For high-powered securities lawyer Mel Lifshitz, giving takes manyforms, some more noble than others.
Since 2003, a charitable trust funded and administered by Lifshitz's family has donated money to various causes, most of them orthodox Jewish organizations. Another recipient of the charity's money, however, has been a limitedpartnership that was a plaintiff in more than a dozen class-action lawsuits filed byLifshitz's firm over the past four years, a review of documents shows.
found that the Melly & Rochelle LifshitzCharitable Trust has invested at least $227,655 in the Delaware limitedpartnership, Colbart Birnet. In addition, a charitable trust set up byLifshitz's law firm, Bernstein Liebhard & Lifshitz, one of thenation's top securities class-action firms, has invested at least$225,000 in the same partnership.
Moreover, in five filings with the
Securities andExchange Commission
, Lifshitz is listed as a "beneficial owner" ofthe Colbart Birnet partnership -- a circumstance Lifshitz says is plain wrongand attributes to "human error." Clouding the picture further are two alternate spellings for Colbart Birnet that appear in court filings and a federal tax return for the law firm charity. Lifshitz says there's nothing to the discrepancies and ascribes them to "typographical" mistakes.
Financial connections between lawyers and clients in class-actionlitigation are frowned upon and can violate a federal law designed topreserve the autonomy of plaintiffs in such suits, legal experts say.According to the theory, a lawyer should not be beholden to any singleplaintiff, especially the lead plaintiff, when he is negotiating on behalf of a larger group.
"The potential is the conflict between a lawyer's obligation tothe class and his personal interest,'' says Milton C. Regan Jr., aprofessor of legal ethics at Georgetown University School of Law. "Thepotentially aggrieved parties would be the
other members of the class.''
Lifshitz, in an email exchange, says he has no financial interestin the Colbart partnership, and does not benefit from the trust thatinvested in it. He does acknowledge that he is a trustee of the twocharities.
"This sounds potentially troublesome,'' says Michael Perino, aprofessor at St. John's University Law School and an expert onsecurities class actions. "It strikes one as an odd form of charity.Is this a disguised way of kicking some money back to this entity toget it to serve as lead plaintiff?''
Regan, the Georgetown professor, says one way for a lawyer toeliminate possible conflicts is to disclose his financial ties to aclient to the court and let the judge resolve the matter. It's not clearthat Bernstein Liebhard has done this as a matter of course in the lawsuitsin which Colbart Birnet appears as a plaintiff.
Questions about possible conflicts of interest are nothing new in the securities class-action bar. Federal prosecutors are investigating allegations that two of the biggestsecurities class-action lawyers, Mel Weiss and William Lerach,directed the payment of millions of dollars in "kickbacks'' to aretired Florida attorney to serve as a lead plaintiff in more than 50suits they filed by Milberg Weiss Bershad Hynes & Lerach. Before itsplit up into two firms in 2004, Milberg Weiss was the nation's mostsuccessful securities class-action firm.
The investigation of Weiss and Lerach is raising questionsabout some of the dubious methods that plaintiffs' lawyers have used toround up clients in order to file class-action lawsuits.
With regard to Lifshitz, Colbart Birnet has appeared as aplaintiff in class actions filed by his firm against a number of mutualfund companies, as well as
( GDT) and
. Typically, the suits have alleged violations of securities laws and sought monetary damages from the defendants.
Colbart Birnet most notably appears as the lead plaintiff in apending class action against
, one of manylawsuits arising out of the three-year-old mutual fund trading scandal. Bernstein Liebhard became the court-appointed lead counsel in the case based, in part, on the strength of Colbart Birnet's claim for $1.14 million damages.
The lead counsel designation is a plum assignment, meaningBernstein Liebhard will a play major role in overseeing the litigation,arguing motions and negotiating any settlement with Federated. In light ofFederated's $72 million settlement with securities regulators lastNovember, Bernstein Liebhard is looking at a possible multimillion-dollarpayday for its efforts.
All in all, the New York-based law firm has been on a tear for thepast few years. The
National Law Journal
recently namedBernstein Liebhard as one of the country's "hot'' plaintiffs' firms.It played a starring role in negotiating a partial $1 billionsettlement in a class-action lawsuit that alleges 55 Wall Street investmentfirms defrauded investors by artificially inflating the value of hundreds ofdot-com IPOs in the late 1990s. Bernstein Liebhard was also co-leadcounsel in a securities class action against
( DT) that settled last year for $120 million.
, which publishes thisWeb site, was one of the 309 dot-com defendants that signed on to thepartial $1 billion settlement in the so-called IPO class action.
In a series of email exchanges, Lifshitz downplayed thesignificance of the charitable trusts' investments in Colbart Birnet.He said any suggestion of a conflict of interest involving himself, orhis law firm, is simply wrong.
"I do not have any interest -- minority or otherwise -- in ColbartBirnet L.P. A charity of which I am a trustee does,'' says Lifshitz."I do not benefit from the charity and I am not a beneficial owner ofit."
Lifshitz says the law firm recently contacted Roy Simon, a lawprofessor who specializes in legal ethics, about its dealings withColbart Birnet, and the professor "reiterated our advice that thefirms' conduct fully complied with all ethical and legal obligations."
Simon, the Howard Lichtenstein distinguished professor of legalethics at Hofstra University School of Law, says he sees no potentialfor a conflict of interest involving the investments by the charitabletrusts in Colbart Birnet. Simon says he was recently retained byBernstein Liebhard to advise it on the Colbart Birnet situation.
"This is not something that worries me from a conflictperspective,'' says Simon. "I can't understand why this would have animpact on his judgment.''
Simon says he sees no potential quid pro quo in the investments bythe charitable trusts because Colbart Birnet was a client of the lawfirm before the investments were made.
Delaware corporate records reveal three entities bearing theColbart Birnet name: Colbart Birnet Asset Management, Colbart BirnetII and Colbart Birnet IV. Colbert Birnet II is the one that receivedinvestments from the Lifshitz and Bernstein Liebhard family trusts. Inthe Federated case, Colbart Birnet, Colbart Birnet II and ColbartBirnet IV are listed as plaintiffs represented by Bernstein Leibhard.
A business profile obtained from corporatedatabase Experian says Colbart Birnet employs two people and hadestimated sales of $514,000.
Since 2003, the Colbart entities have been frequent investors inprivate stock placements by small, cash-strapped companies that tradefor under a $1 a share. On Wall Street, these deals are commonlycalled PIPEs, or private investments in public equity.
But Colbart apparently also has other investments. In theFederated case, a declaration filed by Colbart Birnet says it boughtand sold about 2 million shares of various Federated funds from 1999through 2001.
Some federal filings, however, paint a conflicting picture ofLifshitz's interest in Colbart Birnet.
Last year, five regulatory filings made in connection with theregistration and sale of stock by
, a smallNew York firm that provides services to brokerages, listed Lifshitz asone of Colbart Birnet's "beneficial owners.'' The other listed ownersare Ezra Birnbaum and Eli Levitan, a New York lawyer.
Birnbaum is president of Pond Equities, a New York brokerage firmthat has been a longtime client of Bernstein Liebhard. Over the years,Pond Equities has appeared as a plaintiff, sometimes in a lead plaintiffrole, in 32 securities class actions filed by Bernstein Liebhard in federalcourt.
Some regulatory filings describe Colbart Birnet as an "affiliate'' ofPond Equities. An investment advisory form filed by Pond with the SECdescribes Birnbaum as the general partner of Colbart Birnet II. The formsays about 1% of Pond customers are investors in Colbart Birnet, and aminimum investment costs $100,000. The form also says Colbart Birnet has$1.83 million in assets.
Birnbaum, who lives near Lifshitz in Lawrence, N.Y., on Long Island, did not return several telephone calls. Levitan could notbe reached for comment.
Lifshitz, in an email response, says the description of him asbeneficial owner of Colbart Birnet is a mistake and he had not beenaware of it until
brought it to his attention. Hesaid he would ask the company to correct the filings.
A spokesman for Optionable says theinformation about the beneficial owners of Colbart Birnet was providedby the limited partnership. However, the spokesman said the companyrecently was informed that some of that information may be incorrect.
Still, it's not the only discrepancy that has appeared inofficial documents involving Colbart Birnet.
A federal court docket search found 18 lawsuits in which BernsteinLiebhard was representing a lead plaintiff named "Colbert Birnet." Inthose cases, the name of the partnership was spelled with an "e,''rather than an "a.'' Lifshitz, in explaining the discrepancy, says it"is simply a typographical error.''
The "typographical error" is reflected in a June 2003 declarationin a case captioned Colbert Birnet II vs. Guidant. On the signaturesection of the declaration, "Colbert Birnet II" is typed in beneath anillegible handwritten signature.
There is at least one other misspelling of Colbart in officialdocuments. In the 2003 federal tax return for the Bernstein Liehbardlaw firm's charitable trust -- The BL Squared Foundation -- Colbart isspelled "Colbirt.''
Perino, the St. John's professor, notes that there are provisionsin class-action securities law that put limits on how many times aninvestor may serve as lead plaintiff in such cases. According to him,an investor cannot serve as a lead plaintiff in more than five classactions in any three-year period.
The question of plaintiff autonomy came up 14 years ago in thedealings of Richard Greenfield, who in his time was one of the mostsuccessful securities class-action lawyers in the country. Greenfieldcame under fire for filing lawsuits on behalf of companies he had acontrolling interest in.
In response to Greenfield's tactics, some federal judges tossedout his lawsuits. In one proceeding, a New Jersey federal judgeordered a disciplinary investigation after it was discovered that oneof the plaintiffs was a so-called shell company controlled byGreenfield.
In 1994, Greenfield's license to practice lawin New Jersey and Pennsylvania was suspended for a year. He wasreinstated in 1995.
In the case involving Colbart Birnet, there's no indication the limitedpartnership was serving as a shell company. However, it was incidents like the oneinvolving Greenfield that led to the passage of the federal Private Securities Litigation Reform Act of 1995 -- a law that changed the playing field for securities class-actions. The nine-year-old law was aimed at cracking down on some of the abusive tactics being used by class-action lawyers.
One provision of the law sought to create an arm's-length distancebetween the lawyers heading up a class action and the lead plaintiffin a lawsuit. Federal lawmakers had hoped to encourage lead plaintiffsto take a more active role in class-action lawsuits by pressing theirlawyers on settlement negotiations and the divvying up of legal fees.
"There's case law saying you shouldn't be lead plaintiff and leadcounsel and people have been disqualified for that,'' says Jill Fisch,a securities professor with Fordham University School of Law. "This issomething that is material and should be disclosed.''
In the Federated case, at least, there's no indication that eitherLifshitz or his law firm has disclosed their ties to Colbart Birnet.Lawyers for Federated declined to comment.