U.S. Judge to Sentence Class Action King Weiss

By | June 2, 2008

U.S. class-action legend Melvyn Weiss can expect a rough ride Monday when he is sentenced by a judge who handed down the maximum penalty to Weiss’s former partner for his role in a kickbacks scheme involving their former law firm.

The 72-year-old Weiss, who built a multibillion-dollar shareholder litigation empire around a law firm now known as Milberg LLP, pleaded guilty to a racketeering charge in March.

He has asked U.S. District Judge John Walter to sentence him to no more than two years in prison, citing his age and his contributions to shareholder litigation.

Prosecutors recommended that Weiss serve 33 months in prison, according to sentencing memos filed May 23. A plea agreement calls for Weiss to serve 18 months to 33 months in prison and pay $10 million in fines and forfeited gains.

In February, Walter sentenced Weiss’s protege and former partner, William Lerach, to the maximum prison sentence allowed under his plea agreement and criticized prosecutors for proposing a sentence that he considered too lenient.

Walter told Lerach that his conduct “was one of the most serious crimes to come before this court” and described the kickbacks scheme, which lasted for two decades and involved four top Milberg partners, as a “breathtaking” conspiracy.

Defense attorneys had argued that the case constituted “a victimless crime” because the firm traded its own fees for faster access to court on behalf of wronged investors.

But a study released Wednesday by the American Enterprise Institute for Public Policy Research showed that class members were harmed because Milberg demanded higher fees to offset kickbacks.

“They appear to have received a lower proportion of the settlement proceeds than class members in otherwise substantially similar (non-kickbacks) cases,” the study said.


In a sentencing memo, Weiss and his attorneys said they realized that Walter “views the criminal conduct … to be very serious” but asked for “compassion (that) Mr. Weiss has earned through a lifetime of honest service to others.”

The attorneys submitted more than 250 letters from supporters, and asked the judge to “recognize not only the tragedy inherent in these proceedings but to also note the true spirit of a very great man.”

Weiss pioneered high-stakes shareholder litigation and is best known for landing more than $1 billion in settlements for investors hurt by the 1980s Drexel Burnham Lambert junk bond scandal and an estimated $10 billion in damages from insurance companies accused of misleading sales practices in the 1990s.

He is the fourth attorney from Milberg, which dropped Weiss’s name from its title earlier this year, to plead guilty to the conspiracy, which prosecutors said involved more than 225 lawsuits that produced $200 million in fees for the firm.

The law firm maintained a stable of clients with large stock portfolios who served or recruited family members of friends to serve as lead plaintiffs in its lawsuits in exchange for a share of legal fees.

The arrangement allowed Milberg to be the first to file lawsuits, and before class action reforms stripped away the first-to-file advantage, to win lead counsel status and a larger share of fees.

Three former Milberg clients also pleaded guilty in connection with the scheme.

Weiss’s former firm and outside attorney Paul Selzer, who is accused of funneling the kickbacks to a Milberg client, are the remaining defendants. Both have pleaded not guilty and are slated for trial in August. (Editing by Braden Reddall)

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