Three months ago, William S. Lerach, the powerful class-action attorney both feared and loathed in executive suites across the country, received a disturbing call from his lawyer. Federal prosecutors, Mr. Lerach was told, wanted more time to build a criminal case against him.
Until then, a three-year investigation into whether Mr. Lerach and his former New York law firm, Milberg Weiss Bershad & Schulman, had used illegal tactics in shareholder lawsuits that made him and the firm rich and famous had appeared to be dormant. The phone call meant that the inquiry had suddenly gained traction.
Federal authorities made a similar request to Mr. Lerach’s former partner, Melvyn I. Weiss, asking him to waive statute-of-limitations requirements. Mr. Lerach and Mr. Weiss declined to give them freer rein, said individuals with direct knowledge of the investigation.
In a more telling indication of where the inquiry was headed, the federal authorities also asked Milberg Weiss itself to give prosecutors more time to assemble their case. The meaning was clear: A firm that had spent decades winning multimillion-dollar lawsuits against huge corporations was now in the cross hairs of an investigation and a possible indictment that could put it out of business.
On June 23, the exact parameters of the federal investigation became clear when the United States Attorney’s office in Los Angeles indicted an eccentric 78-year-old Palm Springs investor named Seymour M. Lazar. The indictment charged Mr. Lazar with accepting millions of dollars from an unidentified law firm in what the government describes as “kickbacks” for serving as the lead plaintiff in dozens of fraud suits the firm filed against corporations from 1976 to 2004. Milberg Weiss and others have acknowledged that it is the unidentified firm cited as Mr. Lazar’s co-conspirator in the court papers.
Though Mr. Lerach and Mr. Weiss are not named in the indictment either, both are clearly embroiled in a wide-ranging investigation, the outcome of which is likely to influence how all plaintiffs’ lawyers practice, as well as the potential civil penalties for corporate wrongdoing. As a result, the inquiry has reignited heated debates about the tort system, debates that have come to a head in recent years.
Milberg Weiss has spent decades building itself into the nation’s premier securities class-action law firm, and its lawyers have become accustomed to making corporate America sweat. Although the legal tables appear to have turned, lawyers representing Mr. Lerach and Mr. Weiss deny any wrongdoing by their clients.
“Neither Milberg Weiss nor any of its attorneys had any knowledge of a secret arrangement between Mr. Lazar and his law firm, if one existed,” said William W. Taylor III, a lawyer at Zuckerman Spaeder who is representing Milberg Weiss.
Legal analysts also question the strength of the government’s case, citing possible problems with witnesses and evidence. Even so, the federal examination alone has proved gratifying to Milberg Weiss’s critics.
“We are pleased that the investigation has been initiated and we await with interest its results,” said Stanton D. Anderson, a Washington lawyer at McDermott Will & Emery who has pressed for overhauling the nation’s civil justice system on behalf of the United States Chamber of Commerce. “Even though Milberg Weiss is not our kind of law firm, we would hope the Justice Department would not indict the firm. We would rather see them indict individuals.”
Until Mr. Lerach and Mr. Weiss bitterly parted ways last year after working as partners for nearly three decades, Milberg Weiss claimed the mantle as corporate America’s most aggressive and nettlesome private legal adversary. Even after the partners separated – with Mr. Weiss, 69, staying in charge of the firm that bears his name and Mr. Lerach, 59, starting a new San Diego firm, Lerach Coughlin Stoia Geller Rudman & Robbins – both men remained pivotal figures in the plaintiffs’ bar. To critics, the lawyers embody what they say is amiss with modern class action suits: shifty and belligerent legal tactics, excessive paydays for lawyers and repeated blackmailing of straight-arrow corporations.