Posted Aug 07, 2007 01:32 pm CDT
Are kickbacks to lead plaintiffs in securities class actions perfectly legal? Not according to a Los Angeles federal judge.
Judge John Walter refused to dismiss charges of illegal kickbacks yesterday against law firm Milberg Weiss and one of its former partners, the Los Angeles Times reports. “It seems to me that this scheme, as alleged by the government” was a “classic kickback scheme,” the judge said.
However, the judge tentatively agreed to dismiss three of 20 counts related to mail fraud because of possible defects in the indictment, the Wall Street Journal’s Law Blog reports.
Herbert Stern, a lawyer for former partner Steven Schulman, had contended it is not improper to pay lead plaintiffs for extra time they spend on lawsuits. Such payments would come out of law firm fees, so there would be no intent to defraud other class-action plaintiffs, he said.
The law firm has denied paying kickbacks.
The Wall Street Journal (sub. req.) reported in a preview of yesterday’s hearing that the case has spurred a debate about whether side payments to class action plaintiffs could play a positive role. An upcoming law review article argues kickbacks could increase payouts to class members.
The case took another turn at yesterday’s hearing, when a lawyer for Milberg Weiss referred to a sealed government filing and wondered if the case could change form and defendants.
Partner Melvyn Weiss and former partner William Lerach have not been indicted, but they are thought to be Partner A and Partner B mentioned in indictments, the Los Angeles Times says. Another partner, David Bershad, has pleaded guilty to conspiracy. See this ABAJournal.com post for more information.