Accused Firm Keeps Giving to Democrats
By MIKE McINTIRE | October 18, 2007
Over the years, as it became Exhibit A for critics of shareholders’ class action lawsuits, the law firm of Milberg Weiss often enjoyed the support of Democrats who called the suits an invaluable weapon in the universal conflict between big business and the little guy.
The Democrats, in turn, enjoyed the support of Milberg Weiss and its partners, who together have contributed more than $7 million to the party’s candidates since the 1980s.
Last year, the firm was indicted on federal charges of fraud and bribery. But the political partnership has not been entirely severed. Since the indictment, 26 Democrats around the country, including four presidential candidates, have accepted $150,000 in campaign contributions from people connected to Milberg Weiss, according to state and federal campaign finance records. And some Democrats have taken public actions that potentially helped the firm or its former partners.
The recent contributors include current and former Milberg partners who had either been indicted or were widely reported to be facing potential criminal problems when they wrote their checks. One, William S. Lerach, was a fund-raiser for John Edwards’s presidential campaign until his guilty plea last month. Melvyn I. Weiss, a founder of the firm, gave the maximum $4,600 to Senator Hillary Rodham Clinton of New York in June. Other firm members contributed to the presidential campaigns of Senators Barack Obama of Illinois and Joseph R. Biden Jr. of Delaware.
Milberg Weiss reaped billions of dollars in legal fees over four decades as the acknowledged king of class action lawsuits, which accused executives of misleading investors with erroneous financial statements or some other fraud. According to the indictment, the New York-based firm ran a “racketeering enterprise” that collected a quarter billion dollars in 250 cases in which people were paid secret kickbacks for serving as plaintiffs.
The law firm has denied the charges.
The reluctance of Democrats to shut off the cash spigot, even in the face of scandal, underscores how the pressure to raise money creates marriages of political interests that can be difficult to break up. Fred Wertheimer, a longtime advocate of campaign finance reform, called it the “natural outcome of a system where huge amounts of private contributions are raised and spent, and the political parties turn to groups with interests in government to feed the spending machine.”
In the current campaign, the race for cash has led to several embarrassments for the Democrats, including the indictment of a trial lawyer, Geoffrey Fieger, who was accused of using straw donors to make illegal contributions to Mr. Edwards’s 2004 presidential campaign, and the arrest of Norman Hsu, a businessman accused of fraud who raised hundreds of thousands of dollars for Mrs. Clinton.
In addition to the kickback charges in the Milberg Weiss case, federal agents have investigated accusations that the firm funneled campaign contributions through plaintiffs and expert witnesses in the 1990s, said two lawyers familiar with the inquiry. The guilty plea entered by Mr. Lerach hinted at that, but it also specified that prosecutors would not pursue campaign finance violations, in exchange for Mr. Lerach’s admission that he had conspired to obstruct justice by concealing the kickbacks.
Beyond campaign contributions, Milberg Weiss became deeply ingrained in the financial firmament of the Democratic Party in other ways. Members of the firm gave $500,000 toward construction of a new Democratic National Committee headquarters, and some became partners in a private investment venture with several prominent Democrats. They included former Senator Robert G. Torricelli of New Jersey, who is a fund-raiser for Mrs. Clinton, and Leonard Barrack, a Philadelphia trial lawyer who was once the national fund-raising chairman for the Democratic Party.
Along the way, as Milberg Weiss’s brass-knuckles legal strategy made it a target for Republicans advocating limits on class action suits, it usually could count on Democrats in Washington to protect its interests. After federal prosecutors indicted the firm in May 2006, four Democratic congressmen issued a joint statement, posted on Milberg Weiss’s Web site, accusing the Bush administration of persecuting lawyers who take on big businesses.
The statement, signed by Representatives Gary L. Ackerman, Carolyn McCarthy and Charles B. Rangel, all of New York, and Robert Wexler of Florida, contained several passages that appear to be lifted directly from a “class action press kit” distributed by a national trial lawyers group. All but Mr. Wexler have received campaign contributions from Milberg Weiss partners.
More recently, Mr. Edwards, a trial lawyer who became wealthy pursing personal injury cases, joined labor unions and consumer groups last May in pressing securities regulators to intervene in a lawsuit against banks brought by Mr. Lerach on behalf of Enron investors. His campaign said Mr. Edwards’s actions had nothing to do with Mr. Lerach, and were consistent with the candidate’s longstanding defense of working people.
Still, Mr. Edwards’s willingness to be seen doing anything that could benefit Mr. Lerach, and allowing him to raise money, provided fodder for critics. At the time the Edwards campaign took on Mr. Lerach as a fund-raiser, it was already widely reported that Mr. Lerach, who left Milberg Weiss in 2004, was one of the unnamed co-conspirators cited in court documents related to the firm’s indictment.
In all, Mr. Edwards collected about $16,000 from people connected to Milberg Weiss, including Mr. Lerach and two other former Milberg Weiss lawyers who had joined him at his new firm, Patrick J. Coughlin and Keith F. Park. Federal authorities agreed not to prosecute them as part of the plea deal with Mr. Lerach. (Mr. Lerach also raised $64,000 for Mr. Edwards from members of his new firm who were not named in the Milberg case.)
“With Edwards, he has associated himself with people in his campaign that don’t represent the face that even the trial lawyers want to put forward to the country,” said Walter K. Olson, a fellow at the Manhattan Institute, a conservative research group, who has written extensively on the American legal system.
Eric Schultz, a spokesman for the Edwards campaign, said that it had given Mr. Lerach’s $4,600 personal contribution to charity and that “should anyone else be found guilty of wrongdoing, we will donate their contributions to charity as well.”
“The bottom line is, the system is far from perfect,” Mr. Schultz said. “The influence of money in politics has gotten out of control. That’s why John Edwards has decided to play by the rules that were designed to ensure fairness in the election process by capping his campaign spending and seeking public financing.”
John W. Keker, a lawyer for Mr. Lerach, declined to comment on his client’s guilty plea.
A spokesman for Mrs. Clinton said her presidential campaign did not intend to return the contribution from Mr. Weiss. A spokesman for the Obama campaign, whose Milberg Weiss contributions came from lawyers not directly involved in the kickback scandal, declined to comment.
In a statement denying the charges in the indictment, Milberg Weiss, which continues to operate, said: “The indictment is unprecedented and unfair, and the firm intends to vigorously defend itself against the charges. We are confident that we will be fully vindicated.”
The indictment of Milberg Weiss was a stunning turnabout for the firm, which has recovered $45 billion for clients since it was founded in 1965.
Its approach was controversial. The moment a publicly traded company’s stock dropped, Milberg Weiss would enlist a shareholder as a plaintiff and rush to court with a lawsuit. Usually, the sued company would end up settling rather than risk going to trial.
Milberg Weiss’s supporters gave it credit for enforcing accountability in the boardroom. Critics, however, accused the firm of economic terrorism, and with the Republican takeover of Congress in 1994 a business-backed movement took hold to change securities laws to make it harder to bring shareholder lawsuits.
The firm found a friend in President Bill Clinton, who, a few days after being seen chatting and shaking hands with Mr. Lerach at a White House dinner in 1995, vetoed legislation that clamped down on class action suits. Congress overrode the veto, but the image remained of a close relationship between the president and Mr. Lerach, a Lincoln Bedroom guest during the Clinton presidency who donated more than $100,000 to Mr. Clinton’s presidential library.
Beginning in 2000, federal investigators began looking into Milberg Weiss’s litigation practices, particularly its uncanny ability to beat other firms in the race to be named lead counsel in large class action suits, thereby ensuring itself a larger percentage of fees. By last year, two people had pleaded guilty to accepting kickbacks from Milberg Weiss in return for being on call to serve as plaintiffs in more than 100 lawsuits; an expert witness used by the firm was implicated in the fraud; and two partners, Steven G. Schulman and David J. Bershad, had been indicted.
Both Mr. Schulman and Mr. Bershad have since pleaded guilty. Late last month, Mr. Lerach also pleaded guilty, leaving Mr. Weiss as the only named partner facing criminal charges.
The case has taken a toll not only on the lawyers involved, but also on the firm’s name plate. After Mr. Lerach left to form his own practice in San Diego, his old firm dropped his name, becoming Milberg Weiss Bershad & Schulman. Two resignations and guilty pleas later, it is now simply Milberg Weiss.