Federal Judge Demands Explanation From Class Action Law Firm Milberg LLP On Withdrawn Allegations In Sony Lawsuit

Milberg LLP, the class action law firm which in a prior incarnation was indicted on federal criminal charges, is the target of an inquiry by a U.S. District Court judge in New York after it included allegations from two “confidential sources” in a lawsuit against Sony Corporation which subsequently were not supported by their deposition testimony as reported by Nate Raymond for the New York Law Journal:

Milberg and its co-counsel sought to reassure a federal judge on Friday that it did not violate court rules by including statements by two confidential witnesses in complaints against Sony Corporation that did not hold up in subsequent depositions. In a response to Southern District Judge Robert Patterson Jr.’s demand for an explanation, Milberg and two other firms said that while their lawyers were equally “surprised by the testimony” of its witnesses, the firm believed their allegations were accurate when it included them in the complaints.

In 2006 the predecessor firm was indicted in connection with an alleged decades-long scheme in which serial plaintiffs were illegally paid to file shareholder class action suits.  Several heavy-weight partners were convicted for their roles and sent to prison; however, the firm itself — now known simply as Milberg LLP — avoided prosecution by paying a $75 million fine and hiring a compliance monitor.  The recently published book Circle of Greed dives into the dirty deeds, and Don Bauder provides a review at the San Diego Reader:

[William] Lerach and his onetime partner, New York lawyer Melvyn Weiss (who also went to prison), prided themselves on being populists working assiduously for the little guy. But their own words and deeds belie that claim. An excellent new book, Circle of Greed, by former San Diegans Patrick Dillon and Carl Cannon, quotes Weiss in the early years of the two lawyers’ careers: “Thank God for greed,” said Weiss over drinks. “Let’s hope it’s a growth industry.” According to the New York Times, Lerach boasted at another time, “We’re no angels. We’re driven by the profit motive just like everyone else.… Am I in it for the money? Yes.” While Lerach and Weiss raked in as much as $16 million a year, the investors they claimed to champion brought in, on average, about 15 cents on the dollar, according to Fortune magazine. So much for populism.

Speaking on the intregity of the remaining partners at Milberg, Ariana Tadler previously stated:  “The lawyers that stayed were not implicated or involved in the indictment, and we are going to work just as aggressively as we always have to do the best for our clients.”  And yet notwithstanding their innocence the question still begged is whether some of those remaining partners had suspicions about the scheme prior to the indictment and what, if any, steps they took to address the problem.  After all, what did they think was happening when the same individuals repeatedly were serving as plaintiffs in dozens of lawsuits?  Indeed, in 1995, Congress enacted the Private Securities Litigation Reform Act specifically for the purpose of curbing the abuses for which Milberg and several of its partners were indicted, and surely this legislation raised a red flag even among the innocents at the firm.  After all, isn’t the specialty of the lawyers at Milberg to root out such things? 

Another former Milberg partner, Paul D. Young, who worked on the firm’s lawsuit against Tyco which settled for over $3 billion, was sued by New York City in November 2006 for alleged criminal nuisance involving the operation of El Mirage, a gay S&M sex club, out of the basement of a property he owned as reported by Roger Parloff for Fortune magazine.