A seven-year federal investigation into accusations that a leading New York securities class action law firm, Milberg Weiss, paid secret kickbacks to plaintiffs gained traction yesterday when David J. Bershad, a former partner with extensive knowledge of the firm's finances, pleaded guilty to conspiracy and agreed to cooperate with prosecutors.
Bershad's guilty plea is the latest blow to a powerhouse firm that once dominated the landscape for class action securities lawsuits and spurred fear as well as contempt in corporate boardrooms.
But over the past year, the firm has struggled to retain its major clients, its lawyers and its hold on numerous lawsuits even as the number of securities-related cases has declined, in part, because of the strong performance of the stock market.
Yesterday's guilty plea also put renewed pressure on William S. Lerach and Melvyn I. Weiss, two of the industry's leading lawyers who founded the firm and have long been the focus of the federal investigation.
Lerach split from Milberg Weiss in 2004 to form a firm in San Diego, and last month, he announced that he was considering retirement. Neither Lerach nor Weiss has been indicted. Calls to their lawyers were not returned.
"We are in a situation where there will undoubtedly be tremendous pressure on others under investigation, because the government doesn't give out plea bargains lightly," said Mark Zauderer, a trial lawyer with Flemming Zulack Williamson Zauderer in New York who specializes in white-collar cases, who is not involved in the case.
Bershad was indicted last year along with the law firm and another named partner, Steven G. Schulman.
The 20-count indictment, which included conspiracy and other charges, detailed a scheme that began in the 1970s and continued as recently as 2005. In that scheme, lawyers inside Milberg Weiss paid $11 million in "secret and illegal kickbacks" to named plaintiffs in more than 150 class action and other shareholder lawsuits. The lawsuits, according to the indictment, earned the firm more than $216 million.
Lawyers from Milberg Weiss have also had settlement talks with prosecutors. Recently, those discussions have centered largely on what sort of monetary penalty the firm's remaining partners will have to pay, according to a person briefed on the talks but unauthorized to speak for attribution.
The firm changed its name yesterday from Milberg Weiss & Bershad to simply Milberg Weiss and said that Bershad, who had been on a leave of absence, had been terminated.
Hired in 1968, Bershad, 67, of Montclair, N.J., is the first Milberg partner to plead guilty in the investigation and is a critical witness to prosecutors because he has intimate knowledge of the firm's finances, several people briefed on the investigation said.
In pleading guilty in U.S. District Court in Los Angeles to one count of conspiracy, Bershad also agreed to give back $7.75 million, pay a $250,000 fine, and cooperate in the government's investigation of other participants in the conspiracy, prosecutors said.
The conspiracy charge carries a maximum of five years in prison. A sentencing hearing is scheduled for next June.