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Class Action Firm Indicted for Paying Kickbacks to Clients to Serve as Plaintiffs

Class action plaintiff firm Milberg Weiss Bershad & Schulman LLP learned on May 18, 2006, that it had been indicted by federal prosecutors in Los Angeles for paying more than $11 million in kickbacks to clients to serve as plaintiffs. The 102-page, 20-count criminal indictment also names two of the firm’s top partners, David Bershad and Steven Schulman. Nathan Koppel and Peter Lattman of the Wall Street Journal reported on the fallout from the indictment, including “the Ohio attorney general firing the powerhouse law firm as counsel in a class-action case.”

Koppel and Lattman report that the indictment alleges the firm “made the alleged kickbacks to gain a strategic edge in the pitched competition to be lead counsel in class actions.” The problem is simple, and concisely framed by the Wall Street Journal: “It is illegal for lead plaintiffs to receive more in compensation than other members of a class.”

The article explains that this could be just the beginning of the end: “Many legal experts say a torrent of challenges to the firm’s role as counsel in class-action cases could threaten the firm’s existence.” The potential fallout from the indictment is thoroughly discussed in Koppel’s and Lattman’s article, “Milberg Dealt Blow as Indictment Fallout Grows,” printed May 20, 2006, in The Wall Street Journal.