Network of political connections

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(AP)
Melvyn Weiss, right, of Milberg Weiss Bershad & Schulman, and the firm donated more than $100,000 to Alan Hevesi’s campaign for New York state comptroller.

WASHINGTON (Map, News) - Milberg Weiss is particularly active in New York. Melvyn Weiss was a guest at a glittering 2003 Manhattan fundraiser for then-New York State Attorney General Eliot Spitzer that raised more than $2 million for his gubernatorial bid. Following the Milberg Weiss indictment in May, Spitzer returned $124,000 in donations from the firm and related individuals.

The donations flap was barely noticed and did nothing to dent gubernatorial candidate Spitzer’s image of unsullied rectitude. A Spitzer Web site notes that he was named “Crusader of the Year” by Time magazine and the “Sheriff of Wall Street” by 60 Minutes. The site notes Spitzer’s investigations of “conflicts of interest by investment bankers, illegal trading practices by mutual funds and bid rigging in the insurance industry.”

As attorney general, Spitzer has been sharply criticized for a prosecutorial style that often rebounded to the benefit of the tort bar. Spitzer’s “aggressive prosecutorial strategy generates a lot of securities litigation,” explained James Copland, director of the Center for Legal Policy at the conservative Manhattan Institute. “He announces a probe; the stock immediately reacts downward; and this becomes a basis for litigation.” Enter Milberg Weiss and others.

In October 2004, for example, Spitzer announced legal action against insurance giant Marsh & McLennan and others for bid-rigging and related charges. Marsh’s stock dropped more than 20 percent on the announcement. Four days later, Milberg Weiss launched a securities class-action suit against the company, noting that Spitzer was moving against Marsh for “lucrative payoff agreements” and “soliciting rigged bids.”

Marsh quickly brought in a new CEO, respected former prosecutor Michael Cherkasky, and implementing reforms. The class-action suit is proceeding.

One of Spitzer’s longtime political allies, former New York state comptroller Alan Hevesi, has been a big recipient of Milberg Weiss donations. In recent months, Hevesi has been fighting efforts to remove him from office for defrauding the government by improper use of state workers. Last week, in a deal with prosecutors, Hevesi pleaded guilty and resigned.

The sole trustee of the $140 billion New York public employee Common Retirement Fund, Hevesi’s heavyweight status gave him a leading role in naming law firms to represent the fund in lucrative securities litigation.

A New York Times profile of Milberg’s Mel Weiss reported that Weiss regarded Hevesi as “one of the firm’s most important clients.” In 2002, Weiss and then-partner Bill Lerach donated $27,000 to Hevesi’s campaign for state comptroller. In the closing days of the race, in a development first reported by the New York Sun, Milberg Weiss donated another $100,000 to Hevesi — an enormous sum in a state contest.

In 2003, Hevesi hired Milberg Weiss as lead counsel in a class-action lawsuit against pharmaceutical giant Bayer AG. According to the suit, Bayer misled investors about severe problems with a cholesterol-lowering drug Baycol. Bayer stock tumbled; the state fund claims it lost more than $22 million.

Hevesi’s office denies any connection between the donations and the hiring of Milberg Weiss. In June, following the firm’s indictment, it removed Milberg Weiss from the Bayer lawsuit.

“It’s a perverse system,” said the Manhattan Institute’s Copland. “Who’s running these public pension funds? Union representatives and politicians. But politicians are often getting significant contributions from the very law firms seeking business from the pension funds.”

“Spitzer is not motivated by money,” says the Manhattan Institute’s Copland. “But there is a political motivation. Spitzer is a major driver of this sort of litigation because he likes power and wants to generate headlines.”

Trial Tactics

A high-profile trial of Milberg Weiss doubtless is not the sort of headline generator Spitzer, or any Democrat, has in mind. While none of the charges in the indictment touch directly on Spitzer or other political figures, the case has government and legal circles buzzing. If industry-leader Milberg Weiss indeed engaged in the widespread practices alleged in the indictment, what does that suggest about the rest of the class-action bar? Will other cases emerge?

For now, Democrats are framing the prosecution as a jihad by an overzealous Justice Department — a signal of likely trial strategy as well. Democrats cite the example of the Arthur Andersen accounting firm. Andersen collapsed in ruin when clients fled after it was indicted and convicted of obstruction of justice in the shredding of documents related to the Enron scandal. The conviction was later overturned by the Supreme Court, but too late for Arthur Anderson.

“A law firm being indicted, that’s wrong.” Rep. Rangel told The Examiner. “If individuals have broken the law, they should be punished. But not an entire firm. Look at Andersen. All those people lost their jobs because of the corrupt actions of a few.”

The argument has some traction among conservatives as well. An editorial in The Wall Street Journal noted, “we don’t often find ourselves on the same side of the political fence as House Democrat Charlie Rangel, so imagine our thrill to hear that the New Yorker and several of his liberal colleagues had recently discovered the perils of an overzealous Justice Department.” The Journal added that Democrats weren’t complaining when “Justice slapped Arthur Andersen with an indictment ... but better late than never.”

Yet the Andersen argument, while effective in the court of public opinion, might not survive in a court of law. The Milberg indictment suggests that the government will present considerable evidence of secret deals and payoffs at high levels of the law firm.

“Andersen is instructive because it shows the differences” from Milberg, said Professor John Coffee, director of Columbia University’s Center on Corporate Governance. “In Andersen, you had one low-ranking partner, in conduct over a few days, charged with destroying documents. In Milberg, you have an alleged conspiracy involving senior partners and stretching more than two decades. You’ve got the head and the heart of the organization under the federal microscope.”

SEE THE LATEST ON THIS STORY

EMAIL STORY

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409 days ago: Romance is the story of dance

437 days ago: Young Korean-Americans moving up and on

437 days ago: Korean community driven by success

472 days ago: Extreme Baltimore

487 days ago: Two women’s struggles

490 days ago: Failing the kids

494 days ago: The story behind the D.C. jailbreak

494 days ago: Year later, questions linger in daring jailbreak

507 days ago: Growth taxing local water supplies

514 days ago: Clem Florio: Still riding high after all these years