US: For Law Firm, Serial Plaintiff Had Golden Touch
When it came to investing, Howard J. Vogel seemed to possess a perverse kind of Midas touch.
In early October 1997, he bought 50 shares of Oxford Health Plans.
Three weeks later, the stock nose-dived, and Mr. Vogel lost about
$3,000 of his investment. Still, Mr. Vogel reaped $1.1 million.
How was that possible?
Mr. Vogel was a plaintiff in a shareholder lawsuit filed by the New
York securities litigation powerhouse Milberg Weiss Bershad Hynes &
Lerach against Oxford Health. In 2003, the company, along with other
parties that were sued, paid $300 million to settle.
Most of the investors received pennies on the dollar for their
losses. But Mr. Vogel, then a real estate mortgage broker in Englewood,
N.J., was not just a hapless investor who bought the wrong stock at the
Mr. Vogel now says, according to a plea agreement with federal
prosecutors, that he and members of his family were actually linchpins
in a long-running arrangement that helped Milberg Weiss snare the
lucrative lead counsel position in the Oxford Health and many other
securities lawsuits, reaping hundreds of millions of dollars in legal
Mr. Vogel, who has since moved to Florida, is a central figure in
the government's case against Milberg Weiss Bershad & Schulman, as
the law firm is now called. Last month, a federal grand jury in Los
Angeles indicted the firm and two of its name partners on several
criminal charges, including racketeering conspiracy and money
laundering. The firm is accused of making $11.3 million in illegal
secret payments to Mr. Vogel and two others who served as plaintiffs in
more than 150 lawsuits.
The firm contends it has done nothing improper and has vowed to
fight the charges against it. But Milberg Weiss is struggling to keep
its lawyers and clients from walking away. Several lawyers have left
the firm and a number of institutional investors, including the New
York state employee pension fund, have removed it as counsel in
The Oxford Health lawsuit was widely watched at the time, and it
takes on new significance in light of Mr. Vogel's admissions and
It provides a window into how, even after Congress passed
legislation in 1995 aimed at undermining Milberg Weiss's dominance, the
firm worked feverishly to find ways to maneuver around the new
Yesterday, William W. Taylor, a lawyer at Zuckerman Spaeder who
represents Milberg Weiss, said in response to questions: "On behalf of
the firm, the Oxford case was handled in the highest traditions of
Milberg's practice. The result obtained was exemplary and the firm is
proud of the result in that case as it is in all of its cases."
The 1995 law, the Private Securities Litigation Reform Act, or
P.S.L.R.A., was intended to make it harder for plaintiffs' lawyers to
file lawsuits after merely finding a single investor who held the stock
of the company to be sued. Under the law, courts were required to
select the investor with the largest loss as lead plaintiff, whose
lawyer then coordinated the lawsuit.
The law was meant to rein in lawyers who simply eyeballed companies
that were in trouble and ran to the courthouse with a plaintiff in tow
at the first hiccup in the share price.
In many ways, the law seems to have had the intended effect. Since
the legislation was enacted, institutional investors like big state
pension funds have led the charge in numerous shareholder lawsuits,
like those involving Enron and WorldCom.
Still, the majority of federal securities lawsuits settled last year
- 62 percent - had individuals as lead plaintiffs, according to NERA
Economic Consulting in White Plains.
Indeed, in the cases cited by federal prosecutors in the indictment
of Milberg Weiss, the law firm's frequent clients were individual
investors, including Mr. Vogel; his wife, Eugenia Gladstone Vogel; and
his stepson, Emile Gladstone. Mr. Vogel's lawyer would not comment for
Yet while Mr. Vogel and his family were frequently named as
plaintiffs, they were not always successful in winning lead-plaintiff
status. That would not mean that the case was a total loss for Milberg
Weiss, but its share of any settlement would almost certainly be
That is because the lead counsel in a lawsuit typically has
considerable influence over how the fees will be awarded to other law
firms after a settlement is reached, according to plaintiffs' lawyers.
"What typically happens in a securities litigation is you have one
case filed and then you have three or four copycat" complaints, said
John H. Henn, a defense lawyer at Foley Hoag in Boston. "Then they
agree among themselves about on who would make the best lead plaintiff."
Or they have knock-down-drag-out courtroom brawls.
The decision over lead plaintiff in the Oxford Health case dragged
on for nearly four years, took many bizarre twists along the way and
featured a revolving cast of plaintiffs.
In the fall of 1997, malfunctions in Oxford Health's computer system
led to unexpected losses and a steep drop in its stock price, which
wiped out nearly $3 billion of the company's market value. In the days
after the announcement, more than 50 class-action lawsuits were filed
against the company, claiming that Oxford officials had known of the
computer problems and their effects, but had misled investors by
failing to disclose what they knew.
"The advantage to having a client and being on file with a class
action is that you could then send out mailings or press releases,
trying to find other plaintiffs who had bigger losses," said a
plaintiffs' lawyer who did not want to be identified because he works
in the field. "Even if you had a small client, it was at least a foot
in the door that allowed you to get the process rolling."
Oxford Health was a big, juicy target for plaintiffs' lawyers.
A lawyer who tried to get his clients named lead plaintiffs in the
Oxford case, Lee Squitieri, said: "It looked like a good case right out
of the box. This was not what we called a 'prediction case' where the
wrongdoing consisted of a prediction that turned out to be untrue. This
was a better case. It involved concealing material information. That's
a good case."
Milberg Weiss's biggest rival for lead plaintiff was the Colorado
Public Employees' Retirement Association, which claimed it had lost
more than $20 million when Oxford Health's stock fell. The mutual fund
company PBHG, managed by Pilgrim Baxter & Associates, also wanted
to be the lead plaintiff, contending that six of its funds had lost
$4.3 million. It later dropped all but one of the funds from its claim,
saying that the remaining one lost $65,000.
Undaunted by groups that, arguably, better met the requirements
under the new law, Milberg Weiss aggregated a group of 35 individuals
who it said had lost a total of $10 million.
Milberg Weiss's initial plaintiff in the case was Mr. Vogel. What
was unknown at the time was that Mr. Vogel had acquired shares of the
stock on the belief that it was on the verge of a collapse.
In late April, Mr. Vogel pleaded guilty to a single count of perjury
- falsely stating in a court filing that he had not received payment
other than his share of the settlement proceeds. In exchange for his
cooperation, Mr. Vogel was not charged with being part of the
conspiracy that Milberg Weiss is accused of. In addition, prosecutors
agreed to recommend leniency in sentencing.
According to Mr. Vogel's plea agreement, he contacted "Partner E" -
identified by lawyers involved in the case as Robert Sugarman, a former
Milberg Weiss lawyer - and "discussed a potential securities fraud
class-action lawsuit" against Oxford Health. Mr. Sugarman is said to be
cooperating with federal prosecutors. Mr. Sugarman's lawyer declined to
Dating back to 1991, Mr. Vogel had been a lead plaintiff in numerous
lawsuits filed by Milberg Weiss for which he illegally received a cut
of the law firm's fees - as much as 14 percent, according to court
But in the case of Oxford, Mr. Vogel was told by Mr. Sugarman that
his payment would be less than his usual percentage because the lawsuit
was so large and "Milberg Weiss would have other payment obligations in
the case," the indictment said.
In 1998, the lawyer representing the Colorado pension fund, Jay W.
Eisenhofer, challenged whether Mr. Vogel's losses were substantial
enough to meet the law's new requirements.
Patricia M. Hynes, a Milberg Weiss lawyer who was not named in the
indictment and has not been accused of any wrongdoing, responded in a
June 1998 hearing that among the 35 plaintiffs representing the "Vogel
group" were three individuals who had lost $2 million to $3.4 million
Swayed by Ms. Hynes's argument, the judge overseeing the case,
Charles L. Brieant of the Federal District Court in Manhattan, decided
to proceed with three co-lead plaintiffs - the Colorado retirement
fund, the PBHG mutual funds and the "Vogel Plaintiff Group," which now
did not include Mr. Vogel because his losses were too small. Instead,
it consisted of Gary Weber, Daniel Hurley and Michael Sabbia. Milberg
Weiss was named co-lead counsel, along with Grant & Eisenhofer,
which represented the Colorado fund, and Chitwood & Harley, which
The size of the losses by the individual investors became a focal
point after lawyers with Sullivan & Cromwell, which represented
Oxford Health, began to dig into the trading records of the Milberg
Milberg Weiss had already revised Mr. Hurley's losses, dropping them
from $3.4 million to less than $1 million after realizing an error had
been made in going through his trading records.
But the lawyers for Oxford argued that more than 4,000 transactions
in Oxford options that they had each engaged in during the 13 months of
the time period of the lawsuit had been omitted.
By their accounting, Mr. Hurley had actually made $700,747 in
profits from his combined trading in stock and options, while Mr.
Sabbia's loss totaled $315,000. That was a far cry from the $2 million
loss that Ms. Hynes told the court in 1998 Mr. Sabbia had suffered.
Ms. Hynes claimed the Sullivan & Cromwell lawyers had used
"discredited experts, flawed methodologies and erroneous 'alternative'
calculations of plaintiffs' losses." By her firm's calculations, even
taking the options trading activity into account, Mr. Sabbia still lost
more than $1 million and Mr. Hurley more than $500,000. Those were
"substantial losses by any measure," she stated in a 2000 memo to the
When contacted, Mr. Sabbia and Mr. Hurley said this was the first
time they had been plaintiffs in lawsuits and both men said they did
not receive any money from Milberg Weiss for their roles in the
lawsuit. Mr. Sabbia added that he had no idea there was even any
dispute surrounding the size of his loss in Oxford Health. "I lost
tons," he said.
Judge Brieant rejected the defense lawyers' objections, ruling that
the two Milberg Weiss clients had indeed suffered losses and could
continue as lead plaintiffs.
There were problems with another Milberg Weiss plaintiff, Mr. Weber,
who withdrew from the case in late 1999, weeks after he was deposed by
lawyers for Oxford. A court document in the case that was recently
unsealed is a letter to the judge from a Sullivan & Cromwell lawyer
who said Mr. Weber "chose to lie" about his education, criminal record,
history as a defendant in a civil case and his trading in Oxford
securities. The National Law Journal reported on the letter in early
2000. A call to Mr. Weber's office was not returned.
Despite these setbacks, Milberg Weiss and the other lead plaintiffs'
law firms reached the $300 million settlement in June 2003. Milberg
Weiss's share of the legal fees totaled about $40 million, according to
the Justice Department's indictment.
A few months later, Mr. Vogel contacted another Milberg Weiss
lawyer, Steven G. Schulman, about his payments for Oxford and other
cases, the indictment said. Mr. Schulman and another Milberg Weiss
partner, David J. Bershad, were also indicted by the federal grand jury
in Los Angeles last month and have taken leaves of absences from the
firm. Mr. Bershad's lawyer said his client "vigorously" denied the
charges. A call to Mr. Schulman's lawyer was not returned.
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