Top Law Firm Indicted in Alleged Scheme to Pay Plaintiffs for Class-Action Suits

A federal grand jury has indicted a top class-action law firm in a scheme that paid more than $11 million in illegal kickbacks to get people to take part in shareholder lawsuits.

The charges follow years of investigation into the way New York-based Milberg Weiss, Bershad & Schulman conducts shareholder lawsuits against major corporations.

Click here to view the indictment (FindLaw PDF).

Lawsuits by the firm, the lead plaintiff in more than half the federal shareholder suits settled from 1997 to 2004, generated hundreds of millions of dollars in attorneys' fees, the indictment said.

"The conduct alleged in the indictment is particularly troubling because it represents a pattern of deception that spans 2 1/2 decades," said U.S. Attorney Debra Wong Yang.

Wong said the secret kickback arrangement often allowed the firm to be among the first to file a lawsuit on behalf of shareholders.

The government seeks to recover at least $216 million in "tainted attorneys' fees."

The firm and attorneys David J. Bershad and Steven G. Schulman were charged with secretly paying about $2.4 million to Seymour M. Lazar, a Palm Springs lawyer involved in real estate, and others to act as class-action plaintiffs since 1981 and concealing the payments.

Lazar was also named in the indictment along with Paul L. Selzer, another Palm Springs lawyer.

The indictment's 20 counts included conspiracy, racketeering conspiracy, money laundering, mail fraud, filing false tax returns, obstruction of justice and criminal forfeiture.

The firm defended itself in a statement on its Web site.

"The government's allegations of wrongdoing have been categorically denied by the indicted partners, and the firm intends to join with them in vigorously defending against the charges," it said.

"The firm is particularly incensed that the prosecutors decided to indict the firm itself," the statement added, asserting that its hundreds of employees will suffer personal and professional harm.

Bershad's attorney, Andrew Lawler, said his client "categorically denies the allegations of the indictment." Lawler said the use of the racketeering law was unjustified.

A telephone message seeking comment from Selzer was not returned. There was no answer at a telephone listing for Lazar.

Earlier this week, the firm announced that Bershad and Schulman were taking leaves of absence.

Selzer was charged with acting as an intermediary in the payment of the kickbacks to Lazar and others.

The indictment charged the firm, Bershad and Schulman with conspiring to obstruct justice and making false statements under oath in court. They also are accused of mail and wire fraud, and making illegal payments to a witness.

Those three defendants were also charged with mail fraud counts, conspiring to commit money laundering, and criminal forfeiture. Bershad and Schulman were charged with racketeering conspiracy.

Lazar was charged with conspiracy, racketeering conspiracy, mail fraud, money laundering, false tax returns and obstruction of justice. Selzer was charged with money laundering, conspiracy and criminal forfeiture.