Milberg, Former Partners Indicted

The feds claim the class action firm paid clients kickbacks.
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Federal prosecutors have turned the tables on Milberg Weiss, indicting the big securities class-action firm for participating in an alleged kickback scheme.

The indictment charges that the firm paid outside parties to participate as litigants in some of the securities class-action lawsuits it brought.

The indictment, which has been rumored for months, comes as no surprise. But it throws into jeopardy the status of the New York law firm, which is famous for bringing shareholder fraud lawsuits against some of America's biggest corporations.

Also indicted by a Los Angeles grand jury were two former partners, David Bershad and Steven Schulman. The two attorneys recently left Milberg Weiss in a bid to stave off an indictment of the firm.

A spokeswoman for Milberg Weiss could not be reached for comment.

For the past several months, the legal world and Wall Street have been abuzz about a potential indictment. Prosecutors have been investigating the firm for more than six years.

The noose tightened around Milberg Weiss and the two partners when a former client

struck a plea agreement with prosecutors last month. Prosecutors say the former client, Howard Vogel, accepted nearly $2.5 million in kickbacks from the New York law firm for agreeing to be lead plaintiff, or having his family members take that role, in some 40 class-action lawsuits against various companies

Last summer, a federal grand jury indicted Seymour Lazar, charging the former lawyer with taking $2.4 million in kickbacks to serve as a lead plaintiff in 50 class actions filed by Milberg Weiss. But the investigation appeared to lose momentum when Lazar vowed to fight the charges rather than cut a deal with prosecutors. The authorities had hoped Lazar would offer evidence to implicate Weiss and Lerach.

The criminal investigation, however, has thrown a spotlight on some of the sordid tactics securities lawyers employ to find individuals and companies that will serve as plaintiffs in class-action lawsuits.

Financial connections between lawyers and clients in class-action litigation are frowned upon and can violate a federal law designed to preserve the autonomy of plaintiffs in such suits, legal experts say. According to the legal theory, a lawyer should not be beholden to any single plaintiff when he is negotiating on behalf of a larger group.