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How, class action lawyers wondered for decades, did the firm now known as Milberg Weiss Bershad & Schulman consistently beat its competitors in the race to find lead plaintiffs in securities suits? If you believe L.A. federal prosecutors, the firm’s secret � which let Milberg get lucrative lead counsel status in scores of cases � resided in the bowels of name partner David Bershad’s New York office. Specifically, a Thursday indictment charging Bershad, partner Steven Schulman and, most notably, the firm itself with illegally paying clients to be lead plaintiffs, said the firm “kept cash used to make such payments in a safe located in a credenza in Bershad’s office at Milberg Weiss, to which access was strictly limited.” In charging the firm and its two partners with using that stash as part of more than $11.3 million paid in illegal kickbacks to lead plaintiffs, the L.A. prosecutors made the argument that a plaintiff firm that’s made its name � and earned Republicans’ ire � by suing America’s biggest companies for fraud was itself a corrupt operation. The indictment also points to an unnamed lawyer, whom several sources say is former partner William Lerach � the original target of the indictment, who apparently remains out of investigators’ reach. Paying plaintiffs the way alleged by the indictment would be illegal because lead plaintiffs in class actions are supposed to have the same interests as the rest of the class, and are not permitted to have substantially more to gain than other members. Indeed, plaintiffs are often required to sign statements guaranteeing their common interest, and the indictment accuses Milberg of making misrepresentations in such statements.
Complete coverage of the Milberg-Weiss investigation

In a 102-page charging document unveiled at a Thursday news conference, the L.A. U.S. attorney’s office capped a meandering six-year investigation with the widely expected indictments of Schulman and Bershad on charges including perjury, bribery and fraud as well as the somewhat more surprising indictment of the firm. Indeed, lawyers for Milberg Weiss had been trying to negotiate a nonprosecution agreement for weeks, but were ultimately unable to find common ground with prosecutors, whose demands of a fine of about $100 million, cooperation with ongoing investigations and restrictions on how the firm conducts business were not substantively more favorable to the firm than being indicted. “The government wanted Milberg Weiss to admit wrongdoing and capitulate to its demands, and that was completely unacceptable,” said Bryan Daly, a partner at Beck, De Corso, Daly, Kreindler & Harris in L.A. representing the firm. He said he expects the case to go to trial. The indictment indicates that there may be more to come in the investigation, which originated in 1999 with accusations provided by Steven Cooperman � an eye doctor and former Milberg client trying to reduce his sentence for fraud by helping prosecutors � that the firm paid illegal kickbacks to lead plaintiffs. Cooperman had initially fingered Lerach, Milberg’s former star partner who left in 2004 to start his own firm. Prosecutors eventually found Cooperman’s evidence too old and too unreliable to stand on its own, said sources close to the case. So they turned in other directions. Last summer they charged a former Milberg client, Seymour Lazar, on charges of taking illegal kickbacks. His attorney, Paul Selzer, was also indicted, and accused of taking referral fees from the firm that he passed on to Lazar as kickbacks. Lazar and Selzer refused to cooperate, leaving the prosecutors at an apparent dead end. But all along, an East Coast thread in the case was looking more promising. Former Milberg partner Robert Sugarman began cooperating with the government, and, according to Bershad’s former lawyer, told prosecutors that Bershad and Schulman had engineered a kickback scheme to pay fees to another lead plaintiff, Howard Vogel, via his lawyer, Denver criminal defense specialist Gary Lozow. Vogel entered a guilty plea last month, fingering Bershad and Schulman in the kickback scheme. In the Thursday indictment, prosecutors say Vogel accepted $2.5 million in kickbacks, and Cooperman got $6.5 million. According to the government, Bershad’s share of the firm’s profits from 1983 to 2005 totaled $160.9 million, while Schulman’s share between 1991 and 2005 totalled $67.1 million. Bershad’s equity in the firm ranged over the years from 10.11 percent to 17.72 percent, the indictment said, while Schulman’s ranged from 1.25 percent when he became a partner in 1991 to 15 percent last year. LOOKING AT LERACH Feeling they had enough evidence to charge the firm and the two partners, prosecutors issued an indictment that comes full circle: it makes a series of accusations citing Cooperman’s information, and pointing to a lawyer identified as “Partner B.” Two sources close to the case said Partner B is indeed Lerach. And while he’s not charged, the indictment makes clear that prosecutors believe he had a key role in a scheme to give plaintiffs a portion of legal fees gained in class actions � and to mislead courts about the payments. The indictment links “Partner B” to several cases involving Cooperman, a Cooperman associate, and Lazar. For example, the indictment says that “in or about early 1989, Partner B told Cooperman and Cooperman Plaintiff 1 that they could receive approximately 5 percent to 10 percent of Milberg Weiss’ attorneys’ fees” in one case, and that Milberg “would pay Cooperman and Cooperman Plaintiff 1 5 percent to 10 percent of Milberg Weiss’ attorneys’ fees in future cases that they brought to the firm; and that Cooperman and Cooperman Plaintiff 1 should purchase stocks in companies in order to position them and Milberg Weiss to file lawsuits in the future.” In addition to the Milberg lawyers, a cadre of peripheral figures are referred to in the indictment, including lawyers around the country alleged to have passed money from Milberg to lead plaintiffs, as well as other Milberg clients who allegedly took payments, some of whom were allegedly referred by the named clients Lazar, Vogel and Cooperman. The lawyers, who are not named in the indictment but were identified through sources familiar with the case, include Lozow and New York firm Holm & Drath � who allegedly passed fees to Vogel � and James Tierney and Richard Purtich, who allegedly passed fees to Cooperman. Tierney ended up entering a guilty plea in the insurance fraud case that ensnared Cooperman. Plaintiffs referenced in the indictment include Lazar’s wife, A. Jacques Lou; his daughter, Tara Lazar; and various L.A. acquaintances of Cooperman. These include, according to court records and sources familiar with the case, Dr. Gus Voyagis and psychologist Melvyn Kinder. Lawyers and spokespeople for the defendants went on the offensive Thursday, issuing press statements and promising to fight the charges. Bershad lawyer Andrew Lawler issued a statement that “David Bershad categorically denies the allegations of the indictment.” Berkeley attorney Cristina Arguedas, who is also defending Bershad, declined to comment. The firm took a more aggressive stance, going so far as to set up a Web site � www.milbergweissjustice.com � dedicated to rebutting the allegations.

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