MILBERG WEISS IS INDICTED, SETS UP A WEBSITE . . . From the New York Times: "U.S. Indictment for Big Law Firm in Class Actions," by Julie Creswell--

The nation's leading class-action securities law firm, Milberg Weiss Bershad & Schulman, and two of its partners were charged yesterday with making more than $11 million in secret payments to three individuals who served as plaintiffs in more than 150 lawsuits.

The indictment is the first instance of a law firm with national reach facing criminal charges and it could prove to be a fatal blow for the firm. The lawsuits cited in the indictment spanned two decades, occurring as recently as 2005, and generated more than $200 million in legal fees for the firm.

The indictment is available here (pdf), courtesy of the White Collar Crime Prof Blog. Meanwhile, Milberg Weiss has set up a special website to promote its side of the story, much as Merck did in the Vioxx litigation a few days ago. Anyone who takes the time to read the indictment won't be satisfied with Milberg's website, at least based on what's there now. There's way too much about Milberg's self-proclaimed greatness as an institution and way too little about the specifics of the indictment. For someone like me, who has viewed the leaked allegations about the Milberg investigation with skepticism, some of the details in the indictment seem very troubling. The website contains no corresponding level of detail. Instead, it's mostly just puffery about the firm or vague explanations about its past conduct that don't answer many of the questions raised by the indictment.

On the other hand, I don't expect Milberg will be using its website to preview many details about its defenses. Its website will remain mostly a puff piece--a cousin to the biglaw glossy brochure--that will allow Milberg to publicly express its displeasure about the most controversial aspect of the indictment, that is, that fact that the entire firm was indicted.

The New York Times article contained this quote about the decision to indict the entire firm:

"There's never been a firm of their prominence that has been indicted," said Ralph C. Ferrara, a former general counsel with the Securities and Exchange Commission who is now a lawyer with the law firm of LeBoeuf, Lamb, Greene & MacRae. "This is a regrettable and remarkable thing."

Here's Milberg's take, as expressed on its website: "The firm is particularly incensed that the prosecutors decided to indict the firm itself. The firm has 125 attorneys and another 240 employees who, even according to the government, did not participate in or know anything about the matters at issue. But they will inevitably suffer serious personal and professional harm as a result of the government's actions."

Personally, as someone who has worked with Milberg on the same side of many cases, I think the firm's indictment was a terrible decision. And though I don't think much of Milberg's new website, I still don't think--as I've long maintained--that the "kickback" scheme makes any sense. It presupposes that a number of other lawyers and law firms, listed in paragraph 31 of the indictment, were also involved in the scheme. It also depends on recharacterizing what would normally be called "referral fees," which are generally appropriate between lawyers, as the "kickbacks" that the newspapers have been seizing upon as evidence of shady conduct. The government contends that the referral fees were actually kickbacks because they were passed on to named plaintiffs. But the indictment never really says this specifically. If I'm reading it right, it merely alleges the payments were made "for the benefit" of certain named plaintiffs but never alleges directly that the named plaintiffs received the money. That's confusing to me, because if it happened, that ought to be something that's easy to allege and prove.

More later, I suppose. Related posts are collected at the bottom of my last post about Milberg, "The Dueling Spokesmen of Milberg Weiss."

UPDATE There's more about the indictment from Brainwidth (including a good summary of the backstory), Ideoblog, and Jonathan B. Wilson (who is critical that the decision to indict the firm came after the firm refused to waive the attorney-client privilege).

Comments

[Ted]

It also depends on recharacterizing what would normally be called "referral fees," which are generally appropriate between lawyers, as the "kickbacks" that the newspapers have been seizing upon as evidence of shady conduct.

You're right to be skeptical: this is the same sort of allegation of an oral side deal that is critical in many Enron prosecutions involving smaller transactions; there have been billion-dollar class-action settlements on similar flimsy allegations because the defendants would rather pay a protection sum to extortionate attorneys than have a 95% chance of a jury getting it right, with the penalty for error being bankruptcy. However, the evidence is much stronger here: a number of people have pleaded guilty precisely to the fact of using referral fees to law firms to be later funneled as kickbacks to plaintiffs.

If I'm reading it right, it merely alleges the payments were made "for the benefit" of certain named plaintiffs but never alleges directly that the named plaintiffs received the money.

The former allegation is broader than the latter, but just as illegal. It's not surprising that A would, rather than make a traceable and obviously illegal transfer to B, instead make a more easily disguised transfer to C for B's benefit, especially if B owes C money.

At least you're not claiming, like Milberg is, that there would be nothing wrong with the kickback even if it was made.