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Enemies of the plaintiffs’ firm Milberg Weiss Bershad Hynes & Lerach may do well to heed the words of Friedrich Nietzsche: What does not kill me makes me stronger. Take, for instance, the Private Securities Litigation Reform Act, a 1995 law that many observers say was aimed at putting Milberg Weiss — and especially partner William Lerach, the lawyer many corporate executives love to hate — out of business. As one securities defense lawyer who lobbied for the PSLRA told The New Yorker last year, “The whole idea behind the law was to destroy Lerach.” Instead, according to a new study by Stanford Law School’s Securities Class Action Clearinghouse and Cornerstone Research, Milberg Weiss is doing better than ever. The study found that the firm has served as lead or co-lead plaintiffs’ counsel “in over 50 percent of all post-Reform Act cases settled to date.” Even more impressive, the study reported that “the proportion of cases with Milberg Weiss as lead or co-lead plaintiff counsel has actually been increasing over the last few years,” stating “it was almost 60 percent in 2002,” although it did not specify the precise increase. The list of lawsuits in which the firm is involved reads like a who’s who of corporate wrongdoing, including Enron Corp., Tyco International Ltd., ImClone Systems Inc., Qwest Communications International Inc., and the case that could be the biggest of them all, the class action accusing Wall Street investment banks of illegally rigging the initial public offerings of more than 300 companies during the high-tech boom. Milberg Weiss has also led the charge on several recent mega-settlements, such as the $320 million Rite Aid Corp. and $300 million Oxford Health Plans settlements and the $600 million settlement against Lucent Technologies. Just a couple of years ago, the firm’s success was hardly a foregone conclusion. In a September 2000 profile of Lerach entitled “The King of Pain Is Hurting,” Fortune Magazine portended Milberg Weiss’ doom. Arguing that the firm had been slow to adapt to the changes wrought by the PSLRA, the magazine said that the law “has begun to take its toll” on Milberg Weiss. Ironically, securities lawyers, including Milberg Weiss co-founder Melvyn Weiss, attribute much of the firm’s success directly to the PSLRA, and the new playing field it created. By taking aim at some classic Milberg Weiss practices, the PSLRA inadvertently benefited the larger plaintiffs’ firms, they say. The result has been a much more concentrated securities plaintiffs’ bar dominated by big firms. As the bar’s 800-pound gorilla, Milberg Weiss benefited most of all. For instance, the act heightened the pleading standard to something akin to “fraud-plus,” and barred discovery until after a judge has ruled whether the complaint should be dismissed. Before the PSLRA, prosecuting a securities case was “unbelievably cheap” compared with other contingency fee cases, explained one plaintiffs’ lawyer who asked not to be named. “You’d spend maybe $20,000,” he said. Milberg Weiss took advantage of this by filing more suits than anyone else. Under the new law’s heightened pleading standard, however, firms had to pony up enormous sums of money to draft a complaint that would withstand the inevitable motion to dismiss, with the very real possibility that they would never see a return on their investment. For instance, in the Enron class action suit, Milberg Weiss put up more than $1 million in expenses and untold millions of dollars in lawyers’ hours before it even filed the complaint, Weiss said. That investment will probably bear fruit: The firm’s client was awarded lead plaintiff status. But in another big case, the firm’s gamble did not pay off. In November 2000, it spent “a ton of money” to file a 100-page-plus complaint against WorldCom, Weiss said. Just before the company collapsed in an accounting scandal, a federal judge in Mississippi threw out Milberg Weiss’ case, and the firm got shut out of the lawsuits that followed. The firm’s experience on WorldCom is hardly the exception to the rule. All told, 28 percent of securities class action suits are dismissed on the defendant’s motion. Soliciting clients has also become an expensive proposition. Before the PSLRA was passed, almost any investor would do; the goal was simply to get to the courthouse first, something Milberg Weiss was expert at, often filing complaints within hours of a drop in a company’s stock price. The PSLRA ended the race to the courthouse by directing that lead plaintiff status go to the investor that had suffered the greatest loss, typically institutional investors. As a result, plaintiffs’ firms have had to sink enormous amounts of cash into marketing their services to institutional clients, particularly pension funds, which are most likely to be appointed lead plaintiff in any given case. Plaintiffs firms today produce newsletters, hold conferences and host banquets, all at considerable cost. Another expense is the contributions many of the firms make to the political campaigns of state officials who hire them to represent their pension funds. For example, Milberg Weiss donated about $220,000 to the campaign of former New York state Comptroller Carl McCall in his unsuccessful bid for governor last year. WINNER TAKES ALL Smaller firms have also struggled with another effect of the PSLRA. Because of the manner in which lead counsel is now chosen, plaintiffs lawyers say it has become unprofitable to remain in a case for anyone who does not attain that status. Before 1995, when lead counsel simply went to the first firm at the courthouse door, it was often a smaller outfit without the resources to litigate a sizable case by itself. Work would be divvied up among dozens of firms, and the judge would instruct them to work out the fees among themselves. “Now, it’s winner takes all,” said the plaintiffs’ lawyer who requested anonymity. Aside from getting the lion’s share of the fees and controlling the litigation, lead counsel gets to decide how much to pay the other firms in the case. “The firms awarded lead counsel status are far larger and can — and do — handle the work by themselves.” Few firms have the financial resources to sink millions of dollars into developing a complaint, and even fewer are willing to take the risk of losing it all on a motion to dismiss. For the cases that survive, the chances that a firm not appointed lead counsel will make any real money are slim. As a result, the small practitioners for the most part have given up on securities work, this lawyer said. Milberg Weiss, on the other hand, did have the advantage of size and resources. It leveraged that advantage by making “a conscious decision after the PSLRA to spend the money and provide the resources up front to come up with a really good complaint,” Weiss said. To investigate possible lawsuits, the firm created an in-house department staffed by more than two dozen forensic accountants, investigators and damage analysts, including “10 or 11 former FBI employees,” Weiss said. It also has a roster of outside consultants to assist in investigations. When the PSLRA was passed, Milberg Weiss had no client base to speak of among the institutional investors, and many of its enemies assumed it would stay that way. But the firm used its newly pumped-up investigative capacity to successfully sell itself to the institutional clients. The strategy has paid off. Milberg Weiss numbers among its clients some of the biggest institutional investors, including the New York state pension fund and the pension fund for the Regents of the University of California. “The bottom line is we can provide the infrastructure to manage the biggest, most complex cases,” Weiss said. Some say Milberg Weiss may become a victim of its own success. The firm has lost several senior partners this year, including management committee members Keith Fleischman and Kenneth Vianale; Samuel Rudman of the New York office’s securities practice; Dennis Stewart in San Diego, and Abraham Rappaport in Boca Raton, Fla. Its lead forensic investigator in New York is leaving to join Rudman, according to a source familiar with the situation. “The problem is they’ve gotten so big that the only way they can survive is to keep getting the blockbuster cases,” said another plaintiffs’ lawyer who asked not to be named. Milberg Weiss has nearly tripled in size since 1996, from about 60 or 70 lawyers to about 200 lawyers today. And expenses, including marketing, investigations and the salaries of the name partners, reportedly in the eight-figure range, are high. “The pressure on people just below the top is incredible,” the plaintiffs’ lawyer said. Weiss said the pressure is on everyone, and even more so at the top. “The fact is that it is competitive and we do have to work harder,” he said. “There is no slacking off in this industry or this firm.”

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