February 22, 2006
Lerach and Weiss Avoid Indictment But the Law Firm May Not
Prominent plaintiff class action attorneys William Lerach and Melvyn Weiss have dodged a bullet with the U.S. Attorney's Office for the Central District of California reportedly deciding not to pursue criminal charges against them related to secret payments to representative plaintiffs in class actions. In 2005, Seymour Lazar was indicted for accepting kickbacks from the Milberg Weiss firm for serving as, or having relatives serve as, the named plaintiffs in various class actions, including securities fraud actions. The firm, now called Milberg Weiss Bershad & Schulman after an acrimonious split between Lerach and Weiss in 2004, may be a target of the government's investigation, along with named partners David Bershad and Steven Schulman. An AP story (here) reports that the two attorneys and the firm could be indicted in the near future, and that recently accountants for the firm testified before the grand jury. While Lerach and Weiss are the two well-known attorneys, it is often the case that the rainmaker is not involved as much in the day-to-day operations of the firm or the cases, so it could be that the other lawyers have a greater involvement in the alleged illegal payments.
Indictments of law firms are fairly uncommon, and it will be interesting to see the effect on the organization. Unlike accounting firms, such as Arthur Andersen that had to go out of business after its conviction (later reversed on appeal) because of problems related to its license, law firms are not licensed, only the lawyers. Theoretically, the firm could continue to operate after a conviction, and it would not directly affect the representation of clients. Whether a law firm could survive the reputational hit from an indictment, much less a conviction, is a different story. Under the current securities class action regime, plaintiff's firms are chosen by the court from among various contenders, and a criminal indictment would have a significant negative effect on its ability to compete in that process. (ph)
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