Giuffra’s depositions of Milberg Weiss clients in April. These proved to be testy affairs. “It’s endless with you, isn’t it?” Hynes snapped at Giuffra toward the end of his questioning of Hurley. The witness said he relied on the “integrity” of the market in making his options investments. “But didn’t you make a lot of money on Oct. 27 when the [Oxford] stock dropped?” Giuffra pressed. Hurley answered, “I did make money, yes.” With that, Giuffra said he had no further questions.

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