Document Type
Report
Publication Title
Briefly...Perspectives on legislation, regulation and litigation
Publication Date
2008
Volume
Vol. 11, No. 9
Abstract
(Excerpt)
In the late 1990s, the lawyers at Milberg Weiss Bershad Hynes & Lerach were the undisputed kings of securities fraud class actions. Melvyn Weiss, the dean of the securities class action bar and a co-founder of the firm, ran its New York office. Bill Lerach, frequently described as the most hated man in Silicon Valley because of his penchant for suing high technology issuers, ruled its west coast operations. To say that the validity of the firm’s business was a matter of some contention, vastly understates matters. Although some view securities class actions as a necessary supplement to under-resourced government enforcement authorities, others see them as little more than legalized extortion aimed at wringing settlements out of innocent companies suffering temporary market setbacks.
Whatever one’s view of the utility of securities class actions, Milberg Weiss is clearly good at what it does. The firm boasts that it has recovered “over $45 billion on behalf of consumers and investors.” Because it handles cases on a contingency basis, the firm took a hefty chunk of those recoveries for itself. In the period 1988-1998, its profits were $670 million. From 1983 through 2005, Weiss’ share of the firm’s profits was nearly $210 million.
Even significant changes in the laws governing class actions apparently could not slow the firm down. When Congress passed the Private Securities Litigation Reform Act in 1995 (PSLRA) to curb perceived class action abuses, many saw it as a thinly disguised “anti-Milberg Weiss” law. If it was, it appeared, at least at first, to be a wildly unsuccessful one because Milberg Weiss’ market share actually increased after passage of the PSLRA. In 2004, Cornerstone Research, an economics consulting firm, found that Milberg Weiss was lead or co-lead counsel in over 50% of the post-PSLRA cases settled through the end of 2003. The next leading firm had less than a 10% market share. The pugnacious Lerach’s response was true to form; “Hell, maybe I should thank them—we are making more money than ever.”
Despite the bravado, all was not well at the firm. In 1999, a jury found it liable for malicious prosecution after it attempted to discredit a defense oriented economics consulting firm by naming it as a defendant in the high profile case against Charles Keating and Lincoln Savings and Loan. Milberg Weiss settled the case for $50 million before the jury could decide on punitive damages. Then in 2004, after years of increasing acrimony between Weiss and Lerach, the firm’s east and west coast operations split. Lerach took the San Diego office and renamed it Lerach Coughlin Stoia & Robbins. Weiss took everything else and it became Milberg Weiss Bershad & Schulman.
The biggest blow to the firm came in 2006 when the new Milberg Weiss firm and two of its partners, David Bershad and Steven Schulman, were indicted by a federal grand jury in California for allegedly paying three plaintiffs more than $11 million in illegal kickbacks in cases spanning a 25-year period. In a superseding indictment, the government also brought charges against both Weiss and Lerach. The indictments seemingly confirmed rumors and allegations that had existed for years—that plaintiffs’ lawyers employed teams of “professional plaintiffs” who owned small stakes in likely litigation targets and who were standing ready, willing, and able to serve as the necessary aggrieved investor in exchange for a piece of the action.
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