Enemies of Wall Street learned even before the recent Alberto Gonzales affair that indictments by U.S. Prosecutors can be in their future.
King of securities class action suits was the law firm of Milberg Weiss & Bershad LLP. Federal prosecutors indicted the firm last year on charges of paying kickbacks to clients to serve as lead plaintiffs in class-action lawsuits.
The government probe of the firm began just after the Bush Administration entered the White House promising to curtail law suits. After the firm pleaded not guilty, prosecutors went after the firm’s partners. With little headway seemingly made, prosecutors were criticized that the case must lack legs.
Yet, on Monday, David Bershad, a 67 year old a former senior Milberg partner with knowledge of the firm’s finances, pleaded guilty to a conspiracy count in federal court in Los Angeles. In court papers he said he and others agreed to conceal secret payment arrangements that the firm had with named plaintiffs in class actions.
Bershad will forfeit $7.75 million, pay a $250,000 fine and could face as much as five years in prison, depending on his cooperation. His attorney says “David Bershad is committed to making amends for what he has done.”
There is speculation that the prize targets in the case are partner Melvyn Weiss and former partner William Lerach. Neither Mr. Weiss nor Mr. Lerach has been charged, but the government reportedly offered both plea deals involving prison time, which they rejected. Lerach left Milberg in 2004 to form his own firm but has announced retirement at the end of the year.
After the deal struck with Mr. Bershad, attention also turns to the Milberg Weiss firm, which has reportedly held settlement talks with prosecutors. The terms mentioned include Milberg paying a fine and agreeing to increased oversight of its practices.
Some Wall Street observers compare the action against Milberg Weiss to that against Drexel Burnham Lambert in the late 1980’s. At the time, junk bonds dominated the capital landscape and Drexel’s Beverly Hills bond financing unit had gained a significant portion of the financial markets. Was New York’s Wall Street afraid of losing its control?
Suddenly, in stepped an unknown federal prosecutor from New York – one Rudolph Guiliani – who single-handedly closed Drexel and jailed the head of its bond unit, Michael Milken. As for Guiliani, the rest is history … perhaps.
Shepherd Smith and Edwards represents individuals and institutions with claims against investment firms. If you or your firm are the victim of misconduct by members of the securities industry, hiring an experienced law firm can increase your chances of recovery. Contact us to arrange a free consultation with one of our attorneys.