July 10, 2007
Milberg Weiss's Woes
David J. Bershad, a former partner with the nation's leading plaintiff securities firm for over twenty years (now split into two firms), has pleaded guilty to a 20 count indictment detailing illegal kickbacks to named plaintiffs in the firm's lawsuits. He has also agreed to cooperate with federal prosecutors in providing information that may be used against other high profile partners (William S. Lerach and Melvyn I. Weiss may be probable targets). This is bad stuff, despoiling the name of lawyers, which needs no further rotting. Folks in industry (and their lawyers) often suspected that the named shareholders where paid puppets of the plaintiff's lawyers but they could not prove it. The government has (using a deal with one of the paid named plaintiffs would had other criminal troubles and agreed to sing). [I cannot get over the hubris of using the same named plaintiff in 150 or so suits! Did the lawyers think no one would notice???] This is the big break in the case -- the facts are now out and confirmed; the prosecutors will now play out the string on the remaining targets.
The case is largely historical due to a change made in 1995 by Congress that permits large shareholders to take over securities class action cases brought by smaller ones. The new larger plaintiffs often bring their own lawyers. There is still an incentive to find (bribe) a small shareholder to bring the case and stimulate larger shareholder to take the case, but the incentive to bribe a smaller shareholder to sue initially is diluted substantially. A final salutary change would be a minimum shareholder stake requirement for private litigation that is small (.01% in stock or $25,000 in value, whichever is less) but large enough to discourage the practice of holding one share in 500 companies or so solely to be available to plaintiff's firms as a named plaintiff.
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