I can’t count how many corporate executives have told me that the biggest problem with the investment world is class-action shareholders’ attorneys.
When a stock nose-dives, these vultures swoop into court, extorting millions or even billions in settlements from companies and their insurance carriers.
The poor investors are lucky if they recover more than 4 cents on the dollar. Meanwhile, these attorneys get one-fifth to one-third of the take.
Nobody has gotten richer doing this than the attorneys at New York-based Milberg Weiss Bershad & Schulman.
This firm, and San Diego-based Lerach Coughlin Stoia Geller Rudman & Robbins – founded by a former Milberg Weiss partner – collected 57 percent of all class-action settlements in 2005, according to Cornerstone Research. Milberg Weiss boasts it has won $45 billion from companies since its 1965 founding.
I sometimes think these lawyers are as hyper-competitive, overpaid and self-dealing as the corporate executives they sue. I do, however, enjoy watching their exploits and believe that some executives deserve the unique legal tortures that they administer.
The question I have now is whether Milberg Weiss is just as corrupt as the people it sues.
Last week, federal prosecutors indicted the entire firm of Milberg Weiss and two of its partners specifically for allegedly paying kickbacks to people in exchange for becoming lead plaintiffs in lawsuits.
No one seems to be able to remember the last time federal lawmakers indicted an entire law firm. Usually, they go after the individuals responsible. But bribing people to sue people is a serious matter.
“This case is about protecting the integrity of the justice system in America,” explained Debra Wong Yang, a United States attorney in Los Angeles, adding that more indictments against individuals may be on the way.
Milberg Weiss and its partners vehemently deny the charges.
Milberg and Lerach have made powerful enemies. The U.S. Chamber of Commerce, “has long been concerned about the questionable practices of Milberg Weiss and has repeatedly sought an investigation into their activities by the federal government,” the chamber’s Lisa Rickard said in a statement last week.
Some hope the indictment will put the brakes on class-action lawsuits, or inspire new laws that make them tougher to win. I don’t see an end to these lawsuits, though. Ultimately, there’s a lawyer vacuum in the universe that will swiftly fill any gaps that would be created if Milberg Weiss were forced out of business.
We saw this same phenomena with accountants when Arthur Andersen was indicted and dismembered. It might as well be a law of physics: The universe always sustains accountants and lawyers.
It’s taken prosecutors about six years to bring an indictment against Milberg Weiss. One of their first major leads came in 2001 from Steven G. Cooperman, a Beverly Hills, Calif., eye surgeon.
Cooperman, a plaintiff in 60 Milberg cases, was convicted for faking the theft of a Monet and a Picasso from his home and then swindling his insurance companies out of $17.5 million.
He faced 10 years in federal prison but cut a deal with federal prosecutors. He told them what they wanted to know about the alleged plaintiff shopping and kickback schemes at Milberg Weiss. In exchange, he only had to serve 21 months.
Perhaps it requires a slimy witness to catch slimy lawyers who sue slimy corporate executives. Prosecutors have since found more credible witnesses to bolster their case, including Howard J. Vogel, a retired mortgage broker in New Jersey, who reached a plea agreement last month and admitted to accepting $2.5 million in secret payments from Milberg Weiss.
Vogel’s Denver attorney Gary Lozow – who is not a defendant in the Milberg Weiss case but reportedly funneled payments from the firm to Vogel – may also emerge as a witness in the case.
For now, Milberg Weiss continues to sue companies. On May 10, for instance, it took aim at Fort Lauderdale, Fla.-based GlobeTel Communications Corp. The complaint accuses GlobeTel of touting a “sham” Internet deal in Russia and “making false and misleading statements.”
Al Lewis’ column appears Sundays, Tuesdays and Fridays. Respond to Lewis at denverpostbloghouse.com/lewis, 303-820-1967 or alewis@denverpost.com.
