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Top Lawyer, Under Fire, May Depart

  Law Center  -   POSTED: 2007/06/01 13:45

William S. Lerach, one of the most powerful securities class-action lawyers in the nation, is considering plans to leave the law firm he founded three years ago. In a hastily called meeting this week at his San Diego law firm, Lerach Coughlin Stoia Geller Rudman & Robbins, it was disclosed that Mr. Lerach, 61, was weighing his departure, said a lawyer inside the firm who spoke on condition of anonymity. While the exact reasons behind Mr. Lerach’s abrupt and surprising career considerations remain unclear, it suggests that a long-running criminal investigation into allegations of kickbacks paid to class-action plaintiffs has gained momentum.

What makes the potential departure of Mr. Lerach particularly shocking is that it would come just as he is engaged in his most high-profile case to date: the shareholder lawsuit against the Wall Street banks that acted as advisers to Enron before it collapsed into bankruptcy in 2001.

While Mr. Lerach has recovered $7.3 billion for shareholders, a federal appeals panel recently ruled that the lawsuit against the remaining defendant banks could not go forward. Since then, Mr. Lerach has been leading a campaign to have the case reviewed by the United States Supreme Court, publicly pressuring and lobbying the Securities and Exchange Commission and its chairman, Christopher Cox, to support his efforts by filing a friend of the court brief in the case.

Still, people who have been briefed on the criminal investigation suggested that Mr. Lerach’s lawyer, John W. Keker, might be trying to make federal prosecutors an offer: Mr. Lerach would resign from the firm in exchange for the firm’s not being indicted.

Calls to Mr. Keker were not returned. A spokesman for the United States attorney’s office in Los Angeles, which is leading the investigation into illegal payments to plaintiffs, also declined to comment.

When reached on his cellphone Wednesday evening, Mr. Lerach declined to comment on his status at the firm. “I can’t say anything,” he said. Calls made later to his cellphone were not returned, and several calls made to a spokesman for the firm were not returned.

Going quietly into the night would also be a reversal in style for Mr. Lerach.

Boisterous and with a penchant for grandstanding, Mr. Lerach has a long history of being both feared and loathed inside the boardrooms of corporations and insurance companies.

For decades, until Mr. Lerach broke off to start his own firm in 2004, he and his former partner, Melvyn I. Weiss, tackled what they saw as rampant corporate malfeasance, securing rich settlements for shareholders and earning themselves and their firms hundreds of millions of dollars in fees in the process.

But nearly seven years ago, federal prosecutors began examining some of the tactics that had made the firm so powerful. As a result, the New York law firm Milberg Weiss & Bershad and two partners, David J. Bershad and Steven G. Schulman, were indicted last year, accused of making more than $11 million in secret payments to individuals who served as plaintiffs in more than 150 lawsuits that earned the firm more than $216 million in fees.

Although they were the main targets of the investigation, Mr. Weiss and Mr. Lerach were not indicted, and the government’s case in recent months appeared to have stagnated. Yesterday, lawyers for Mr. Schulman filed a motion to dismiss all charges against him. Some attributed the renewed momentum in the investigation to talks between Mr. Bershad, who is on a leave of absence from the firm, and prosecutors that might result in a guilty plea for his role in what prosecutors have described as a scheme to pay illegal kickbacks to class-action clients, according to another person briefed on the investigation.

It is unclear whether Mr. Bershad will ultimately cooperate with the government in exchange for a lighter sentence.

His lawyer, Robert D. Luskin, declined to comment. A spokesman for the United States attorney’s office in Los Angeles also declined to comment.

Prosecutors and former partners have said that he handled and kept track of the payments to clients. Concern that Mr. Bershad may try to provide information to prosecutors that could strengthen their case against Milberg Weiss prompted at least two of its partners, Ariana J. Tadler and Brad N. Friedman, to meet with prosecutors in Los Angeles in an attempt to reach a deal that does not require the firm to acknowledge any wrongdoing, according to the person briefed on the case.

Calls to Ms. Tadler and Mr. Friedman were not returned.

Milberg Weiss said in a statement: “We have heard reports that David J. Bershad apparently plans to plead guilty to some of the charges that have been asserted against him. We believed his prior statements to us that he had done nothing wrong and committed no crime. We intend to take steps necessary to protect the interests of our clients and of the many uninvolved firm lawyers and staff who have demonstrated their dedication to the firm in carrying out the important work we do on behalf of investors and consumers.”

Mr. Weiss’s lawyer, Benjamin Brafman, said: “Mr. Weiss has not been charged with any criminal conduct whatsoever. He fully intends to continue practicing law and will continue to offer his clients the same extraordinary legal representation that he has provided for the past 40 years while at the same time continuing the wonderful philanthropic work that he has been devoted to for his entire life.”

While it would be unusual for the government to accept a deal in which Mr. Lerach retired from his firm, it was certainly not impossible, lawyers said.

“I have been involved in many cases where we have had nonstandard results. So is it possible? The answer is yes,” said Sean O’Shea, a criminal defense lawyer in New York who is not involved in Mr. Lerach’s case.

The government’s investigation into the tactics of the plaintiffs’ lawyers began in the late 1990s when a Beverly Hills ophthalmologist, Steven G. Cooperman, who had been convicted of art insurance fraud charges, offered to provide evidence against Milberg Weiss in exchange for a reduced sentence about his role as a frequent plaintiff in shareholder lawsuits filed by the firm.

Over the next few years, prosecutors combed through decades of documents and interviewed dozens of witnesses.

According to the charges, the scheme involving the paid plaintiffs worked like this: Plaintiffs would buy securities anticipating that they would decline in value, hence positioning themselves to be named plaintiffs in the class actions. After the court in a lawsuit awarded lawyers’ fees, the firm and Mr. Bershad and Mr. Schulman gave cash directly to the plaintiffs or to intermediary lawyers. The firm then falsely accounted for the payments as referral fees or professional fees, the indictment said.

Under New York law, it is illegal for a lawyer to promise or give anything to induce a person to bring a lawsuit or to reward a person for having done so, the indictment said.

The 20-count indictment against Milberg Weiss and Mr. Bershad and Mr. Schulman accused them of conspiracy, mail fraud, money laundering, conspiracy and obstruction of justice.

Lawyers for the firm, Mr. Bershad and Mr. Schulman have denied the charges.

The indictment, however, has hurt Milberg Weiss’s business. The firm has lost several institutional clients, its position in large cases, and had several major lawyers depart the firm.

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