Milberg, Weiss and two name partners are accused of paying kickbacks to plaintiffs in as many as 150 lawsuits. And since its May 18 indictment, Milberg has been losing both partners and clients. Among the defections: institutional clients like the Ohio Tuition Trust Authority and the New York State Common Retirement Fund. Adding to Milberg’s worries is the announcement on June 6 that Delaware’s Office of Disciplinary Counsel is investigating the firm’s work in the state.
So which firms are likely to benefit from Milberg’s misfortune? Three years ago, Milberg Weiss was the leader in investor lawsuits, according to Institutional Shareholders Services, a Maryland-based company that tracks all securities class-action litigation for shareholders. Their most recent survey put Milberg Weiss in fourth place behind Bernstein, Litowitz, Berger & Grossman; Barrack, Rodos & Bacine; and Lerach, Coughlin, Stoia, Geller, Rudman & Robbins. Forbes.com called each of Milberg’s top four competitors, but they refused to comment on how they might be wooing Milberg’s former clients.
Each firm stands to gain. But of the three, it’s a toss-up between the industry’s two largest players. Bernstein, Litowitz, Berger & Grossman settled nine cases totaling $3.7 billion. Close. Barack, Rodos & Bacine also had settlements totaling $3.7 billion in five cases. While third-place Lerach, Coughlin, Stoia, Geller, Rudman & Robbins settled 47 cases, it totaled just $1.8 billion. By comparison, Milberg settled 34 cases totaling $600 million.
The indictment may have brought Milberg to its knees, but the company says it’s not yet crippled. “We will vigorously defend ourselves and our partners against these charges, and we will be vindicated,” Melvyn Weiss, one of the firm’s co-founders, said in a statement on the company’s Web site.
Despite how overly optimistic that may sound, even the firm’s competitors aren’t counting Milberg out. “They’re like cockroaches; they’re highly adaptable,” says John D. Lovi, a securities defense attorney and managing partner at Steptoe and Johnson’s New York office, who frequently sparred with Milberg Weiss’ attorneys. “Unless this firm is destroyed by this investigation and this case, I think they will continue to be a dominant player in the field.”
It’s a field that’s notoriously cutthroat, despite attempts to temper the competition. The most recent effort was 1995’s Private Securities Litigation Reform Act. Prior to its passage, plaintiffs raced to the courthouse to be the first to file a lawsuit against a company if its stock dropped. Backroom jockeying determined who the lead plaintiff would be, a significant role since that attorney divvied up the winnings.
The Reform Act changed that. Now, the plaintiff who owns the most stock takes the lead role. But firms such as Milberg have allegedly found a way around that. State controllers decide where institutional investors put their money and which law firms represent them. Those are the same firms that make campaign contributions to state comptrollers, raising the question: Do comptrollers recommend firms to represent their states based on how much money was donated to their campaign?
That may be debatable, but New York State Comptroller Alan Hevesi received $100,000 from Milberg Weiss for his 2002 campaign and $13,500 from Melvyn Weiss and senior partner William Lerach. (Lerach left Milberg in 2004 and formed his own firm in California.)