Milberg Weiss faces the music
Three of the four men who once ran the lawsuit factory have now agreed to plead guilty. Co-founder Mel Weiss will take his chances at trial, says Fortune's Peter Elkind.
(Fortune Magazine) -- After seven years pursuing kickback charges against Milberg Weiss, federal prosecutors in Los Angeles last month executed a hat trick. On Sept. 18 they announced that 61-year-old Bill Lerach - the former Milberg partner known to CEOs as the "King of Pain" for his class-action suits - had agreed to plead guilty to a felony and serve one to two years in federal prison.
Two days later his former law partner Steven Schulman struck a deal to admit guilt and cooperate with the feds. And on the same day, the feds also brought four felony charges against 72-year-old Milberg co-founder Melvyn Weiss - the dean of the securities class-action bar - whose firm had already been indicted. The men who once ran Milberg Weiss together now face different fates - the result of how each played his hand.
David Bershad: First to Flip. In May 2006 the prosecutors charged Milberg Weiss with illegally paying plaintiffs millions in kickbacks in more than 150 lawsuits over the past 20 years. Among the candidates to help make a case against Weiss and Lerach as well, defendant David Bershad was surely the most valuable - and the most improbable. The former Milberg managing partner had worked with Weiss for almost 40 years.
The 2006 indictment claimed he kept a safe in his office credenza, used for stashing cash to pay plaintiffs. If convicted, the 67-year-old might have spent the rest of his life in prison. Instead, in May 2007 he became an early cooperator and star witness - and he got the most attractive terms. He pled guilty to a single felony, faces a sentencing range of 27 to 33 months, and will pay $8 million to the government. The feds could recommend that Bershad serve no prison time at all, though he will surely lose his law license. With $161 million in earnings from Milberg since 1983, he might well live out his life a free - and wealthy - man.
Bill Lerach: An Unexpected Call. Bershad's move backed Lerach - who had publicly ridiculed the notion that he'd done anything wrong - into a corner. So days after Bershad agreed to flip, Lerach's attorney surprised prosecutors by informing them that his client was willing to plead guilty and serve time. Not wanting to appear a rat, Lerach refused to cooperate with the investigation, and he negotiated for immunity from prosecution for his new San Diego-based firm. Like Bershad, Lerach agreed to pay $8 million and plead guilty to a single felony conspiracy count. Since he is not cooperating, he is expected to get the maximum, 24 months.
Prosecutors have been criticized for giving Lerach a sweetheart deal (which requires a judge's approval). Their logic? It bagged one of their big targets, validating their entire investigation, and it eliminated any chance of an acquittal at trial. Plus, Lerach's cooperation wasn't key for nailing their remaining prey.
Steven Schulman: Better Late Than Never. Even after Bershad flipped, Schulman played hardball, filing aggressive motions to dismiss his indictment. The government responded with a court filing that described Schulman meeting one coconspirator at a Howard Johnson's off the New York Thruway and passing him cash under the table.
At an early-August hearing, the presiding judge mowed through the defense's arguments, concluding that the case was "the classic example of a kickback scheme." Soon after, Schulman, 56, agreed to plead guilty to racketeering. He faces a felony with a stiffer maximum than Bershad and will probably serve prison time - albeit less than Lerach. Schulman has agreed to pay the government $2.1 million.
Melvyn Weiss and His Firm: The Last Stand. In May, Weiss rejected a plea-bargain offer similar to Bershad's that might have seen him serve no more than a year or two in prison. An inveterate gambler, Weiss, who says he's innocent, would rather take his chances at trial. His decision brings the full brunt of the government against a septuagenarian once hailed for his efforts on behalf of Holocaust survivors.
Last month's indictment places Weiss at the center of decades of dirty dealings with Milberg's plaintiffs - negotiating kickback amounts, flying cash to Florida to make payments, reassuring partners that they wouldn't get caught. If convicted, he could die in prison. The firm hasn't been helped by the co-founder's decision, even after his indictment, to remain at Milberg Weiss (as a not-so-reassuring statement put it) "to counsel clients and firm attorneys."