Firm with ties to McGraw's office in hot water

By Chris Dickerson | May 19, 2006

Melvyn Weiss

Ed Cook

William Lerach

Craig Slaughter

CHARLESTON – A well-known class-action law firm with ties to state Attorney General Darrell McGraw's office was indicted Thursday by a federal grand jury on charges of illegal kickbacks to clients.

Also, two top partners at New York-based Milberg Weiss, Bershad & Schulman -- David J. Bershad and Steven G. Schulman -- and two other individuals were indicted Thursday.

In a 102-page indictment, the firm, Bershad and Schulman were charged with paying about $2.4 million to co-defendant Seymour M. Lazar and others to act as plaintiffs in class-actions since 1984 and concealing the payments. Paul L. Seltzer also was charged.

The indictment's charges included conspiracy, money laundering and mail fraud, and it comes after years of investigation into the how the firm conducts shareholder lawsuits against major corporations, which the indictment alleges generated hundreds of millions of dollars in attorneys' fees.

"Unlike other class members in the lawsuits, the paid plaintiffs purchased the securities at issue anticipating that the securities would decline in value, in order to position themselves to be named plaintiffs in securities fraud class actions and to obtain kickbacks" from Milberg and the others, the indictment alleged.

Bershad and Schulman left the law firm last week as it faced indictments. Their exits came after a New Jersey businessman pleaded guilty last month after admitting he took secret payments as a plaintiff in Milberg class-action suits from 1991 to 2005.

The case, which was before a federal grand jury in Los Angeles, has been under way for six years.

In 2002 -- after the case against Milberg Weiss already had begun -- the state Investment Management Board's Investment Committee sued WorldCom, alleging that the company's fraudulent accounting cost the state more than $6 million. The Board then was represented by Milberg Weiss.

The Investment Management Board is a 15-member body that manages $8 billion of the state pension money, employment security funds and short-term assets.

In 2004, the committee voted to continue the lawsuit against WorldCom. But by then, Milberg Weiss had split in two. The WorldCom case was being handled by the San Diego-based law firm Lerach Coughlin Stoia Robbins, which was the firm that formed as a result of the Milberg Weiss split. William Lerach leads the San Diego-based law firm Lerach Coughlin Stoia Robbins.

Milberg Weiss, led by senior partner Melvyn Weiss, sued at least 75 companies for securities fraud in 2005, including General Motors Corp. and Blockbuster Inc., and files more class-action cases each year than most other major law firms, the Journal reported.

In 2004 and 2005, the firm settled an estimated 90 such cases and extracted more than $1.5 billion for investors, according to Institutional Shareholder Services Inc. In the process, Milberg's partners have become extremely wealthy.

A 2004 Forbes magazine article said Melvyn Weiss and William Lerach, had handled half of all class actions alleging securities fraud filed in the United States since 1995. The article said they had built the modern-day model for the shareholder class action suit and had landed $30 billion in damages.

In 2002, Milberg Weiss was the law firm that represented a Boone County man on behalf of Massey Energy stockholders derivative against the company's Board of Directors and several officers for breach of fiduciary duty, misappropriation of corporate information and waste of Massey's corporate assets arising out of defendants' refusal to cause Massey to comply with applicable environmental, labor and securities laws. That case eventually was settled.

In 2004, Weiss won McGraw's backing office after a McGraw relative introduced Weiss to the AG and Chief Deputy AG Fran Hughes. That relative, Edward S. Cook, is the nephew by marriage of McGraw's brother, former state Supreme Court Justice Warren McGraw.

At the time, Hughes said there was nothing improper.

"I don't think there's anything sinister," she told the Charleston Daily Mail in 2004 about the Weiss meeting. "People are making this into a big story, and I don't understand it."

The state's selection process concerning whom to retain in lawsuits against brokerage houses, tobacco companies and others is followed closely by plaintiffs' attorneys who stand to gain tremendously.

Cook lives in Atlanta, but has done work as a special assistant attorney general, contributed to Darrell McGraw's re-election campaigns and worked with his cousin, former state legislator Randolph McGraw, on more than a dozen lawsuits, according to the Daily Mail.

Cook said he had handled cases "all over the country" since his days with the Texas-based law firm Provost & Umphrey.

"It wasn't that we just popped up on the radar screen," said Cook, who runs his own firm of Cook, Hall & Lampros.

In May 2004, the Investment Management Board's Investment Committee voted to interview the Lerach firm, the Weiss firm and the New York-based firm Bernstein Litowitz Berger & Grossmann before recommending which one the board should hire to represent it in future securities fraud cases. When the Investment Committee interviewed firms in 2002, Bernstein Litowitz was the committee's second choice.

Early in 2004, according to news reports, Cook brought Weiss to visit Darrell McGraw at the Capitol. In March 2004, Cook and Weiss also attended a meeting of the Investment Committee, according to news stories.

"Melvyn Weiss is a legend," Hughes was reported to have said.

"I know Mr. Weiss and I just went," Cook said. "I was just there to be there."

Hughes told the Daily Mail the AG's initial meeting with Weiss "wasn't a job interview" but acknowledged that one of the reasons they met with Weiss was to see if they wanted him to replace Lerach.

The meeting "solidified in our mind that this is the man," Hughes told the Daily Mail. "He lived up to his reputation."

In 2004, Cook said he has "a working relationship" with Weiss' firm, but didn't know what benefits he might have received if Weiss got the work of the Investment Management Board.

He also said his campaign contributions and blood ties to the McGraw clan "absolutely" didn't help him or Weiss get the meeting with the AG.

"I'm not aware that I've been extended any more courtesies than anybody else," Cook told the Daily Mail. "As far as I can tell, the attorney general entertains other counsel in the same manner as he saw us."

Cook said he donated to McGraw's campaign because he "does an admirable job" protecting consumers' interests and rights and "should be supported."

Hughes also said McGraw's decision to back Weiss had nothing to do with Cook's campaign contributions or his connections to the McGraw family.

"We're not going to do anything just because somebody is related by marriage to Warren McGraw," she told the Daily Mail. "They have to be a good lawyer. I think that the results of our office speak for itself. We're a successful office because we hire good people and have good people working here."

Craig Slaughter, executive director of the Investment Management Board, said the board eventually decided to stick with Lerach Coughlin Stoia Robbins and does to this day.

"When they (Milberg Weiss) was splitting their firm, we decided to reassess the relationship," he said Thursday. "We ultimately decided to go with Lerach."

Representatives of McGraw's office did not return calls seeking comment for this story.

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