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Nearly 12 years ago, an internal memo from the Southern California firm Best Best & Krieger expressed concerns that it was acting as a conduit for legally questionable payments from the plaintiff firm Milberg Weiss to Seymour Lazar, the lead plaintiff in dozens of securities class actions. The memo, filed in court by prosecutors last week, expresses particular worry about the Best firm recording payments from the firm then known as Milberg Weiss Bershad Hynes & Lerach to Lazar as firm income, which would then be secretly credited to Lazar for future legal services. “To us it just smells bad,” the memo says, “and probably would to an investigator.” That concern came to fruition in June, when Lazar and his attorney, Paul Selzer — a former partner at the Best firm — were indicted by a Los Angeles federal grand jury for allegedly taking more than $2 million in illegal kickbacks from Milberg Weiss. The L.A. U.S. Attorney’s Office has spent the past five years probing whether Milberg Weiss — which split in 2004 when star partner William Lerach broke off to form his own San Diego-based firm — paid illegal kickbacks to lead plaintiffs in class actions. After several years of investigation with few public developments, the Lazar and Selzer indictments were widely seen as an effort to force the two defendants to testify against Milberg Weiss and its partners. Prosecutors have also given immunity to at least two other former clients who say they received kickbacks from the firm via other attorneys. Lawyers familiar with the case say their allegations are similar to those detailed in the Lazar indictment. In a series of detailed charges, Lazar and Selzer were accused of taking dozens of payments from Milberg Weiss that would have been illegal because they gave lead plaintiff Lazar a different incentive than the rest of the plaintiff class members, and were never reported to the courts. The indictments referred to “kickbacks” paid by Milberg Weiss to Lazar and disguised as “referral fees” paid to Selzer, then a partner at the Best firm. And while the indictments laid out a complex series of financial transactions, they did not claim to have proof that Milberg Weiss intended to pay anything other than a referral fee to the Best firm. Prosecutors attached the internal Best firm memo last week to a seemingly routine objection to Lazar’s request to end his house arrest. The 1994 document from Best Best & Krieger — which represented Lazar in business matters in the 1990s — outlines concerns about Lazar’s arrangement with Milberg Weiss, which is referred to as “the New York law firm.” The name of the memo’s author has been redacted. “Seymour [Lazar] has requested that Best Best & Krieger treat monies received from Seymour’s class action law firm in New York as current income of Best Best & Krieger, not as Seymour’s funds held in trust,” the memo says, explaining that Lazar wanted the firm to credit the money toward his future legal fees, and possibly to car payments and charitable contributions. Best Best & Krieger’s current managing partner said his firm is not under investigation. The memo “is something that the government has had for a while,” said Eric Garner in a voicemail message left Friday. He added that the Best firm “is not a target or subject of the investigation.” Selzer left the firm in 1995. According to the memo, he wanted the firm to put the arrangement with Lazar in writing. “Mr. Lazar does not wish to have this relationship documented,” the memo continues. “He points out that this relationship has been going on for years and has never been documented.” Lazar’s desire for the payments to remain secret apparently raised hackles inside the Best firm. “We have indicated to him on several occasions our concern over participating in some type of conspiracy to defraud the Internal Revenue Service or to otherwise violate the laws prohibiting plaintiffs in class actions from receiving fee splits,” the memo says. It goes on to dismiss concerns about the IRS and focuses on the fee-splitting question, pointing out that, even if the fees paid by Milberg Weiss are reported as income for the Best firm, it wouldn’t take much digging to reveal the true nature of the arrangement. The memo concludes that Lazar “apparently does not want to document the relationship so as to avoid confirming the ‘matching’ of fees received by Best Best & Krieger and the services provided to Seymour Lazar.” Patrick Robbins, a former federal prosecutor now specializing in white-collar cases at Shearman & Sterling, said that if it can be authenticated, the Best memo could prove to be an important piece of evidence. “It strongly indicates that there was money laundering with the funds derived from the New York law firm,” he said. But, Robbins added, the document is old, and would only be useful in a case where the government is trying to prove an ongoing conspiracy that would not be rendered obsolete by the five-year statute of limitations. Lazar’s criminal defense lawyer, Thomas Bienert, and lawyers for Selzer and New York-based Milberg Weiss did not return phone calls, and John Keker, who represents Lerach, would not comment on the case. While prosecutors attached the document to their opposition to Lazar’s bail motion as evidence of the strength of their claims, the main argument to keep him under house arrest is that financial transactions — including the wire transfer of $4 million to an off-shore account — indicate Lazar is a flight risk.

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