Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, August 27, 2010

Hoffman & Steinberg on Milberg Weiss

The Ongoing Milberg Weiss Controversy, by Lonny Sheinkopf Hoffman, University of Houston Law Center, and Alan F. Steinberg, Department Political Science, was recently posted on SSRN.  Here is the abstract:

In this paper we revisit the ongoing controversy surrounding the Milberg Weiss prosecution. Our paper responds to an important, recent empirical study by Michael A. Perino that claims to have found evidence to support the government’s assertion (made without evidentiary support) that class members were in fact injured by the payments Milberg made to the named representatives. Notwithstanding the carefully constructed and rigorous study Perino has authored, we argue that the evidentiary proof of harm he claims to have found simply cannot withstand scrutiny. We raise several methodological critiques of the study. Although we did not have access to Perino’s full data, we were able to replicate some of it by using the same database of securities class action settlements on which he primarily relied. The replication data results validate some of our hypotheses. Most critically, the replication data strongly suggests that the reason why fees may have been higher in the indictment cases is that the almost all were filed before the Reform Act went into effect. By contrast, the vast majority of cases in the replication sample of Perino’s non-indictment cases were filed in a later period when fees have been lower. Additionally, the replication data we report is not consistent with some of the descriptive statistical findings Perino presents. Specifically, we find no difference either in mean or median fee awards between cases in which the government alleged Milberg paid a kickback and all other cases. Beyond the study’s methodological difficulties, we also show that there are equally substantial reasons to be concerned about the inferential conclusions Perino draws from the data. The big take away that Perino offers at the end of his study—that the evidence contradicts the claim that kickbacks paid to the named plaintiffs were a “victimless crime”—is not supported by the data he has collected and reported. Far from demonstrating that kickbacks allowed Milberg to obtain higher fees, his study fails to rule out the possibility that other, entirely benign reasons could explain the higher fees Milberg received, including that the fees were earned by the results obtained in settlements of the indictment cases.

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