A Law Firm Under Pressure
Thursday, May 25, 2006
Ever since the accounting firm Arthur Andersen LLP imploded in 2002 under the weight of an obstruction-of-justice indictment and 28,000 people lost their jobs, federal prosecutors have shied away from filing criminal charges against corporate entities.
Instead, the Justice Department has cut deals with cooperative companies such as Computer Associates International Inc., accounting firm KPMG LLP and drugmaker Bristol-Myers Squibb Co., agreeing not to press criminal charges in exchange for sweeping management changes, large financial penalties and help putting individual employees behind bars.
Last week, federal prosecutors in Los Angeles broke with that trend, filing a 20-count criminal indictment against the phenomenally successful class-action law firm Milberg Weiss Bershad & Schulman LLP. The indictment alleges that two of the firm's top partners, David J. Bershad and Steven G. Schulman, who were also indicted, secretly paid more than $11.3 million in kickbacks to individuals to serve as plaintiffs in class-action securities cases and then lied about it under oath.
The firm and the lawyers have denied wrongdoing. "We have been assured by the partners involved that they didn't engage in wrongdoing," said the firm's attorney, William W. Taylor III. "The firm stands firmly behind them." Bershad and Schulman have taken leaves of absence to fight the charges against them.
The Justice Department's decision to move against the firm, which has 125 lawyers and 240 support-staff members, has been highly controversial because most observers think simply being indicted could force a professional-services firm such as Milberg Weiss out of business.
"It is wrong to attribute the activities of one or two people to the entire firm," said Leon Silverman, a former Justice Department official. "This is the Andersen case duplicated, and the results of that were disastrous." By the time the U.S. Supreme Court overturned Andersen's conviction in 2005, the accounting firm had basically ceased to exist.
Milberg Weiss already has lost one of its prominent clients -- the Ohio Tuition Trust Authority -- and legal analysts said judges may be reluctant to appoint the firm to represent large classes of investors while the indictment is pending because it might not be around for the duration of the case. "From a purely instrumental standpoint, as opposed to a moral one, what happens if they lose the federal case? Who is going to represent the class?" asked University of Texas law professor Henry T.C. Hu.
Even some of Milberg Weiss's longtime ideological adversaries, such as the editorial page of the Wall Street Journal, have expressed concern about the Justice Department's choice of tactics, though they applauded efforts to crack down on class-action fraud.
"In very general terms, we are not in favor of indicting companies, whether they are law firms or chemical manufacturers, when individuals are more closely identifiable with the" alleged crime, said Darren McKinney, spokesman for the American Tort Reform Association.
Some observers have raised concerns that the firm may be being singled out because of politics and ideology. Milberg Weiss, which has 560 pending cases and has wrung more than $45 billion out of corporate opponents since 1965, is not only the country's best known plaintiff's law firm, but is also roundly despised by many Republican policymakers.
"Within this administration, there seems to be much greater hostility towards the kinds of class-action lawsuits Milberg Weiss was doing [than in other administrations]. It's hard to know if it's just a coincidence because this is a really novel prosecution," said Barry Boss, a District defense attorney.
According to the nonpartisan Center for Responsive Politics, Milberg Weiss lawyers including Bershad, Schulman and the other living named partner, Melvyn I. Weiss, have given a total of $2.8 million to federal Democratic candidates since 1999, compared with $23,000 to Republicans.