It's all over but the shouting Ã¯Â¿Â½ and, of course, the prison visits.
After dominating the arena of securities class action litigation brought on behalf of shareholders claiming losses as a result of executives' misrepresentations about a company's financial health, the last of the defendants from the Milberg Weiss law firm has pleaded guilty.
Paul T. Selzer made his guilty plea to a tax-related felony in federal court this summer, joining guilty pleas by three former partners.
The law firm had risen to prominence targeting companies like Microsoft, AT&T, WorldCom, Lucent, Prudential Insurance, and former energy giant Enron. But recently, Milberg Weiss admitted that former partners like Mel Weiss had paid over $11 million in kickbacks to professional plaintiffs in more than 165 class action lawsuits, which generated roughly $239 million in legal fees.
One of these professional plaintiffs, Seymour Lazar, has also pleaded guilty to obstruction of justice and other charges; according to prosecutors, Lazar was paid about $2.6 million to help Milberg Weiss in its pursuit of corporate America.
Selzer's plea was merely the latest development in a steadily downward spiral for the high profile lawyers who once held themselves out as the champions of cheated stockholders.
William Lerach is in federal prison for a two year term for other kickback schemes. The firm he founded after leaving Milberg Weiss, Coughlin Stoia (formerly Lerach Coughlin) was found earlier this year to have purchased stolen company documents from a disgruntled former Coca-Cola executive in an effort to gain leverage in a federal shareholders class action suit against the soft drink company.
Ironically, lawyers at Milberg Weiss had once led the charge against companies who allegedly engaged in kickback schemes. The firm's Web site boasted that Milberg Weiss "has sued major providers of private mortgage insurance for kickback violations, resulting in substantial settlements."
Other lawsuits the firm brought had alleged kickbacks in mutual fund sales, initial public offerings, doctors' relationships with pharmaceutical companies, and insurance brokerage commissions. Now, Milberg Weiss has been hoisted on its own petard after incentivizing named plaintiffs in class action litigation to side with the firm's interests, something William Lerach described to the Wall Street Journal as "industry practice."
But what's going to prevent this from happening again with some of the notorious bad actors in jail or headed that way? U.S. Sen. John Cornyn (R-Texas) may have the answer.
In May, Sen. Cornyn introduced the Securities Litigation Attorney Accountability and Transparency Act in an effort to strengthen court oversight in the selection and compensation of class counsel in securities class action cases.
The bill has three key provisions. The first is a disclosure requirement. Lead plaintiffs and their attorneys would have to submit sworn certifications disclosing (a) any payments or promises of payment made by the attorney to the plaintiff in connection with the action; (b) any other legal representations of the plaintiff by the attorney; (c) any campaign contributions the attorney has made to any elected official with authority to retain counsel for the plaintiff; and (d) any other conflicts of interest.
This full disclosure is aimed at preventing situations like the kickback arrangements made by firms like Milberg Weiss, so that lead plaintiffs are acting in the interests of the class and not merely serving as the puppets of class counsel.
The second key component of this bill is the requirement that courts establish a competitive bidding process as one of the criteria in approving lead counsel for the class. Currently, courts typically defer to a lead plaintiff's choice after examining that firm's work on the case, its resources to handle such litigation, and other factors. Sen. Cornyn's bill mandates that courts consider the proposed fees, and solicit competitive bids in an effort to ensure that class members are represented "at a reasonable market rate."
Rather than review attorneys' fees for reasonableness at the conclusion of the case, this feature would allow courts to negotiate a reasonable fee at the outset of the litigation.
The third and final provision in the bill is geared toward assisting the effectiveness of the second provision. It would commission a General Accounting Office (GAO) study of the last 5 years of fee awards in securities class actions to determine an average hourly rate for lead counsel. This information could then be used by courts in evaluating whether fees are in line or are excessive.
As the sordid Milberg Weiss saga draws to a close (the firm has agreed to pay $75 million to settle the Department of Justice's case against it), it's clear that something needs to be done about the Wild West, "anything goes" atmosphere that characterized securities class action litigation over the years.
Maybe Sen. Cornyn is just the sheriff to clean up this town.
John Browning is a partner in the Dallas office of Gordon & Rees, LLP. He may be contacted at: firstname.lastname@example.org