Melvyn Weiss, who built a reputation and fortune filing lawsuits that claimed companies had defrauded investors, agreed to plead guilty to participating in a criminal conspiracy that helped his firm to bring the lucrative cases.
Mr. Weiss, 72 years old, agreed to plead in a case alleging improper kickbacks to clients of Milberg LLP, which Thursday dropped Mr. Weiss's name from its letterhead. The plea agreement carries a sentence of 18 to 33 months in prison, and Mr. Weiss has agreed to pay $10 million in fines and penalties. The government says it expects to seek the maximum sentence.
"I deeply regret my conduct and apologize to all those who have been affected, including all of the wonderful and extremely talented lawyers and other employees of the firm, none of whom had any involvement in any wrongdoing," Mr. Weiss said in a statement Thursday.
Mr. Weiss, along with former partner William Lerach, helped build Milberg into a juggernaut that once dominated the market in securities class-action suits, in which investors who suffer losses typically claim that executives had misled them about a company's financial condition. Corporations came to loathe the suits, seeing them as nuisance cases without merit. Plaintiffs' lawyers maintain the suits helped keep corporations accountable.
The plea agreement with Mr. Weiss marks what may be one of the final chapters in a long probe of the firm. More than seven years ago, federal prosecutors in Los Angeles began an investigation into whether Milberg had paid millions of dollars in kickbacks to clients in exchange for their being at the ready to serve as name plaintiffs in shareholder class-action cases. Having as a client the name, or lead, plaintiff in a case enables a law firm to be lead counsel, giving it a bigger share of the fees.
In an unusual move, prosecutors in 2006 charged the law firm itself, as well as two senior partners at the firm who have since pleaded guilty. Mr. Weiss and Mr. Lerach weren't charged then, but last fall Mr. Lerach agreed to plead guilty to a conspiracy charge, and Mr. Weiss followed suit Thursday. Mr. Lerach was sentenced last month to two years in prison, the maximum allowed by his deal.
Prosecutors have said a fundamental wrong committed in the scheme was lying to judges. In the class-action cases it brought, the Milberg firm made representations to courts assuring that the plaintiffs in the class were treated equally. In fact, prosecutors said, certain plaintiffs were getting extra compensation from the lawyers for serving as the plaintiff named in the case.
"[L]ies were routinely made to judges overseeing significant cases," the government said.
With four of the firm's once-leading partners having pleaded or agreed to plea, the spotlight now turns to the Milberg law firm, which is in talks with the government to resolve the case against it. Two sticking points are what sort of admission of wrongdoing the firm would make and how much it would pay as a penalty, two people familiar with the talks said. In discussions last year, the government sought $50 million, according to these people.
In a statement Thursday, Milberg executive-committee member Sanford Dumain said: "Having previously believed former leaders' assurances of their innocence, the firm is now seeking to find a fair and appropriate resolution of remaining issues." He added: "We pledge faithful adherence to [legal and ethical] norms as we move forward and rebuild our practice."
Thanks to recent and expected settlements, Milberg has the capital to remain a participant in securities class actions, lawyers who have worked at the firm said. But it faces formidable obstacles, including the fact that it has filed relatively few cases in recent years and has few institutional clients because of the lingering cloud of the criminal investigation.
"We have a lot of connections in this business, but we don't have clients," a current Milberg attorney said. "We need to invest going forward [in client outreach] if we are going to make a real run in the securities area." A spokeswoman declined to comment beyond Mr. Dumain's statement.
Milberg has been paid more than $120 million as part of a significant settlement last year in a case alleging securities fraud at Tyco International Ltd., according to two lawyers in the case. The firm is also in line to earn millions in the Enron Corp. shareholder litigation, thanks to an arrangement it reached with the lead lawyers, now called Coughlin Stoia Geller Rudman & Robbins LLP, when that firm spun off from Milberg in 2004.
Milberg's fate will likely have little impact on the overall securities class-action industry, which has been more robust of late thanks to a surge in fraud filings related to the subprime-mortgage crisis.
The plea agreement marks a dramatic fall for Mr. Weiss, a New York native who co-founded his firm in 1965. The attorney pioneered the use of class actions as a means of redressing securities fraud, and he greatly expanded their impact by using forensic accountants, private investigators and paralegals along with huge teams of lawyers.