Law Firm Allegedly Paid Kickbacks to Plaintiffs

A federal grand jury has indicted a top class-action law firm for allegedly participating in a scheme that paid out more than $11 million in illegal kickbacks. The firm, Milberg Weiss Bershad & Shulman, is accused of paying kickbacks to plaintiffs in class-action cases.

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A giant law firm that represented plaintiffs is suddenly a defendant. The firm was indicted yesterday on charges of participating in a kickback scheme, as NPR's Ari Shapiro reports.

ARI SHAPIRO reporting:

Milberg Weiss Bershad and Schulman is the King Kong of law firms, specializing in class action suits. The firm has made billions of dollars by filing shareholder lawsuits against major corporations. U.S. Attorney Debra Wong Yang, says some of that profit came through fraud and bribes.

Attorney DEBRA WONG YANG (U.S. Attorney): The indictment charges at Milberg Weiss and two of its partners participated in a conspiracy in which they agreed to pay kickbacks to named plaintiffs in class action cases.

SHAPIRO: The firm allegedly paid plaintiffs more than $11 million to be part of class action suits, and it took great pains to hide the payoffs. According to the indictment, top partners obtained the cash in ways that were hard to trace, involving casinos and a secret safe. The law firm's books never showed it. U.S. Attorney Yang says the fraud was pervasive, spanning two and a half decades.

Attorney YANG: Moreover, the indictment alleges that the kickback scheme continued until last year, long after the media had reported that federal authorities were investigating the practices of Milberg Weiss.

SHAPIRO: The 20-count indictment accuses the firm and its top lawyers of conspiracy, money laundering, obstruction of justice, and more. It's not all that unusual for individual lawyers to be indicted. But what shocks NYU legal ethics professor Stephen Gillers is that in this case an entire law firm was indicted as well.

Professor STEPHEN GILLERS (New York University): It is what I would call bad judgment to visit on the law firm, the institution itself, the crimes alleged against two lawyers at the firm.

SHAPIRO: He points to the hundreds of employees, lawyers and non-lawyers, whose livelihoods depend on the company's fate. U.S. Attorney Yang says she takes that consideration seriously.

Attorney YANG: We're lawyers. And we know lawyers in that law firm. So it's not something where it's just a blind entity, but something that we do weigh very carefully.

SHAPIRO: In the last few days, Milberg Weiss reportedly argued with prosecutors over the breadth of the indictment. The stakes are high, because even though an indictment is only an allegation, it can be as fatal to a company as a court conviction. Peter Henning is a Wayne State Law School professor who studies white collar crime.

Professor PETER HENNING (Wayne State Law School): The criminal indictment itself can certainly sound the death knell for the business. Customers won't come, clients won't come. You may not be able to secure future business for your operation. And so the real effect in the white collar crime area is the indictment and not just the conviction.

SHAPIRO: The prime example in recent times is the accounting firm of Arthur Anderson, which collapsed after being indicted in 2002 for its role in the Enron case. By the time the Supreme Court ruled in Anderson's favor three years later, there was no company left to save. University of Texas law professor Sam Buell was part of the Anderson prosecution team. He says law firms are supposed to make sure their people don't go around committing crimes.

Mr. SAM BUELL (Law Professor, University of Texas): Well, the flip side of that idea is that if the firm itself is actually not only failing to exercise that control, but in some way promoting criminal activity by individuals who work there, then liability should be ascribed at the level of the firm.

SHAPIRO: And that's what happened in yesterday's indictment.

Ari Shapiro, NPR News.

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