Friend of the U.S. Chamber of Commerce

Mel Weiss, co-founder of the securities law firm Milberg LLP, was sentenced to 2 1/2 years in prison for illegally paying clients to file shareholder suits that prosecutors said earned $251 million in lawyer fees.

Weiss, 72, must also forfeit $9.75 million and pay a fine of $250,000. He pleaded guilty April 2 to racketeering conspiracy, admitting he helped secretly pay a stable of plaintiffs to file suits from 1979 through 2005. By using them to sue first, the firm was more likely to lead cases and reap larger fees.

``Weiss was widely recognized as the king of the plaintiffs' securities bar,' said Jacob Frenkel, a former federal prosecutor now in private practice in Rockville, Maryland. ``He has taken the same fall as the corporate executives who put greed before their shareholders.'

Today's sentence in Los Angeles federal court, along with a similar prison term for Weiss's ex-partner, Bill Lerach, caps a victory for the Justice Department in its effort to combat shareholder litigation and the two men who pioneered the modern securities fraud class action. Weiss, Lerach and their counterparts engineered cases that forced companies to pay $45 billion. Milberg became so feared by corporations that Congress passed a law making it harder to file such group suits.

Lerach is serving a two-year prison term after pleading guilty to conspiracy last year. Weiss faced as much as 40 years in prison if convicted at trial.

Prosecutors had asked U.S. District Judge John Walter to impose a sentence of 33 months, the maximum under his plea deal.

Court Filing

Benjamin Brafman, Weiss's lawyer, asked in a court filing for a sentence of no more than 18 months, with at least half of it to be served in home confinement or community service. Weiss must report to prison by Aug. 28. Brafman requested a minimum security facility in Morgantown, West Virginia.

``My punishment has already been great,' Weiss told the judge during the hearing.

Assistant U.S. Attorney Doug Axel asked for a longer sentence against Weiss because he continued to make illegal payments to plaintiffs after he had become aware of the criminal investigation and because he tried to conceal subpoenaed evidence about secret payments he had made.

The kickback scheme enabled Milberg to become an extremely successful and profitable securities law firm, Walter said before sentencing Weiss. The lawyer's continued participation in the scheme, after he knew the government was investigating, made it difficult to show leniency in spite of the many letters of support written on his behalf, Walter said.

``We are pleased that the court recognized the extraordinary life of Mr. Weiss and counted it in its sentencing analysis,' Brafman said.

Dropped Him

Weiss's former law firm dropped him from its name when he pleaded guilty and is negotiating its own settlement with federal prosecutors, according to a report today in the Wall Street Journal. The New York-based firm may pay as much as $75 million, the newspaper said, citing unidentified sources. Milberg spokeswoman Marina Ein declined to comment.

Weiss was born in 1935 in the Bronx in New York City, and graduated from Baruch College and New York University School of Law. Along with Lerach, 62, he helped create the tactic for being the first to file securities class action suits when a company's stock price fell, known as the ``race to the courthouse door.'

Before the Private Securities Litigation Reform Act of 1995, shareholder lawyers seeking to lead class action lawsuits against companies whose stock dropped needed simply to be the first to file. Law firms had lists of clients who owned shares in huge companies that were considered susceptible to such litigation.

Direct Course

The lead plaintiff's lawyers direct the course of such litigation on behalf of their clients and reap the largest share of fees from a verdict or settlement.

The reform act, aimed at firms like Milberg, required plaintiffs with the biggest losses, usually institutional investors, to assume the lead plaintiff role. The statute also required a higher level of proof before allowing plaintiffs' lawyers to seek evidence from companies.

Even with the restrictions, Weiss's firm collected $1.7 billion in legal fees and expenses between 1995 and 2005, according to a study commissioned by the U.S. Chamber Institute for Legal Reform. The firm also handled 43 percent of the 755 shareholder class actions that settled.

Milberg was the leading law firm based on the amount of money it recovered for clients in securities fraud cases last year. The firm was lead counsel in 17 suits that settled for a total of $3.8 billion, according to a study by RiskMetrics Group's Institutional Shareholder Services unit.

Secretly Paid

In his plea agreement, Weiss admitted the firm secretly paid plaintiffs Howard Vogel, Seymour Lazar, Steven Cooperman, and three residents of Florida. They were paid through intermediaries and generally collected 10 percent of whatever legal fees the firm got, according to court papers. Lazar, Vogel, and Cooperman have all entered guilty pleas.

Weiss knew that discovery of the kickbacks would have disqualified the named plaintiffs from representing the class and knocked his firm off of cases, according to the plea deal.

Milberg, indicted in 2006, and attorney Paul Selzer are the only remaining defendants and face an August trial before Walter. The law firm has previously rejected the indictment as flawed and twice sought unsuccessfully to have the charges thrown out.

Federal prosecutors have been investigating the firm since Cooperman, a Beverly Hills eye surgeon, first told them eight years ago about secret payments he received in 1989.

Lerach, who pleaded guilty in 2007, left Milberg in 2004 to start a San Diego-based firm, Lerach Coughlin Stoia Geller Rudman & Robbins, now known as Coughlin Stoia Geller Rudman & Robbins.
The case is U.S. v. Milberg Weiss, 05-00587, U.S. District Court, Central District of California (Los Angeles).