Melvyn Weiss Pleads Guilty in Kickback Scheme (MORE, CLICK HERE)

Melvyn Weiss Pleads Guilty in Kickback Scheme
The New York Law Journal by Anthony Lin - March 20, 2008

Famed securities class action lawyer Melvyn I. Weiss has agreed to plead guilty to a racketeering charge for participating in a scheme to pay kickbacks to lead plaintiffs in shareholder suits.

The plea agreement recommends a sentence of between 18 and 33 months in prison for Mr. Weiss, 72. He also has agreed to pay $10 million in fines and forfeited fees. Mr. Weiss is resigning from the firm, according to a statement on its Web site by Stanford Dumain, a member of its executive committee. Mr. Dumain said that the firm will change its name to Milberg LLP.

In a statement, Los Angeles federal prosecutors, who first launched the investigation of alleged kickbacks in securities cases several years ago, said they would ask the court to impose a 33-month sentence. Mr. Weiss' lawyer, Benjamin Brafman, said in a statement the court would have discretion to substitute home or community confinement for up to half of Mr. Weiss' term.

Mr. Weiss and a number of his former partners at Milberg Weiss were the subject of a years-long investigation by federal prosecutors over their payment of some $11 million in kickbacks to individuals who served as name plaintiffs in their securities cases. Milberg Weiss was until recently the dominant firm in such cases, which typically settle for millions and even billions of dollars, earning large contingent fees for plaintiff's firms.

The kickbacks allowed the firm to maintain a stable of plaintiffs so it could swiftly bring a claim on behalf of shareholders. Prior to the enactment of the Private Securities Litigation Reform Act of 1995 (PSLRA), the first law firm to file such an action could count on winning coveted lead counsel status, reaping the largest share of legal fees. The plaintiffs were generally paid 10 percent of the legal fees received in their cases.

Such agreements are illegal because name plaintiffs in class action suits are not permitted to have interests above those of other class members, to whom they owe a fiduciary duty.

"This kickback scheme lasted for more than 25 years and had a severely detrimental effect on the administration of justice across the nation as lies were routinely made to judges overseeing significant cases," said U.S. Attorney Thomas P. O'Brien in announcing Mr. Weiss' plea agreement. "The scheme was based in greed and it affected the integrity of the courts and the interests of an untold number of absent class members."

Milberg Weiss, the firm Mr. Weiss co-founded, remains under indictment in the case, though Mr. Weiss was the last major figure from the firm to be facing individual indictment.

Former name partners William Lerach, David Bershad and Steven Schulman, all pleaded guilty last year.

In a statement, Mr. Weiss said: "I deeply regret my conduct and apologize to all those who have been affected, including all of the wonderful and extremely talented lawyers and other employees of the Firm, none of whom had any involvement in any wrongdoing. I believe that it is very important to preserve this unique legal resource for the benefit of victims of wrongdoing affecting the masses, who historically have been underserved in so many ways."

Mr. Brafman said yesterday that Mr. Weiss' plea should not cloud his legacy of pro bono work and philanthropy and that he hoped the court took these into account.

"Accordingly, despite his participation in the criminal conduct he has today acknowledged, I am nevertheless hopeful and confident that the Court will recognize Mel Weiss to be one of the true legal giants of his generation and a consummate humanitarian whose contributions to the Bar and the world community have been nothing short of spectacular," Mr. Brafman said.

If Mr. Weiss had proceeded to trial, his defense was expected to argue that he was so preoccupied with humanitarian and charity work during the charged period that Messrs. Bershad and Schulman had been able to carry on the kickback scheme without his knowledge.

Mr. Dumain, the Milberg executive committee member, apologized on behalf of the firm for Mr. Weiss' misconduct and pledged "faithful adherence" to "all legal and ethical norms ... as we move forward to rebuild our practice."

"Having previously believed former leaders' assurance of their innocence, the Firm is now seeking to find a fair and appropriate resolution of remaining issues so that we can continue our work on behalf of injured investors and consumers," Mr. Dumain stated. - Anthony Lin can be reached at alin@alm.com.