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L.A. federal prosecutors are entering year six of trying to indict lawyers at former class action giant Milberg Weiss, and the biggest problem they’re facing may be that nearly everyone in the case, from targets to key witnesses, is a lawyer. With no one delivering the big prize, former Milberg star William Lerach, investigators have to take a slower route, wading through mountains of paperwork to sort the complexities of legal relationships � and draw a line between ethically questionable conduct and flatly illegal acts. Lerach and his former partner Melvyn Weiss, hugely successful class action lawyers and major Democratic donors, made millions taking some of America’s biggest companies to court over stock fraud. Investigators are trying to prove that they paid illegal kickbacks to plaintiffs to get to nine-figure cases ahead of competitors. Complex legal relationships define the first case stemming from the investigation. Former Milberg client Seymour Lazar and his lawyer, Paul Selzer, face charges of taking and laundering illegal kickbacks from the firm. But to sway a jury, prosecutors will have to disassemble the dealings of Lazar and a flotilla of lawyers. The indictment last June of Lazar and Selzer is widely seen as an attempt to pressure the defendants into testifying against the star partners of the former Milberg Weiss Bershad Hynes & Lerach, which split in 2004 into two firms: San Diego’s Lerach Coughlin Stoia Geller Rudman & Robbins and New York’s Milberg Weiss, Bershad & Schulman. A rollover by Lazar or Selzer seems unlikely � at a Jan. 12 hearing in Los Angeles, Lazar and Selzer seemed prepared to mount a vigorous defense. The indictment argues that, in a complex set of financial transactions, Lazar � via Selzer, formerly a partner at Riverside’s Best Best & Kreiger � accepted a percentage of attorneys fees from Milberg Weiss that came from settlements of securities class actions. The payments were illegal, the argument goes, because courts were told that Lazar had the same financial interests as other members of the class. In fact, the government says, Lazar stood to gain more than other class members, thanks to the kickbacks. Lazar seems unlikely to take issue with that contention, since he told the Wall Street Journal last week that he did accept payments from Milberg Weiss via Selzer. Instead, Lazar argues that his conduct was legal � and his lawyers told him so. “The actions of Mr. Lazar relative to those matters were done at all times with several layers of counsel upon whom he was relying to let him know whether there were problems,” his attorney, Thomas Bienert, said Thursday. That’s a tough defense for prosecutors to challenge, said Miles Ehrlich, who headed white collar prosecutions for the San Francisco U.S. attorney until late last year. The advice-of-counsel defense “is very powerful, and the prosecutor essentially has to prove that it’s a bought-and-paid-for opinion or one that a reasonable person wouldn’t rely on,” said Ehrlich, now of Ramsey & Ehrlich. He added that prosecutors may also argue that a client was dishonest with his attorney about his activities. With Selzer and Lazar standing trial together, though, that scenario seems unlikely. PAPER TRAILS The challenge of determining whether Lazar and Selzer’s transaction was criminal is illustrated by an apparently important piece of evidence the L.A. prosecutors produced last month. An internal memo from Best Best & Krieger that the government filed in court outlines concerns firm lawyers had with Lazar’s request that the firm log payments from Milberg Weiss as referral fees. “To us it just smells bad, and probably would to an investigator,” the 1994 document says. The memo’s author � whose name was redacted in the government filing � is Daniel Olivier, a former Best Best & Krieger partner who, like Selzer, transferred money from Milberg Weiss for Lazar on several occasions. An example of how the transactions work was provided by Irvine lawyer Barry Ross, who represented Lazar in a 1995 eminent domain case. “I did work for Seymour Lazar on civil litigation, and then I would submit my invoice to Best Best & Krieger,” Ross said in a recent interview. “There was an account for Seymour Lazar at Best Best & Krieger.” But while the government says such transactions were criminal behavior, lawyers say there’s nothing inherently strange about a firm receiving money for a client, holding it in trust, and paying it out as the client asks. PICKING TARGETS The nature of such transactions had to be a key subject for investigators who, after spending years researching Best Best & Krieger documents, elected to indict the former partner Selzer � who left the firm in 1995 � but not Olivier, who accepted payments from Milberg Weiss on behalf of Lazar until 2001, and left the firm in 2004. Given the similarity between Selzer’s and Olivier’s behavior, that probably has something to do with Olivier’s willingness to cooperate. He has testified before the Milberg grand jury, and criminal defense lawyers say that given the Lazar indictment, it’s likely he has some sort of immunity. His lawyer, James Riddet, would say only that “he has not been prosecuted.” The Best Best & Krieger firm appears not to have been a focus of the investigation, suggesting prosecutors are concerned with the way the two individual partners, rather than the firm, handled the flow of money. “We’ve not been a target, we’ve not been a subject, we’ve not been investigated and we’ve not made any deals,” said Best partner Howard Golds. Another lawyerly entanglement was brought up at Lazar and Selzer’s Jan. 12 hearing: For a brief time after the investigation began, Lazar’s lawyer Bienert advised Selzer. While Lazar waived his right to new counsel, the government still sought to disqualify Bienert, a former assistant U.S. attorney widely considered one of the top federal criminal defenders in L.A. Judge Dean Pregerson allowed Lazar to continue with Bienert. PERIPHERAL VISION Looking beyond Lazar’s piece of the Milberg puzzle, prosecutors have a series of other plaintiffs and intermediary attorneys who have agreed to cooperate, and whose financial dealings are the subject of similar scrutiny. Sparking interest earlier this month was a filing in an Ohio securities class action in which New York firm Bernstein Liebhard & Lifshitz is vying with Lerach Coughlin for lead counsel status. In the last of an increasingly bilious series of exchanges in which the firms argue whether the L.A. investigation is reason to disqualify Lerach Coughlin from taking the lead, the Bernstein firm attached a series of memos sent to securities plaintiff firms over the past three years. Authored by counsel for Milberg Weiss, the memos say that Milberg has been asked by the government to produce documents in relation to several securities class actions, including several relatively recent cases. That has fueled speculation among the plaintiff bar that L.A. prosecutors are looking at allegations more recent that those involving Lazar, and may also be looking at one or more of the many small class action firms that has been co-counsel with Milberg Weiss or helped provide the firm with lead plaintiffs.

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