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Class Action Law Firm Admits Four-Decade Kickbacks

Class Action Law Firm Admits Four-Decade-Long Kickback Scheme And To Pay $75 Million Settlement

As part of an agreement with federal prosecutors, the New York-based law firm now known as Milberg LLP has admitted that senior members of the firm paid secret kickbacks to plaintiffs in more than 165 lawsuits filed from the 1970s through 2005 – lawsuits that brought the firm approximately $239 million in legal fees. The firm has agreed to pay $75 million as part of the settlement.

The Justice Department has agreed not to pursue criminal charges against the law firm, which has agreed to employ a compliance monitor and enact “Best Practices Program” for two years.

“The settlement with Milberg reflects the seriousness of what was probably the longest-running scheme ever conducted by a law firm,” said United States Attorney Thomas P. O’Brien. “The monetary payment will punish the firm for allowing this conduct to occur, and the compliance monitor should ensure that Milberg will not again lie to judges presiding over cases it is litigating.”

The agreement with Milberg follows guilty pleas by four former senior partners at the firm, one of whom is currently serving a federal prison sentence and one of whom is scheduled to soon begin a 30-month sentence.

Milberg was named just over two years ago in a federal racketeering indictment that alleged that several of the firm’s senior attorneys paid millions of dollars in secret kickbacks to individuals in exchange for them serving as named plaintiffs in class-action and shareholder derivative-action lawsuits. The indictment alleged a conspiracy with several objects, including obstructing justice, perjury, bribery and fraud. To conceal the illegal kickback scheme from judges presiding over the lawsuits and other parties involved in the litigations, Milberg and its senior partners made, and caused the paid plaintiffs to make, false and misleading statements in documents and in under-oath depositions. In the settlement filed today, Milberg acknowledged that its former partners engaged in this conduct.

Milberg also admitted that members of the firm paid kickbacks to several stockbrokers in exchange for referring clients who would serve as plaintiffs in Milberg lawsuits. Additionally, in the statement of facts, Milberg acknowledges that once it learned about the investigation into the kickback scheme it failed to conduct an independent internal investigation and delayed taking steps to ensure that the illegal conduct would stop.

“Today’s agreement scores a victory for American consumers,”said B. Bernard Ferguson, Inspector in Charge, Los Angeles Division of the U.S. Postal Inspection Service. “Milberg’s cash payments to stockbrokers, its circuitously routed kickbacks, and its millions of dollars in fraudulently inflated expense reimbursement applications caused immeasurable harm to consumers. The firm will pay $15 million to our Consumer Fraud Fund to be used for the investigation and prevention of mail fraud.”

Debra D. King, Special Agent in Charge of IRS- Criminal Investigation in Los Angeles, stated: "Milberg exploited our legal system, exhibiting greed on an unprecedented scale in its class-action lawsuits. The Global Non-Prosecution Agreement entered into today by the firm and the government effectively settles the pending criminal case against Milberg and is the result of the cooperative investigative and prosecutorial effort put forth by the United States Postal Inspection Service and United States Attorney's Office in conjunction with IRS - Criminal Investigation."

The resolution of the case against Milberg leaves only one defendant in the case. Attorney Paul T. Selzer, of Palm Springs, who allegedly served as an intermediary lawyer who laundered illegal kickback payments for the benefit of a paid plaintiff, is scheduled to go on trial in August.

Previously in this case, Milberg founding partner Melvyn I. Weiss, former name partner William S. Lerach, former name partner Steven G. Schulman and former name partner David J. Bershad have pleaded guilty to federal charges.


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