Weiss shortchanged shareholders, report says

By Chris Rizo | May 29, 2008


WASHINGTON - Disgraced securities lawyer Melvyn Weiss, who awaits sentencing for illegally paying clients to file shareholder complaints, actually injured shareholders, a report released Wednesday indicates.

The conservative Washington-based American Enterprise Institute Legal Center released a paper by Professor Michael Perino of St. John's University School of Law.

The 41-page paper challenges the argument that Weiss' offering kickbacks to plaintiffs was essentially a victimless crime because the bribes came out of legal fees awarded to his former New York firm: Milberg Weiss Bershad & Schulman.

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

For his report, titled "The Milberg Weiss Prosecution: No Harm, No Foul?" Perino examined 730 of the firm's class action settlements.

Class members were injured by the secret payoffs because they appear to have received a "lower proportion of the settlement proceeds than class members in otherwise substantially similar non-indictment cases," the report says.

The report found that on average, for each 1 percent increase in the size of the settlement, attorneys' fees were 0.10 percent higher in the indictment cases than in the non-indictment cases.

"This finding is consistent with the government's contention that Milberg Weiss received a greater share of the settlement in the indictment cases, which would constitute a real economic harm to the class members who therefore had a lower net recovery," Perino wrote.

Prosecutors say Weiss' firm raked in $251 million in fees from cases in which the firm's lawyers illegally paid kickbacks clients to file lawsuits.

Weiss' former partner Bill Lerach was sentenced to 2 years in prison after pleading guilty to one count of conspiracy.

West Virginia Citizens Against Lawsuit Abuse have pointed to the Weiss case as reason to have legislation that makes the attorney general accountable when he chooses outside counsel.

Authorities say the kickback scheme lasted for more than 25 years and "had a severely detrimental effect on the administration of justice across the nation as lies were routinely made to judges overseeing significant cases," said U.S. Attorney Thomas O'Brien in a statement announcing Weiss' plea agreement.

"The scheme was based in greed and it affected the integrity of the courts and the interests of an untold number of absent class members," O'Brien said.

Government attorneys say Weiss, 72, should serve the maximum 33-month prison sentence allowed under his plea deal.

"A sentence that is greater than 33 months would tend to create an unwarranted and impermissible disparity, particularly given Weiss's more advanced age and more substantial philanthropic activities," Assistant U.S. Attorney Douglas Axel said in the sentencing memorandum.

U.S. District Judge John Walter of the Central District of California is scheduled to sentence Weiss on June 2.

From Legal Newsline: Reach reporter Chris Rizo by e-mail at chrisrizo@legalnewsline.com.

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