One of the nation’s highest profile class-action law firms was charged Thursday with a scheme that paid more than $11 million in kickbacks to get people to take part in shareholder lawsuits.
The charges follow years of investigation into the way New York-based Milberg Weiss, Bershad & Schulman conducts shareholder lawsuits against major corporations. The lawsuits generated hundreds of millions of dollars in attorneys’ fees, the indictment said.
The firm was a lead plaintiff in more than half the federal shareholder suits settled from 1997 to 2004.
The law firm and attorneys David J. Bershad and Steven G. Schulman were charged with secretly paying about $2.4 million to Seymour M. Lazar, a Palm Springs lawyer involved in real estate, and others to act as class-action plaintiffs since 1981 and concealing the payments.
Lazar was also named in the indictment along with Paul L. Selzer, another lawyer from Palm Springs.
The indictment’s 20 counts included conspiracy, racketeering conspiracy, money laundering, mail fraud, filing false tax returns, obstruction of justice and criminal forfeiture.
“Because of the secret kickback arrangements, Milberg Weiss had a stable of individuals ready and willing to serve as plaintiffs,” U.S. Attorney Debra Wong Yang said. “This benefited Milberg Weiss by in many cases allowing the firm to be among the first to file a lawsuit on behalf of shareholders.”
The law firm defended itself in a statement on its Web site.
“The government’s allegations of wrongdoing have been categorically denied by the indicted partners, and the firm intends to join with them in vigorously defending against the charges,” it said.
“The firm is particularly incensed that the prosecutors decided to indict the firm itself,” the statement added, asserting that its hundreds of employees will suffer personal and professional harm.
The government seeks to recover at least $216 million in “tainted attorneys’ fees.”
Bershad’s attorney, Andrew Lawler, said his client “categorically denies the allegations of the indictment.” Lawler also asserted that the use of the racketeering law was unjustified.
Selzer did not immediately return a call seeking comment.
There was no answer at a telephone listing for Lazar.
The indictment alleges that “paid plaintiffs” bought shares in companies expecting the stock price to fall, positioning themselves to be named plaintiffs in securities fraud class actions and to obtain kickbacks from the firm and others.
On Tuesday, the firm said that Bershad and Schulman were taking leaves of absence
Selzer was charged with acting as an intermediary in the payment of the kickbacks to Lazar and others.
The indictment charged the firm, Bershad and Schulman with conspiring to obstruct justice and making false statements under oath in court. They also are accused of mail and wire fraud, and making illegal payments to a witness.
Those three defendants were also charged with mail fraud counts, conspiring to commit money laundering, and criminal forfeiture. Bershad and Schulman were charged with racketeering conspiracy.
Lazar was charged with conspiracy, racketeering conspiracy, mail fraud, money laundering, false tax returns and obstruction of justice. Selzer was charged with money laundering, conspiracy and criminal forfeiture.