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Milberg agrees to pay $75 million to settle kickback charges

By Jason Siegel

Milberg has agreed to pay $75 million as part of a non-prosecution agreement with federal prosecutors in the criminal kickback case against the New York securities firm, according to an announcement from Milberg.

After an investigation that spanned nearly a decade, Milberg, which was preparing for an August trial, announced an agreement on Monday in which the firm accepted responsibility for the acts of its former senior partners.

The firm, which was accused along with seven of its former partners of obtaining attorney fees by paying kickbacks to lead plaintiffs, faced charges of conspiracy, mail fraud, money laundering and obstruction of justice. The firm also faced criminal forfeiture of up to $251 million in allegedly tainted attorney fees.

Several former partners have pleaded guilty in the case, including co-founding partner Melvyn Weiss and William Lerach*, who left in 2004 to found his own firm, now called Coughlin Stoia Geller Rudman & Robbins.

Under the deal, prosecutors will dismiss the indictment against the firm, which eliminates a potential plea deal, and acknowledge that none of the current 65 lawyers at Milberg had knowledge of the wrongdoing of their former partners.

It is "very important to us to have that recognition from the government," said Sanford Dumain, a member of Milberg's executive committee. "It allows us to put this behind us completely."

Thom Mrozek, a spokesman for the U.S. Attorney's Office for the Central District of California, which is handling the case, declined to comment.

The deal requires Milberg to pay $75 million, plus interest, within five years. The payments include $60 million to the U.S. Treasury in five installments. The first payment of $12.5 million is due immediately. Other payments are: $10 million to be paid before Dec. 31, 2009; $10 million before Dec. 31, 2010; $10 million before Dec. 31, 2011; and $17.5 million before Dec. 31, 2012.

Milberg also agreed to pay $15 million to the U.S. Postal Inspection Service's consumer fraud fund. The first $10 million would be due immediately, with the remaining paid before Dec. 31, 2009.

In the event that Milberg's gross revenues are more than $40 million in a single quarter or $120 million for four consecutive quarters, Milberg has agreed within 45 days of obtaining such revenues to pay the balance of the installments or 55% of the amount exceeding those revenue benchmarks -- whichever is greater.

Milberg anticipates paying the $75 million from among its existing resources, such as attorney fees in hundreds of ongoing cases, including last year's $3.2 billion settlement with Tyco International, Dumain said. He also anticipated bringing new cases.

"We hope that the settlement will result in retention by clients who've not retained us in the past," he said.

When asked whether Milberg would pursue claims against its former partners whose wrongdoing prompted the investigation or former lawyers now at Coughlin Stoia, which is set to receive substantial attorney fees in the $7.2 billion settlement for Enron investors, Dumain said: "We have retained counsel and are considering all of our options in that regard."

Coughlin Stoia was not charged in the case and was absolved of potential future liability under a plea deal with Lerach, who is serving a sentence of 24 months in federal prison. On June 9, Weiss was sentenced to 30 months.

Milberg also agreed to maintain a "best practices" program for two years. Under the program, Milberg would continue to submit referral fees, or other fees, to a compliance monitor for review. Bart M. Schwartz, a New York solo practitioner who was a top deputy to Rudy Giuliani when he was serving as U.S. Attorney for the Southern District of New York, has been serving as compliance monitor to Milberg.

Separate from the agreement, Dumain said management of the firm would shift to a democratic system of partner elections. The firm's management committee members are Dumain, Michael Spencer, Brad Friedman and Ariana Tadler. Matthew Gluck, another partner, also has assisted the management committee in recent years, Dumain said.

In the deal, Milberg admits its former partners paid three lead plaintiffs: $2.5 million to Howard Vogel, who, along with his relatives, served as lead plaintiff in 40 class actions from 1991 to 2005; $2.6 million to Seymour Lazar, who, along with his relatives, served as lead plaintiff in 67 class actions from 1976 to 2004; and $6.2 million to Steven Cooperman, who, along with his relatives and associates, served as lead plaintiff in 70 class actions from 1988 to 1999.

They also paid hundreds of thousands of dollars in cash to lead plaintiffs in Florida who served in 100 class actions from 1983 to 2004.

With these suits, Milberg's lawyers helped the firm obtain $239 million in attorney fees.

Several of the firm's partners, including Weiss and Lerach, paid the kickbacks in cash and kept that case in a fund in the office of David Bershad, another former partner who pleaded guilty last year. The cash was dispersed as bonuses.

The partners also paid kickbacks as checks disguised as referral fees to intermediary lawyers.

Bershad, Steven Schulman and others also used the cash to pay kickbacks to stockbrokers who had referred clients to serve as plaintiffs for the firm. Schulman pleaded guilty last year.

Specifically, they caused the firm to pay $8.85 million to New York stockbroker Paul L. Tullman for referring his clients, friends and others to serve as lead plaintiffs in more than 70 class actions for the firm. Milberg earned more than $102 million attorney fees in those cases.

The former partners also caused the firm to retained John Torkelsen, a damages expert, on a contingency basis from 1985 through 1998. Torkelsen, who has pleaded guilty, lied in court about the way in which he was being paid and submitted reimbursements to the court for work he never did.

-- Amanda Bronstad

"Big Penalty Set for Law Firm, but Not a Trial," The New York Times
"Milberg Plea: Feds Will Drop Charges, Law Firm Will Pay $75M," ABA Journal

*Judge rejects Lerach request to move to alcohol treatment program

A federal judge in Los Angeles rejected William Lerach's request to be moved to a residential alcohol abuse treatment program on Thursday, Reuters reported.

   

"Although it is apparent that Mr. Lerach has struggled with alcoholism in the past, the court finds that the defendant has failed to demonstrate that he currently requires the intensive treatment offered by the Bureau of Prison's Residential Drug Abuse Treatment program," U.S. District Judge John Walter wrote.

Full post as published by Legal Pad | LA on June 17, 2008 (boomark / email).