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Critics claim the Milberg Weiss case is evidence of widespread corruption and abuses of the liability lawsuit process that undermine the credibility of the nation’s courts, cause irreparable financial harm to thousands of honest companies, investors and employees, and, according to the Pacific Research Institute, cost consumers more than $865 billion annually.

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Filed under: WASHINGTON , Mark Tapscott , Lawyers Gone Wild-1

WASHINGTON (Map, News) - William Lerach was riding high more than a decade ago when Rep. Christopher Cox accused him of practicing “legalized piracy on the high seas of the new economy.”

It looked like the “pirate” had won when he persuaded President Clinton to veto a bill sponsored by the San Diego Republican aimed at reigning in crusading liability lawyers like Lerach.

Cox, who is now chairman of the U.S. Securities and Exchange Commission, got his bill passed over Clinton’s veto, yet Lerach went on during the following decade to make hundreds of millions of dollars suing and threatening to sue corporate giants like Enron, AOL/Time Warner and WorldCom, among others.

But Lerach will soon report to prison, a convicted felon for his admitted involvement in a tawdry kickback scheme that federal prosecutors say, beginning in 1979 resulted in more than $200 million in tainted legal fees from at least 150 cases being paid to Milberg Weiss, his former New York law firm. Lerach left the firm and started his own in San Diego in 2004.

The firm funneled the payments to a stable of individuals who often became lead plaintiffs, putting them in a position to recommend lawyers to be designated by the court as lead counsel, which typically received the largest share of fees and cost reimbursements.

Government investigators claim the kickback scheme’s fee structure was purposely designed as a percentage of whatever the firm ultimately received in a case, which effectively provided the cooperating plaintiffs with incentive to side with the firm on issues critical to the outcome.

Critics claim the case is evidence of widespread corruption and abuses of the liability lawsuit process that undermine the credibility of the nation’s courts, cause irreparable financial harm to thousands of honest companies, investors and employees, and, according to the Pacific Research Institute, cost consumers more than $865 billion annually.

Lerach will serve up to two years in prison, where he may perhaps recall saying of liabilities lawyers in a 2002 Nation magazine interview that “we may not be perfect, but we are not corruptible.”

Three other main players in the Milberg Weiss kickback scheme have also admitted guilt and entered into plea bargains with the government:

» David Bershad, the former managing partner who the government said kept bundles of cash in a safe in his office. Bershad was the first of the Milberg Weiss partners to cooperate with federal officials.

» Steven Schulman, who federal prosecutors said met one of the kickback recipients at a Howard Johnson’s restaurant and passed the cash to him under the table, literally.

» Steven Cooperman, a former Beverly Hills eye doctor, who prosecutors said received more than $6.4 million in kickbacks from Milberg Weiss in at least 70 cases that generated more than $133 million in fees for the firm.

Melvyn Weiss, one of the New York firm’s co-founders, has refused a plea bargain and faces prosecution on four criminal charges in connection with the kickback scheme that could result in his spending up to 40 years in prison.

Weiss insists that he is innocent and vows to summon to his defense “all of the energy and talent that has made him one of the most outstanding members of the bar for more than 40 years,” according to one of his lawyers.

The plea bargains and Weiss trial cap a seven-year government investigation that first gained momentum last year when another kickback recipient, New Jersey businessman Howard Vogel, became dissatisfied with the firm and began cooperating with prosecutors. Vogel pleaded guilty to lying to a court about payments he received from Milberg Weiss.

The investigation not only caught several Milberg Weiss major partners, it also resulted in the government for the first time ever applying federal anti-racketeering statutes against a law firm. Last May, the firm was named in a 20-count indictment that remains outstanding.

Milberg Weiss virtually invented the liability suit as a legal tool for challenging alleged wrongdoing at many of the nation’s most famous Fortune 500 corporations, including AT&T, Microsoft, Prudential Insurance, Sears & Roebuck and WorldCom. At times in recent years, more than half of all securities litigation was filed by the firm.

Theodore Frank, director of the Legal Center for the Public Interest at the American Enterprise Institute, points to the Milberg Weiss indictments and guilty pleas as persuasive evidence of widespread corruption in the liability lawsuit process.

“The kickback scheme confirms decades-old suspicions about class-action litigation practice,” Frank told The Washington Examiner. “There are certainly other cases out there where the lead ‘client’ signed off on settlements that benefited only the lawyers, and other law firms who have repeatedly used the same lead plaintiff.”

James Copland, who heads The Manhattan Institute’s Center for Legal Policy, says the corruption extends to expert witnesses and other witnesses. He points to the 249-page opinion of U.S. District Judge Janis Graham Jack in a 2005 case involving thousands of plaintiffs claiming lung damage as a result of exposure to purified silica — more commonly known as “sand” — that is used in fiberglass, ceramics and glass.

After reviewing thousands of diagnoses by doctors who admitted during trial either to never having interviewed claimants or spending only cursory time with them, Graham said “truth and justice had very little to do with these diagnoses, they were manufactured for money.”

Key players

William Lerach

Lerach admitted involvement in a kickback scheme that prosecutors say, beginning in 1979, resulted in more than $200 million in tainted legal fees from at least 150 cases being paid to Milberg Weiss, his former law firm.

Melvyn Weiss

Weiss, one of Milberg Weiss’ co-founders, has refused a plea bargain and faces prosecution on four criminal charges in connection with the kickback scheme that could result in his spending up to 40 years in prison.

Steven Schulman

Federal prosecutors say Schulman met one of the kickback recipients at a Howard Johnson’s restaurant and passed the cash to him under the table, literally.

Mark Tapscott is the editorial page editor of The Washington Examiner.

"Lawyers Gone Wild" is a series of special reports by The Examiner looking at the cost and consequences of class action lawsuit abuse in the United States. Read the latest articles in the series.