Lawyer Gets 2 Years in Prison for Class-Action Lawsuits Scheme

February 13, 2008

A former partner at a well-known New York law firm was sentenced to two years in federal prison for his role in a lucrative kickback scheme involving class-action lawsuits against some of the nation’s biggest corporations.

William Lerach, 61, was also sentenced to two years probation and 1,000 hours of community service. He was ordered to forfeit $7.75 million and pay a $250,000 fine.

“This whole conspiracy corrupted the law firm and it corrupted it in the most evil way,” U.S. District Judge John Walter said during the hearing.

Authorities said Lerach’s former firm, now known as Milberg Weiss, made an estimated $250 million over two decades by filing legal actions on behalf of professional plaintiffs who received kickbacks.

The firm paid $11.3 million in kickbacks to people who became plaintiffs in lawsuits targeting companies such as AT&T, Lucent, WorldCom, Microsoft and Prudential Insurance, prosecutors said.

Seven people, including three former partners at the firm, have pleaded guilty in the case.

Lerach, whose high-profile legal victories included a $7 billion judgment against now-defunct energy giant Enron Corp., pleaded guilty in October to one count of conspiracy to obstruct justice and make false statements.

“I pleaded guilty in this case because I was guilty,” Lerach said before sentencing. “It was, as they say, felony stupid.”

Lerach, who wore a dark suit, sat quietly with his fingers interlaced on a desk in front of him as the sentence was read. It was the maximum that Lerach had agreed to serve as part of a plea deal with prosecutors.

Walter said he would have imposed a stiffer sentence on his own and considered rejecting the plea arrangement because of the gravity of Lerach’s offense.

He said Lerach subverted the authority of judges by misleading them and deprived legitimate class-action plaintiffs of their fair share of settlements from lawsuits.

The judge said he ultimately decided to accept the deal out of deference to prosecutors and because he believed Lerach’s most meaningful punishment was his disbarment.

“The most significant fact is that Mr. Lerach is not going to be able to go into his office and practice law,” Walter said. “Never again will he do something which he was obviously so good at.”

Walter ordered Lerach to begin his prison term in April.

The first person to be sentenced in the case was Seymour Lazar, a retired attorney who was sentenced last month to six months home detention and two years probation. He also was fined $600,000.

Federal prosecutors said Lazar, 80, was paid about $2.6 million to be a professional plaintiff and help the law firm, previously known as Milberg Weiss Bershad & Schulman, in its pursuit of the lawsuits.

Lazar pleaded guilty in October to obstruction of justice, subscribing to a false tax return and making a false declaration to the court.

The kickback scheme allowed the firm’s attorneys to be among the first to file litigation and secure the lucrative position as lead plaintiffs’ counsel, according to court documents.

The firm dominated the industry in securities class-action lawsuits, which involve shareholders who claim they suffered losses because executives misled them about a company’s financial condition.

Along with Lerach, other former partners who have pleaded guilty were Steven Schulman and David Bershad.

Schulman pleaded guilty to a racketeering conspiracy charge. He agreed to forfeit $1.85 million to the government and to pay a $250,000 fine.

Bershad pleaded guilty to conspiracy and agreed to cooperate with the government.

Firm co-founder Melvyn Weiss has pleaded not guilty to one count each of conspiracy, mail fraud, money laundering and obstruction of justice in a revised indictment.

The Milberg Weiss firm itself has pleaded not guilty to two counts of conspiracy and one count each of obstruction of justice and making false statements.

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