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Recent reports that New York-based Milberg Weiss Bershad Hynes & Lerach is the subject of a grand jury investigation into its business practices could, lawyers say, affect shareholder suits filed over the collapse of Enron Corp. — one of the biggest securities fraud cases ever. According to the reports, a grand jury is investigating Milberg Weiss’ financial relationships with clients serving as plaintiffs in securities cases, though the reports differ on the nature of the allegations. The reports, first appearing in the Los Angeles Daily Journal, came almost immediately after Milberg Weiss’ famed partner, William Lerach, took a box of shredded documents with him on a high-profile media tour to denounce Enron executives and demonstrate his firm’s involvement in the case. Lerach and other Milberg Weiss lawyers didn’t return phone calls Friday, but securities lawyers were abuzz with speculation about how the investigation might damage the premier class action firm’s chances of prosecuting what could be one of the most lucrative class actions in history. But one Milberg Weiss rival played down that possibility. “I don’t think it should make any difference. In my dealings with them, they’ve always been honorable people,” said Martin Chitwood of Atlanta’s Chitwood & Harley. Chitwood is one of several lawyers who have submitted proposals to Texas-based U.S. District Judge Melinda Harmon to have their clients appointed lead plaintiff in the Enron case. Milberg Weiss, which represents the University of California system, is another. The allegations depend on which newspaper they appear in. According to the Daily Journal, a grand jury is focusing on Milberg Weiss’ relationship with brokerage houses and whether the firm paid for investor lists. However, that practice may actually be legal. The 1995 Private Securities Litigation Reform Act bars a brokerage’s receipt of “remuneration” for assisting securities lawyers. But U.S. District Judge Saundra Brown Armstrong of the Northern District of California noted in a 1999 decision that “there is no prohibition in the provision regulating the conduct of attorneys.” Columbia University School of Law professor John Coffee Jr. speculated that if prosecutors are focusing on payments to brokers, they may be looking to make a conspiracy or aiding and abetting case. According to the Los Angeles Times, though, the grand jury is investigating Milberg Weiss’ relationship with Steven Cooperman, a serial plaintiff in securities class action cases, and whether he received payments to serve as a client. Cooperman is well known to securities lawyers. As U.S. District Judge Joe Kendall of Texas once snickered in a ruling, Cooperman is “one of the unluckiest and most victimized investors in the history of the securities business.” Kendall noted that Cooperman had apparently been a plaintiff in 38 securities fraud class actions. A former Beverly Hills, Calif., doctor, Cooperman was convicted in 1999 of having two paintings stolen from his house — one a Picasso, the other a Monet — in order to collect at least $15 million in insurance money. In a California Law Week article that same year, Cooperman’s alleged accomplice, former entertainment lawyer James Tierney, said he made millions from Cooperman’s stock tips. He also said he’d received more than $1 million in fees for referring Cooperman to “a New York law firm” to serve in three dozen securities fraud suits. Tierney could not be immediately located to determine if the firm he was referring to was New York-based Milberg Weiss. Milberg Weiss has represented Cooperman in dozens of actions, but other firms have represented him, too. A spokesman for the U.S. Attorney’s Office in Los Angeles said he could not comment on the grand jury investigation, nor confirm its existence. The timing of the reports, appearing one day after Lerach’s efforts to win lead counsel status in the Enron class action were featured in The New York Times, struck some lawyers as curious. Many who were contacted did not want to speak on the record. “Of course” the leak is connected to Enron, said one securities lawyer. “Lerach had a good week. He was on all the talk shows.” But other lawyers weren’t so sure. “I would be surprised if someone were leaking this for the purpose of [damaging Milberg Weiss' chances in] the Enron case,” Chitwood said. One lawyer even questioned the value of the class action, since the judge will likely feel pressure to limit the portion of a settlement set aside for attorney fees. Coffee, though, said the case would still be lucrative. “Even if it were only 10 percent of $1 billion, that’s a big payday,” the professor said. Although Enron is in bankruptcy, Coffee said the company’s auditor, Arthur Andersen LLP, may share some liability. “Shredding documents creates a strong inference of fraud,” Coffee said, referring to reports that Arthur Andersen destroyed key financial documents. On Friday, Judge Harmon ordered that no further documents be destroyed. This wouldn’t be the first time Lerach played a role in a federal investigation. In 1996, the San Diego U.S. Attorney’s Office filed corruption charges involving a judicial bribery scheme that eventually netted three superior court judges and a prominent plaintiff’s lawyer. The lawyer, Patrick Frega, was a friend of Lerach’s. The king of securities fraud class actions was never implicated, but testified for several hours during trial.

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