Lawyer cuts plea deal in kickback case
One of the biggest corruption cases to hit the American legal profession moved a step closer to its finale Thursday as lawyer Melvyn Weiss agreed to plead guilty to participating in a kickback scheme that generated millions of dollars in fees from class-action lawsuits against high-profile companies.
The U.S. attorney’s office in Los Angeles, which is handling the case, said Weiss agreed to plead guilty to a single racketeering conspiracy charge.
Under the agreement, Weiss, 72, could be sentenced to 18 to 33 months in prison, with the possibility of half of the time as home confinement or community service. Weiss also agreed to forfeit $9.75 million in ill-gotten gains, pay a $250,000 fine and serve three years’ probation.
The government said it expected to recommend that U.S. District Judge John F. Walter set the sentence at 33 months when Weiss formally enters his guilty plea in the next few weeks. He will be sentenced at a separate hearing this year.
Judges, however, are not bound by the terms of plea agreements.
Charged with conspiracy, racketeering, obstruction of justice and making false statements, Weiss faced as many as 40 years in prison had he been convicted on all counts in a trial that was to begin in August.
His decision to plead guilty came after his former law partner William S. Lerach of San Diego pleaded guilty to a charge related to the same kickback scheme. Lerach was sentenced last month to two years in prison and two years’ probation, fined $250,000 and ordered to complete 1,000 hours of community service.
According to an indictment handed down in 2006, the New York law firm then known as Milberg Weiss made an estimated $250 million in fees over two decades by filing class-action lawsuits on behalf of ready-made plaintiffs who received kickbacks in return for participating in the suits.
The indictment claims the firm paid $11.3 million to plaintiffs in suits against Xerox Corp., United Airlines and dozens of other companies.
“This kickback scheme lasted more than 25 years and had a severely detrimental effect on the administration of justice across the nation as lies were routinely made to judges overseeing significant cases,” U.S. Atty. Thomas P. O’Brien said.
In a statement, Weiss expressed remorse. “I deeply regret my conduct and apologize to all those who have been affected,” he said. “I believe that it is very important to preserve [class action suits] for the benefit of victims of wrongdoing affecting the masses.”
Weiss had little choice but to plead guilty because the government was sure to call on defendants who had already reached agreements with prosecutors to testify at his trial, said John Coffee, a Columbia Law School professor. Besides Lerach, former partners David Bershad and Steven Schulman have entered guilty pleas and await sentencing.
Nonetheless, Coffee described Weiss’ agreement as a “uniquely good deal” considering that as one of the last defendants in the case, he had “much weaker leverage” than the others.
“Perhaps the government was embarrassed by giving a 10- to 20-year sentence to a 72-year old man,” he said.
Weiss’ old firm, now known simply as Milberg, remains a defendant in the case. It said in a statement that it was “now seeking to find a fair and appropriate resolution” to the case.
The other remaining defendant is Palm Springs real estate attorney Paul Selzer, who is accused of laundering the firm’s kickbacks to one of its handpicked plaintiffs.
His attorney, David Weichert, said Thursday that his client maintained his innocence.
The prosecution has altered the landscape of class-action litigation, experts say.
The guilty pleas that damaged the reputations of both Milberg Weiss and Lerach’s former firm have allowed other class-action practitioners to move to the fore of the field, Coffee said.
Those practitioners have distanced themselves from the elbows-out tactics that made Milberg Weiss so successful. Federal rules adopted in 1995 accelerated that change by slowing the race to the courthouse that encouraged Milberg Weiss to groom a stable of ready-made plaintiffs. Before then, the first law firm to file suit could win the lion’s share of legal fees. That prize now generally goes to the firm that represents plaintiffs with the largest stake in the litigation.
At the same time, the sub-prime mortgage meltdown is giving rise to a “record year” for securities class actions, Coffee said. Over the last six months, the number of securities class-action filings approached the pace hit during the peak years of 2000 to 2002 after the Enron scandal, he said.
“There are a lot of vulnerable underwriters out there,” Coffee said, noting that class actions have already been filed in the wake of probes by New York Atty. Gen. Andrew Cuomo and other public officials of the lending practices of several mortgage companies and banks.
Securities class actions will continue because they are both legal and lucrative, said David A. Katz, a former assistant U.S. attorney now in private practice in Los Angeles.
“This case cleanses the industry but it doesn’t cleanse the profits,” he said. “There will always be top lawyers bringing cases.”
--
martin.zimmerman@latimes.com
