James McDonald, a law student at Duke University, has authored a proposal in the wake of the convictions against several name partners from the notorious New York law firm of Milberg Weiss Bershad & Schulman LLP for their roles in a racketeering conspiracy allegedly spanning decades in which serial plaintiffs were illegaly paid to file shareholder class action suits against corporations. McDonald's piece appears in the Duke Law Journal, and the abstract states:
When the renowned plaintiffs' firm Milberg Weiss was indicted in 2006 for paying kickbacks to clients, most commentators saw the scandal as the product of five dishonest lawyers. This Note argues that the causes were more complex than the moral shortcomings of a few attorneys; rather, the kickbacks were but one symptom of a deeply flawed system for selecting lead counsel in securities class action lawsuits. Although the Private Securities Litigation Reform Act of 1995 attempted to curb abusive behavior by the plaintiffs' bar, its focus on reforming plaintiff behavior meant that attorneys were left relatively free to continue using whichever tactic served their financial ends. Using Milberg Weiss's behavior to guide analysis, this Note assesses the problems of lead-counsel selection. These problems trace to a common source: an imbalance of information between attorneys vying for appointment as lead counsel and the judge who must select one of these attorneys. To correct this problem, this Note proposes implementing screening and signaling procedures to determine the "most adequate counsel" who can provide quality representation for every member of a class.
In the article McDonald concludes that "some of the tactics that Milberg Weiss used to reach the top of the plaintiffs' bar were as fraudulent and unethical as any action taken at Enron, WorldCom, or Tyco." Read Milberg's Monopoly: Restoring Honesty and Competition to the Plaintiffs' Bar
The law firm itself -- which now simply goes by the moniker Milberg LLP in light of the felony convictions of its prior named partners -- was called the "meanest law firm" in America by Fortune magazine, and settled the federal racketeering indictment against it by agreeing to pay a fine of $75 million and hire a compliance monitor. Although Milberg LLP claims that none of its remaining partners participated in the illegal conduct the question still begged is whether some of them were aware of the scheme and what, if any, steps they took to address the problem. After all, what did they think was happening when the same individuals repeatedly were serving as plaintiffs in dozens of lawsuits? Indeed, in 1995, Congress enacted the Private Securities Litigation Reform Act specifically for the purpose of curbing the abuses for which Milberg Weiss and its partners were indicted, and surely this legislation raised a red flag even among the innocents at the firm.
[F]ormer partner Steven Schulman and Howard J. Vogel, a former lead plaintiff represented by the New York firm, are scheduled to report to federal prison this week. * * * Schulman, who pleaded guilty to a federal racketeering charge, was sentenced to six months in prison. He is scheduled to begin serving his sentence on Tuesday, according to court documents. Vogel, who served as a plaintiff in 40 of the firm's cases, is scheduled to begin serving three months in prison on Wednesday. David Bershad, another former partner, recently began serving six months in prison. Last year, former partner William Lerach and Melvyn Weiss, co-founding partner of Milberg, began serving separate sentences of 24 months and 30 months, respectively. Another defendant, Steven G. Cooperman, who served as a lead plaintiff for Milberg, recently began serving a sentence of four months. A former lawyer who served as an intermediary in the scheme, Richard Purtich, who was sentenced to two months in prison, was released on Nov. 20. A former Milberg expert, John B. Torkelsen, was sentenced to 18 months after pleading guilty to lying to a federal judge. He previously was serving a prison sentence in a separate case. Two other defendants, former Milberg plaintiff Seymour Lazar, and his former lawyer, Paul Selzer, did not receive prison sentences as part of their plea deals with the government.
After the indictment of Milberg Weiss political hacks from the Democratic Party -- including Rep. Charles Rangel, Rep. Carolyn McCarthy, Rep. Gary Ackerman & Rep. Robert Wexler -- initiated an ultimately unsuccessful public campaign to derail the prosecution. Two of these Congressmen, Messrs. Rangel and Wexler, now are facing allegations of wrongdoing on a host of issues.
In order to fully appreciate the sleaze factor among some of the partners at Milberg Weiss Bershad & Schulman LLP -- in case federal racketeering charges which resulted in jail for many does not adequately do the job -- it's worth taking a look also at a contemporaneous case against former partner Paul D. Young who was sued by New York City for criminal nuisance involving the operation of a gay S&M sex club out of the basement of his home. The sex club, El Mirage, is tied to a larger gay sex club enterprise further including the East Side Club at 227 East 56th Street and the West Side Club at 27 West 20th Street. Gay businessman Robert N. DeBenedictis appears to have some interest in all three of these gay sex clubs -- as well as several gay bars, restaurants and other businesses serving the gay community -- and also is a defendant in a class action consumer fraud lawsuit for his alleged role in the company which sells the hair loss remedy Avacor. Read Class Action Complaint Against Avacor
Now called simply Milberg LLP, the firm has garnered over 100 Madoff investors—the largest group assembled by any firm to date. All told, Milberg's clients face Madoff-related losses of more than $1.5 billion to $2 billion of lost assets. Milberg partner Brad Friedman says the group could swell to 150 investors in the next couple of weeks, as many of the new clients refer the firm to other Madoff victims. "All frauds are bad," explained Mr. Friedman. "But this one is so much worse because so many of the victims invested nearly 100% of their liquid assets (with Madoff), and now they are completely wiped out."
For the sake of burnt investors let's hope that Milberg LLP is better at uncovering fraud against Madoff than it was in policing the fraud that occurred right under its nose.