Critics go after Milberg Weiss

By Chris Dickerson | May 26, 2006

CHARLESTON – Criticism of a just-indicted high-profile law firm and its ties to West Virginia continue.

Federal prosecutors charged Milberg Weiss Bershad & Shuman on May 18 with a illegal kickback scheme. Also, two top partners at the New York-based firm -- David J. Bershad and Steven G. Schulman -- and two other individuals were indicted.

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.

In 2004, West Virginia Attorney General Darrell McGraw sought to retain Milberg Weiss for securities litigation on behalf of the West Virginia Investment Management Board.

A West Virginia watchdog group says the indictment brings urgency to ethics legislation in the state Legislature.

"This is an example of justice perverted by lawyers' greed," said Steve Cohen, executive director or West Virginia Citizens Against Lawsuit Abuse. "This is a law firm Attorney General McGraw endorsed."

WV CALA now is calling on state legislators to revive a Sunshine Bill "to make the Attorney General accountable to the public" in choosing outside lawyers.

The measure to require such disclosure – House Bill 4767 -- got as far as the Rules Committee in this year's regular legislative session, but did not advance for floor consideration.

"A light needs to shine on how this Attorney General contracts for legal work outside his office," Cohen said, noting that WV CALA long has called for McGraw to explain his selection of outside counsel in a 2004 settlement of a pharmaceutical marketing case. The lawyers in that case shared a $3.3 million fee.

Additionally, the president of the U.S. Chamber of Commerce's Institute for Legal Reform said the Chamber has wondered about Milberg Weiss' activities.

"The Chamber has long been concerned about the questionable practices of Milberg Weiss and has repeatedly sought an investigation into their activities by the Federal Government," IRL President Lisa Rickard said in a press release. "The government charges Milberg Weiss with 'plaintiff shopping' and kickback schemes in securities cases. We believe the practices outlined in the indictment need to be investigated and support the full prosecution of those who have engaged in misconduct.

"Apparently, the Justice Department based its decision to indict Milberg Weiss, at least in part, on the firm's refusal to waive its attorney-client privilege."

Rickard said the U.S. Chamber opposes any attempt to deny the constitutional right to attorney-client privilege to individuals and organizations.

"While there are many ways to demonstrate cooperation in an investigation, it is fundamentally wrong for anyone to be denied the right to consult freely and confidentially with their attorney," she said.

(The West Virginia Record is partly owned by the U.S. Chamber.)

The case that resulted in the indictment against Milberg Weiss was before a federal grand jury in Los Angeles and has been under way for six years.

In 2002 -- after the case against Milberg Weiss already had begun -- the West Virginia 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, for example, 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 favor 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.

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."

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."

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