Labels: Canada, class action, Milberg, securities

Labels: Herman Cahn, Milberg

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Labels: Howard Vogel, Milberg, Steven Schulman

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Labels: Howard Vogel, kickbacks, Milberg

Labels: Milberg, mortgage backed securities, Thomas O'Brien

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Labels: class action, kickbacks, Melvyn Weiss, Milberg, Milberg Weiss, racketeering

Labels: class action, Melvyn Weiss, Milberg, Milberg Weiss, securities

"I deeply regret my conduct and apologize to all those who have been affected, including all of the wonderful and extremely talented lawyers and other employees of the Firm, none of whom had any involvement in any wrongdoing. I believe that it is very important to preserve this unique legal resource for the benefit of victims of wrongdoing affecting the masses, who historically have been under-served in so many ways."

Labels: guilty, Melvyn Weiss, Milberg, Milberg Weiss, plea agreement

Labels: Alan Schulman, John Torkelson, Milberg, Milberg Weiss, Steven Cooperman

Labels: Bill Lerach, kickbacks, Lerach, Melvyn Weiss, Milberg, Milberg Weiss, Paul Selzer

Labels: Bill Lerach, kickbacks, Lerach, Milberg, sentencing

Labels: Bill Lerach, kickbacks, Lerach, Milberg, Milberg Weiss, Seymour Lazar

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Labels: class action, malpractice, Milberg, Sam Wyly, Schiffrin Barroway, Stull Stull and Brody

Labels: Bill Lerach, kickbacks, Milberg, plea agreement

Labels: Bill Lerach, Lerach, Melvyn Weiss, Milberg, Milberg Weiss, Seymour Lazar, Steven Cooperman

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"Milberg Weiss understands that a second superseding indictment will be issued tomorrow that will include new charges against the Firm and also Melvyn Weiss. Mr. Weiss has decided to discontinue his participation in Firm management in order to focus on the defense of the charges against him. The Firm’s other partners, none of whom is alleged to have been involved in any wrong doing, will be responsible for its management and litigation activities. Mr. Weiss will remain available to counsel clients and Firm attorneys. The Firm remains proud of Mr. Weiss’s and the Firm’s accomplishments over the years and will continue to fight for its clients and class members and to produce the excellent results for which it is known. We do not anticipate any interruption in our work and we look forward to putting this difficult period behind us."

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Labels: Bill Lerach, David Bershad, Lerach, Milberg, Milberg Weiss, Seymour Lazar, Steven Cooperman, Steven Schulman

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Labels: Bill Lerach, kickbacks, Lerach, Milberg, Milberg Weiss, Seymour Lazar, Steven Cooperman

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Labels: David Bershad, kickbacks, Melvyn Weiss, Milberg, Milberg Weiss, money laundering, Seymour Lazar, Steven Cooperman, Steven Schulman

Labels: indictment, Melvyn Weiss, Milberg, Milberg Weiss, securities, Tellabs

One of the indicted partners, Steven Schulman, signed the amended complaint in the Organogeneis case, though the firm contended that he was no longer litigating it, an assertion that U.S. District Court Judge Joseph Tauro found "disturbing." Tauro also noted Milberg Weiss' "repeated failure" to oversee the class certification process.

Tauro noted that the firm and its partners were entitled to a presumption of innoncence, and that the firm "has a respectable record and reputation for litigating securities class actions." But he also wrote, "The court cannot ignore the fact that by virtue of the indictment, Milberg Weiss is a different firm than it once was... The indictment alone is not enough to cancel out the firm's respected history, but it is enough to make this court look carefully at lead counsel's adequacy in this case."

The judge also concluded that one of the named plaintiffs did not have standing because he did not suffer harm, and the other plaintiff couldn't serve as a suitable representative for the class because of the timing of his stock ownership.

Labels: Melvyn Weiss, Milberg, Milberg Weiss, Organogenesis

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Labels: David Bershad, indictment, kickbacks, Milberg, Milberg Weiss

Labels: Bill Lerach, David Bershad, David Boies, kickbacks, Lazar, Melvyn Weiss, Milberg, Milberg Weiss

Law firm, partners, plead not guilty to federal charges in LA

ERIC BERKOWITZ
Associated Press
July 17, 2006

A top class-action law firm and two of its partners pleaded not guilty Monday to charges of secretly paying more than $11 million in kickbacks to get people to take part in shareholder lawsuits. Also pleading not guilty in federal court were Seymour M. Lazar, who is accused of acting as a paid plaintiff in some of the firm's cases, and Paul T. Selzer, who is charged with laundering money on Lazar's behalf.

In a 20-count indictment handed down in May, prosecutors alleged that Milberg Weiss Bershad & Schulman, along with partners David J. Bershad and Steven G. Schulman, secretly paid Lazar and others since 1984 to act as plaintiffs in class-action suits against major corporations.

Federal prosecutors alleged that secret kickback arrangements allowed the firm to be among the first to file lawsuits on behalf of shareholders and secure the lucrative position as lead plaintiffs' counsel. The indictment also alleged that "the paid plaintiffs purchased the securities at issue anticipating that the securities would decline in value, in order to position themselves to be named plaintiffs in securities fraud class actions and to obtain kickbacks" from the firm and others.

All the individual defendants were in court to enter their pleas except Lazar, who was unable to attend for medical reasons. Bershad and Schulman are on leave from the firm.

The case, which is the result of an ongoing federal investigation, has already resulted in plea deals with two people allegedly involved in the payoff schemes. Retired real estate mortgage broker Howard Vogel agreed in April to plead guilty to one count of making a false declaration before a court and admitted to receiving $2.5 million in kickbacks from Milberg Weiss in connection with class actions in which he was the plaintiff.

Los Angeles attorney Richard Purtich agreed in May to plead guilty to a federal tax offense by acting as an intermediary through which Milberg Weiss paid his former client Steven G. Cooperman more than $2.5 million in fees for acting as plaintiff in several class actions.
The firm denies any wrongdoing. In a statements released after Monday's arraignment, Bershad's attorney, Robert Luskin, said the indictment "is a disgrace and the charges are utterly baseless," and the firm said it is "confident that we will be fully vindicated"...

Labels: David Bershad, Howard Vogel, hulman, kickbacks, Melvyn Weiss, Milberg, Milberg Weiss, money laundering, Steven Cooperman

Labels: Bernstein Litowitz and Berger, Howard Vogel, HP, Melvyn Weiss, Milberg, Milberg Weiss

Labels: Bernstein Litowitz and Berger, Melvyn Weiss, Milberg, Milberg Weiss

Labels: Melvyn Weiss, Milberg

Scandals make hedge fund sleuthing pay off -experts

October 12, 2005
By Svea Herbst-Bayliss

BOSTON - Back-to-back hedge fund scandals are sending investors a frightening message: Spend a few thousand dollars now to sidestep a multimillion-dollar fraud later. Lawyers and investigators said this week that the collapse of hedge fund Bayou Group and suspected fraud at hedge fund Wood River Partners likely will prompt investors to take more precautions before stepping into the fast-growing $1 trillion industry.

"The circle of who has gotten burned is getting bigger and the trend is that people will ask for more due diligence because they realize it pays to conduct these inquiries," said Peter Turecek, who manages the hedge fund business at Kroll, a New York-based security consulting firm. Financial regulators are sorting out what went wrong at Bayou, where investors are said to have lost $300 million, and Wood River, which once said it was managing $500 million.

Investors and lawyers have not been able to reach Wood River in the last few days, and in a lawsuit filed by Lehman Brothers against Wood River, the Wall Street investment bank said that it suspected the hedge fund ceased operating. Wood River is under investigation by the U.S. Securities and Exchange Commission.

These are the latest blowups in an industry that has attracted billions of dollars from pension funds, endowments and charities since becoming a hot asset class by delivering outsized returns in the late 1990s and positive returns during the stock market's almost three-year sojourn in bear territory.

Many investors, particularly funds of funds like Glenwood Capital Investments and Mesirow Financial that select hedge fund portfolios, already rely on investigators to snoop around and verify a manager really is who he says he is. For fees ranging between $2,000 and $50,000, firms will compile dossiers that can turn up anything from unpaid parking tickets to lawsuits to lies on resumes.

"Getting reports on managers shows that for $2,000 up front, you can avoid people like this instead of having to spend hundreds of times that amount to recoup millions of dollars in losses later," said Randy Shain, executive vice president of First Advantage CoreFacts LLC, which investigates hedge funds. "It is cheap insurance," he added.

Still, there are plenty of investors who pick managers based on a gut feeling and who consider due diligence a cost -- heaped on top of hedge funds' already hefty fees -- that is not part of their investment, lawyers and investigators said. But these are the people who might come around now, they added. "Every time there is a fraud, investors profess to do more due diligence and this is no different," said Scott Berman, a partner at law firm Friedman Kaplan Seiler & Adelman.

Those who still trust their gut may change their minds after hearing what firms like First Advantage CoreFacts turned up. This summer, a report on Wood River founder John Whittier showed the former technology analyst faced four tax liens, was sued for not paying rent and was sued for $1.6 million in securities losses, Shain said. His clients passed on Whittier. "Taken together, these three things added up to a red flag," Shain said, explaining that "the report shows Whittier ran out of money or that he's sloppy. Neither inspires confidence."

Fact checking also turned up discrepancies on Bayou founder Samuel Israel's resume when Shain's analysts tracked down the hedge fund manager's former employer, Leon Cooperman, who said he hadn't been head trader and wasn't there for four years.

As investors burned by these blowups wait to recoup money, the trend will be for people to spend a premium on "reputational reviews" that highlight behavior patterns which could become a liability later, investigators said. "People will want to know that the person is a good trader, but they'll also want to hear if the guy heads off to the bar and drinks all night every night," Kroll's Turecek said.

Looking ahead, investors also are likely to press for more clarity on operational matters like who checked the books after Bayou fabricated a firm to certify its returns. "We were able to discover that Bayou's auditor was bullshit," Shain said. This week, Reuters reported that Wood River told potential investors it had retained two firms as independent auditors. But those auditors on Tuesday denied any relationship with the controversial hedge fund.

Labels: Bayou Group, John Whittier, Kroll, Milberg, Wood River Capital

Grand Jury Busy in Milberg Weiss Probe

Justin Scheck
The Recorder
September 30, 2005

Federal prosecutors have taken a couple of strides forward in the investigation of former plaintiff firm Milberg Weiss and its star securities lawyer, William Lerach. Last week, a Los Angeles grand jury heard testimony from Melvyn Kinder, a Beverly Hills psychologist and author of "Smart Women/Foolish Choices." Kinder served as a lead plaintiff for Milberg Weiss in securities suits in the 1990s. Kinder and his attorney, Peter Morris, declined to discuss his testimony.

Thursday, the grand jury was scheduled to interview accountants from Milberg's New York office, said two lawyers familiar with the investigation who spoke on condition of anonymity. The witnesses include Milberg Weiss' head accountant, William Matschke. He didn't return messages left at his New York home or at his Los Angeles hotel room Wednesday.

Since 2000, prosecutors led by Assistant U.S. Attorney Richard Robinson have been looking into allegations that Milberg Weiss Bershad Hynes & Lerach paid illegal kickbacks to clients who served as lead plaintiffs in stock fraud suits. Lawyers for the firm and Lerach have denied any wrongdoing. Milberg Weiss split into two firms last year -- New York-based Milberg Weiss Bershad & Schulman, and California's Lerach Coughlin Stoia Geller Rudman & Robbins.

The investigation began in 2000, when former client Steven Cooperman -- who was then facing indictment on unrelated crimes -- told prosecutors of the alleged kickback scheme. Federal prosecutors in Philadelphia are also reportedly looking into business practices at Milberg Weiss and other securities firms, while D.C. prosecutors are investigating a former expert witness used by the firm in many of its cases.

The L.A. probe appeared to languish until earlier this year, when the grand jury indicted a former Milberg client, Palm Springs lawyer Seymour Lazar. He stands accused of taking illegal kickbacks from the firm funneled through his attorney, Paul Selzer. Such payments are illegal because they give the lead plaintiff a substantially larger stake in a case than other class members.

The Lazar indictment was seen by many securities lawyers as an attempt to force Lazar to testify against Milberg Weiss and breathe new life into the aging investigation. Absent Lazar's cooperation -- and with Cooperman's questionable credibility as a convicted felon -- it's no surprise that prosecutors are interviewing other Milberg plaintiffs, said attorneys familiar with the investigation. Those lawyers said prosecutors are likely interviewing the accountants as part of their efforts to trace money from the firm to clients like Lazar.

While former federal prosecutors say the stepped-up grand jury activity may indicate that an indictment of Milberg Weiss or Lerach is imminent, the probe has proceeded haltingly since the beginning, in part because of difficulties prosecutors face in subpoenaing attorneys and information that may be subject to attorney-client privilege.

Labels: Milberg

Want a Hedge Fund? Here's Your Homework

By Geraldine Fabrikant
New York Times
September 11, 2005

IF you're thinking about investing in a hedge fund, how can you steer clear of the likes of the Bayou Group, the recently imploded hedge fund company and brokerage firm run by Samuel Israel III? Unfortunately, getting information about individual hedge funds isn't easy.

While hedge funds have generally had positive returns, experts point out that some of them can be big money losers - and that this makes the decision to invest in any single fund a very risky business. A variety of databases provide information about hedge funds, but they are by no means infallible, and in any case many of them are often unavailable to the average investor.

The collapse of Bayou is a case in point. Federal prosecutors in Manhattan sued Bayou on Sept. 1, saying the company had defrauded investors since 1998 by misrepresenting the fund's performance. The complaint said that Bayou had misstated its assets and that its books, which it had claimed were evaluated by independent auditors, were certified by a bogus accounting firm whose registered agent, Daniel Marino, was also the chief financial officer of Bayou.

The case against Bayou began to develop in May, when Arizona authorities seized $101 million held by a man to whom Mr. Israel had turned it over in a seemingly desperate effort to make some fast money to cover his fund's losses.

For hedge fund investors determined to avoid such debacles, there are some free Web sites that offer data on legal and financial developments, including the sites of the Securities and Exchange Commission (www.sec.gov) and the National Association of Securities Dealers (www.nasd.com). While such sites contain a wealth of information, the often do not include the most telling signs of trouble in a hedge fund.

Randy Shain, the co-founder of BackTrack Reports, which researches hedge funds for institutions and some wealthy individuals, says that in the Bayou case, several red flags - including questions about Mr. Israel's character - would not have been evident to people contemplating an investment in the fund. For example, it would have been difficult to learn from publicly available data that Mr. Israel had exaggerated his position at one hedge fund, had been charged with drunken driving and had been accused in a lawsuit by a former employee of violating securities regulations.

A litany of problems like this is hardly typical of hedge fund managers, but it does underscore how difficult it is to vet a fund, said Charles Stevenson, a veteran hedge fund manager who now runs the Navigator Diversified Strategies fund, which is a fund of hedge funds. (A fund of funds is a group of individual hedge funds that has been assembled by a third party, an arrangement that provides diversification and, perhaps, a margin of safety.) "If a manager's character is not reliable enough for you to trust them with your wallet," Mr. Stevenson said, "then the returns will be less relevant than whether they actually return any of your money."

In promotional material for the Bayou funds, Mr. Israel told investors that he had worked as the head trader at Omega Advisors, a hedge fund run by Leon Cooperman, a former Goldman Sachs partner. But Mr. Israel had misrepresented the length of his employment at Omega as well as his position there, Mr. Cooperman said in an interview. Mr. Israel had worked there as a trader for 18 months, but had not been there for four years as the head trader as he had claimed, Mr. Cooperman said.

Many hedge funds do not have a public relations operation geared toward answering such questions raised by outsiders. Would Mr. Cooperman have taken a call about Mr. Israel's credentials from a prospective investor in the Bayou funds? "I can't answer that," Mr. Cooperman said. "If somebody calls me for a reference check, I will respond factually and appropriately. But certain firms are very cautious about talking about former employees."

Another cautionary piece of news for Bayou investors should have been that while Omega oversees two funds of hedge funds that invest money with 25 different managers, Mr. Israel's group wasn't among them. "We never invested in Sam Israel's hedge fund nor did one trade with his securities company," Mr. Cooperman said.

Promotional materials also stated that Mr. Israel began his career at F. J. Graber & Company, a money management firm geared "toward high-velocity trading" and run by its founder, Fredric Graber. One person who knew both men, but requested anonymity, recalled that Mr. Israel had worked for Mr. Graber as a summer intern, a position arranged through a family friend, but added that Mr. Israel "never had a leadership role" at the firm. Mr. Graber, who closed his firm some years ago, could not be reached for comment.

Potential investors might also have been concerned if they had learned other information. Mr. Israel had been arrested in New York State in 1999 and accused of "driving under the influence" and charged with criminal possession of a "controlled substance," Mr. Shain of BackTrack Reports said; the case was discontinued a year later. That case was reported without elaboration on LexisNexis, a subscription data base, where Mr. Shain's firm found it while researching Bayou for a potential investor. In order to get details about the case, Mr. Shain had to send a researcher to State Supreme Court in Manhattan.

Sometimes red flags are more immediately visible. The documents that Bayou made available to its investors say that Richmond-Fairfield Associates was Bayou's accounting firm. Charles Levenberg, a private investigator who researches hedge funds, said that lack of information about the accounting firm was a warning sign. "If they are not using somebody you have heard of, that is a big red flag," he said. "You have to wonder why." The government has contended that Richmond-Fairfield was controlled by Bayou.

Evidence of possible problems can sometimes be uncovered in news reports. James R. Hedges IV, a partner at the Imperium Partners Group, a hedge fund based in New York, recalled that in 2002 his firm was looking into an investment in the Lancer Group, a hedge fund based in Manhattan. But Mr. Hedges said he had seen a news report about a lawsuit filed in Federal District Court in Miami that same year in which the S.E.C. had accused Bruce Cowen, a managing director of the Lancer Group, of participating in a conspiracy to divert funds from Lancer investors and, ultimately, funnel some of it to his own pocket. That information "told us to stay away" from the Lancer Group, Mr. Hedges said.

A year later, the S.E.C. accused the Lancer Group of inflating the net asset values of its funds in an effort to mislead auditors and attract investors. The agency continues to seek fines, permanent injunctions against the group and penalties. For investors who are intent on picking hedge funds themselves, despite the risks, experts say that it may pay to subscribe to services that track lawsuits. For example, an investor can subscribe to Pacer, an online index to federal civil, criminal and bankruptcy cases nationwide.

A Pacer subscriber could have found that a suit was filed against Bayou in 2003 in Federal District Court for the Eastern District of Louisiana by a former employee, Paul T. Westervelt Jr., and his son. The plaintiffs contended that Bayou had failed to provide them with necessary business documents and that Mr. Westervelt discovered "possible violations of the S.E.C. regulations governing the operating of hedge funds."

The case has moved from federal court to arbitration. Lawyers on both sides did not return phone calls seeking comment. In 2004, Mr. Israel wrote to investors telling them of the suit. But an earlier warning of a former employee's decision to sue the company might have been helpful to investors. The problem for individual investors is that many of them "have made a lot of money doing something else," Mr. Shain said. "They have a false sense of security about their own sophistication in analyzing financials," he added.

To winnow out potential problems, investors may want to look for some common-sense warning signs. In addition to checking for evidence of possible deception or illegality, some analysts say they try to check whether the manager is in the midst of a difficult divorce, as Mr. Israel was, which can add psychological and financial pressures.

One basic metric is the manager's employment record. Michael Steinhardt, a manager who ran his own fund for 29 years and is now starting a group of exchange-traded funds, said, "A long track record is the best endorsement." In 1997, a fund run by Barbara Doran, who had previously been an institutional equity sales executive at First Boston and then a senior vice president at Lehman Brothers, shut its doors after losing 80 percent of its value. Ms. Doran had started the fund just three years earlier. At its height it was worth only $35 million. Ms. Doran declined to comment last week.

Of course, big financial institutions have made bad bets on hedge funds, too. Through a fund offered by an investment unit, J. P. Morgan had $662,602 in Bayou as of March 31, which it has written down to zero. A spokeswoman for J. P. Morgan said that as a result of the investigation, the firm was no longer marketing the fund to investors. But over all, the odds favor big institutions. "They have a better chance of weeding out the problem funds," Mr. Shain said.

Labels: Bayou Group, Louisiana, Milberg

"Cooperman told prosecutors, whose probe of Milberg Weiss became public in 2002, that he knew how the firm did it: with the help of people like him who served as ready-made clients in exchange for illegal kickbacks...Cooperman, who had also served as a plaintiff in as many as 60 class actions filed by the firm, was rewarded for his cooperation with a 37-month sentence in July 2001."

The five-day trial in October and November, captured in more than 800 pages of transcripts, opened a window on Cooperman's dealings with Milberg Weiss and his cooperation with federal authorities. According to testimony by Cooperman and others, between 1988 and 1997 he received about $5 million from his arrangement with Milberg Weiss — about $1 million of which went directly to him and the rest to lawyers he owed money.

...Cooperman acknowledged in the divorce case that he did not view payments from Milberg Weiss as illegal at first. "What was going on with Milberg Weiss was a very well-known activity," he said. "They openly acknowledged, and we discussed, kickbacks and the relationship that we had." "I frankly didn't think of it as a, quote, 'criminal activity,' " he said. But "I think after a certain point, I realized it was."

...In testimony in the divorce case, Cooperman and Gioiella said that Milberg Weiss not only made direct payments to Cooperman but also paid on his behalf about $2 million to lawyer Richard Purdich, who had represented Cooperman in insurance litigation and other matters. Purdich did not return several phone calls...

...Cooperman also described a pair of meetings with William Lerach, the firm's best-known partner. At one, he said, Lerach gave him an envelope with $16,000. Beyond their general statement addressing accusations against Milberg Weiss, lawyers for Lerach declined to comment. Cooperman testified that Lerach invited him to help promote legislation favorable to class-action lawyers. Although his wife was reluctant to attend a fundraiser for former Alabama Sen. Howell Heflin, Cooperman said he told her, "I think that we need to show up," noting that the couple was "going to make a lot of money from this."

Labels: Milberg

Kickbacks' case embroils class-action powerhouse

By Timothy L. O'Brien
and Jonathan D. Glater
The New York Times
JULY 19, 2005

Three months ago, William Lerach, a class-action lawyer both feared and loathed in executive suites across the United States, received a disturbing call from his attorney. Federal prosecutors, Lerach was told, wanted more time to build a criminal case against him. Until then, a three-year investigation into whether Lerach and his former New York law firm, Milberg Weiss Bershad & Schulman, had used illegal tactics in shareholder lawsuits that made him and the firm rich and famous had appeared to be dormant. The phone call meant that the inquiry had suddenly gained traction...

...The investigation of Milberg Weiss began in the late 1990s with the prosecution for art fraud of Steven Cooperman, a multimillionaire ophthalmologist who collected fine art and opulent houses on the East and West coasts of the United States. He was also a frequent plaintiff in shareholder lawsuits brought by the firm.

Struggling with more than $6 million in personal debt, Cooperman engineered the theft of two of his own paintings - a Picasso and a Monet - from one of his homes and collected $17.5 million from insurers for the missing artwork, according to court documents from his divorce proceedings.

After the paintings turned up in a climate-controlled storage facility in Cleveland, Cooperman was prosecuted and convicted on fraud charges in 1999 and faced a 10-year prison term. To reduce his sentence, said a number of people with direct knowledge of the case, he offered prosecutors a bigger fish: Milberg Weiss.

Federal prosecutors in Los Angeles declined to comment. But former government lawyers said the prospect of securing Cooperman's cooperation had to be tempting to the authorities because taking on Milberg Weiss guaranteed a highly publicized, exacting legal battle.

"Your reaction to that is, there's an interesting scalp, more important than my two-bit art fraud thief," said Michael Shepard, former chief of special prosecutions in the U.S. attorney's office in Chicago, who is now in private practice in San Francisco and played no role in the Cooperman prosecution.

The deal that Cooperman signed with prosecutors remains under seal.

But he was not sentenced for two years, until July 2001. His sentence was reduced, and he ended up serving less than two years in prison. According to the judge in the divorce case, Cooperman received "large sums as kickbacks from attorneys in one of the leading class-action firms in the nation" - Milberg Weiss. In cooperating with prosecutors, the judge said, Cooperman would help implicate "members of the Milberg Weiss law firm."

For several months, nothing happened. Then, in early 2002, federal prosecutors in Los Angeles sent out a barrage of subpoenas to law firms that had worked with Milberg Weiss. Word of the federal investigation leaked to the news media...

Labels: Milberg