For high-powered securities lawyer Mel Lifshitz, giving takes many forms, 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 limited partnership that was a plaintiff in more than a dozen class-action lawsuits filed by Lifshitz's firm over the past four years, a review of documents shows. TheStreet.com found that the Melly & Rochelle Lifshitz Charitable Trust has invested at least $227,655 in the Delaware limited partnership, Colbart Birnet. In addition, a charitable trust set up by Lifshitz's law firm, Bernstein Liebhard & Lifshitz, one of the nation's top securities class-action firms, has invested at least $225,000 in the same partnership. Moreover, in five filings with the Securities and Exchange Commission, Lifshitz is listed as a "beneficial owner" of the Colbart Birnet partnership -- a circumstance Lifshitz says is plain wrong and 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-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 theory, a lawyer should not be beholden to any single plaintiff, especially the lead plaintiff, when he is negotiating on behalf of a larger group. "The potential is the conflict between a lawyer's obligation to the class and his personal interest,'' says Milton C. Regan Jr., a professor of legal ethics at Georgetown University School of Law. "The potentially aggrieved parties would be the
other members of the class.'' Lifshitz, in an email exchange, says he has no financial interest in the Colbart partnership, and does not benefit from the trust that invested in it. He does acknowledge that he is a trustee of the two charities. "This sounds potentially troublesome,'' says Michael Perino, a professor at St. John's University Law School and an expert on securities class actions. "It strikes one as an odd form of charity. Is this a disguised way of kicking some money back to this entity to get it to serve as lead plaintiff?'' Regan, the Georgetown professor, says one way for a lawyer to eliminate possible conflicts is to disclose his financial ties to a client to the court and let the judge resolve the matter. It's not clear that Bernstein Liebhard has done this as a matter of course in the lawsuits in which Colbart Birnet appears as a plaintiff.
TheStreet.com, which publishes this Web site, was one of the 309 dot-com defendants that signed on to the partial $1 billion settlement in the so-called IPO class action.
A business profile obtained from corporate database Experian says Colbart Birnet employs two people and had estimated sales of $514,000. Since 2003, the Colbart entities have been frequent investors in private stock placements by small, cash-strapped companies that trade for under a $1 a share. On Wall Street, these deals are commonly called PIPEs, or private investments in public equity. But Colbart apparently also has other investments. In the Federated case, a declaration filed by Colbart Birnet says it bought and sold about 2 million shares of various Federated funds from 1999 through 2001.
A spokesman for Optionable says the information about the beneficial owners of Colbart Birnet was provided by the limited partnership. However, the spokesman said the company recently was informed that some of that information may be incorrect.
In 1994, Greenfield's license to practice law in New Jersey and Pennsylvania was suspended for a year. He was reinstated in 1995. In the case involving Colbart Birnet, there's no indication the limited partnership was serving as a shell company. However, it was incidents like the one involving 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 distance between the lawyers heading up a class action and the lead plaintiff in a lawsuit. Federal lawmakers had hoped to encourage lead plaintiffs to take a more active role in class-action lawsuits by pressing their lawyers on settlement negotiations and the divvying up of legal fees. "There's case law saying you shouldn't be lead plaintiff and lead counsel and people have been disqualified for that,'' says Jill Fisch, a securities professor with Fordham University School of Law. "This is something that is material and should be disclosed.'' In the Federated case, at least, there's no indication that either Lifshitz or his law firm has disclosed their ties to Colbart Birnet. Lawyers for Federated declined to comment.