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Famed securities fraud litigator William Lerach, who agreed to lead giant pension fund CalPERS into federal court in Manhattan to wage war against the New York Stock Exchange, will have his first skirmish with partners at the East Coast operation of his own firm, Milberg Weiss Bershad Hynes & Lerach. For the past six months, the firm has been in the process of splitting in two, and partners in New York have already staked their claim to represent investors in a class action that alleges several Wall Street specialist banks skimmed money from trades between buyers and sellers. So Lerach’s entry makes it likely the firm’s two offices will battle each other for the lucrative role of lead counsel. “It’s going to be interesting to watch,” said David Rosenfeld, an associate at New York’s Cauley Geller Bowman & Rudman, which filed one of several complaints in the case, but is not seeking to represent the class. “We’re all waiting to see how this plays out.” The firm’s ongoing divorce is due in part to differences between its two highest-profile partners, New York’s Melvyn Weiss and San Diego’s Lerach. With their two offices about to face off over a suit that strikes at the core of the American financial markets, “Kramer vs. Kramer” could look like an amicable parting. Milberg’s New York office filed suit in October against the specialist firms on behalf of Generic Trading of Philadelphia, a day-trading operation. Relying heavily on a Wall Street Journal report that detailed a confidential SEC investigation, Tuesday’s CalPERS complaint named the same firms but added the New York Stock Exchange as a defendant. A spokesman for Phil Angelides, California state treasurer and CalPERS board member, said the timing of the state’s lawsuit was intended to meet a 60-day deadline triggered by the original suit for any other Wall Street investors seeking to become lead plaintiff. With that deadline met, Lerach is now in the same courtroom as his soon-to-be ex-partners. And with CalPERS as his client, he stands a chance of wrestling the case from them. A lawyer representing Generic Trading alongside Milberg’s New York partners said he was monitoring the situation and is concerned about the development. Others involved in the case believe Milberg’s New York office knew Lerach was coming, pointing out that in court papers the office refers to itself as “Milberg Weiss-NY,” perhaps to avoid confusing the judge. Attorneys for Milberg could not be reached for comment. So far, the two prospective lead plaintiffs have only filed motions arguing why they are best suited to serve as lead counsel. Opposition motions — which can sometimes get nasty, especially in high-profile securities fraud cases — are due in a few weeks. “That’s going to be an interesting filing,” Rosenfeld said. U.S. District Judge Robert Sweet is expected to award lead counsel status in mid-January. The East and West Coast offices of the 220-lawyer firm have long operated somewhat independently of each other. Lerach, based in San Diego, has led the West Coast offices, while Weiss, in New York, heads the East. In June, Weiss said the firm had grown too large and the time had come to split in two. He also cited a difference in styles between himself and Lerach, who have reportedly had a close, but complicated, relationship over the years. “You have people litigating in their own styles,” Weiss said then, “and you want to have one approach.” There are signs that the divorce has been completed in spirit, if not on paper. East Coast and West Coast partners are already competing for clients, said a lawyer who did not wish to be named. Also, the New York office recently filed a securities fraud class action in San Francisco, leaving any mention of the firm’s San Francisco office off their filings. To some, a firm competing against itself in an adversarial proceeding raises ethical concerns. Under the Private Securities Litigation Reform Act, clients with the greatest losses are favored to run the litigation, and thus choose the lead counsel. Courts ask clients to submit filings on why they best represent the class, a process that pits members of the class against each other. This raises a few questions, said Stanford Law School’s Deborah Rhode. The clients might ask themselves whether the competing lawyers at the firm have learned information that can be used against them in court, for example. Or they might question whether their lawyer is representing them aggressively enough. “The question becomes [whether there was] informed consent,” Rhode said. But with Lerach and the rest of Milberg, Rhode doesn’t think aggressive representation will be a problem. “They built their reputation on that,” Rhode said. Peter Mixon, general counsel for CalPERS, wouldn’t go into detail about the firm’s representation of competing plaintiffs. Instead, he repeated that “we are continuing to evaluate all the applications for lead plaintiff status.” Tuesday’s announcement suggests Lerach has cemented his relationships with some of the large public entities in California that can help him win future lead counsel roles. He already represents CalPERS in a state court suit filed against WorldCom Inc. And he represents the University of California’s retirement fund in a Houston class action against Enron Corp., where a federal judge named Lerach and his client to represent the class even though it was revealed that Lerach’s firm is the subject of a federal grand jury investigation. It was the federal WorldCom case that hastened the break between Milberg’s East Coast and West Coast operations. Sources said Lerach angered Weiss by badmouthing clients represented by the New York office. Lerach was also rebuked by the judge assigned to the case for encouraging investors to file coordinated individual suits — as CalPERS has — in state courts against WorldCom’s bond underwriters. Andrew Longstreth, a reporter for The American Lawyer magazine, contributed to this report.

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