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Class action giant Melvyn Weiss to serve 30 months

Times Online
June 3, 2008

Class action giant Melvyn Weiss to serve 30 months

Melvyn Weiss, one of America’s most feared class-action lawyers, has been sentenced to 30 months in prison and hit with $10 million (£5.1 million) of penalties over an illegal kickbacks scam with plaintiffs involved in securities lawsuits.

Mr Weiss, 72, was ordered to forfeit $9.75 million of what a US judge called “ill-gotten gains derived from the criminal enterprise” and told to pay a fine of $250,000. The sentencing is the most severe yet handed out to the four partners who once worked alongside each other at Milberg Weiss Bershad Hynes & Lerach (Milberg Weiss).

Mr Weiss pleaded guilty in April to a federal racketeering conspiracy charge. In a plea-bargain he admitted that he was what the US court described as being “part of a criminal enterprise involving senior members of the law firm and a stable of people who served, or caused friends and relatives to serve, as named plaintiffs in lawsuits served by Milberg Weiss”.

This “illegal kickback scheme”, the court summarised, was then concealed from judges presiding over the cases and illegal “kickbacks were secretly paid by Milberg Weiss to the named plaintiffs in cash or through various intermediary law firms and lawyers selected by the paintiffs”.

Before its split into separate East Coast and West Coast operations in 2004, Milberg Weiss paid out $30 billion in settlements to investors in class actions, including $24.5 million from Vodafone.

William Lerach, dubbed “the king of pain”, Steven Schulman and David Bershad, the other senior partners in the old Milberg Weiss involved in the scam have also pleaded guilty to the federal racketeering conspiracy charges.

In August 2005 Schulman, Bershad and his partners on the East Coast firm now known as Milberg secured a $90 million settlement for investors in Shell. They had sued the company and its directors, including former chairman Sir Philip Watts, over the oil reserves scandal. In October 2005 the firm won a $225 million settlement for wealthy individuals who sued KPMG and a US law firm over tax schemes.

Mr Lerach recently began his own two-year prison sentence. Mr Schulman and Mr Bershad await sentencing.

Thomas P. O’Brien, the United States Attorney of the central district of California, said: “Melvyn Weiss and his co-conspirators compromised the justice system as they caused their associates to lie to judges across the nation. His prison sentence is warranted by the impact he and others had on the integrity of the courts and the interests of class members supposedly being represented by the law firm.”

Federal investigators in California began investigating Milberg Weiss five years ago.

They stepped up their inquiries just as the firm took on multibillion-dollar lawsuits over the collapse of Enron, the collapsed energy trader based in Texas, and fraud-ridden telecoms giant WorldCom, which emerged from bankruptcy as MCI.

Mr Lerach has won more than $7 billion for Enron shareholders in settlements with banks including JPMorgan Chase, Citigroup and Lehman Brothers.

He also acted for private investors who were part of a $6.1 billion payout in a securities settlement related to WorldCom.

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