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. TheStreet.com 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.
TheStreet.com, 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.
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.
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.
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.