So fraud isn't just a corporate thing...

I wrote an article last month arguing that the PSLRA (Private Securities Litigation Reform Act) is still necessary legislation. The PSLRA was designed to curb abusive lawsuits by plaintiffs law firms. One of the practices included hiring "professional plaintiffs" to act as lead plaintiffs in their securities class action suits. Well, if you believed that businesses were exxagerating the problem, read this: http://online.wsj.com/article/SB118400043730461025.html?mod=home_whats_news_us.

Milberg Weiss & Bershad LLP is a national plaintiffs law firm that has filed countless securities class action suits. Now a lead partner, David Bershad, has pled guilty to paying kickbacks to encourage clients to serve as lead plaintiffs. More partners are under investigation. The Wall Street journal lays out the scheme:

"The allegations, according to the indictment:
• Before filing often lucrative securities-fraud class-action suits, Milberg Weiss arranged for individuals to serve as 'named plaintiffs' to represent absent class members.
• The individuals would purchase securities of a company whose stock was expected to drop in order to position themselves as named plaintiffs in a to-be-filed suit.
• In exchange for their services, Milberg Weiss would agree to pay the named plaintiffs a portion of the recovered attorneys' fee.
• The scheme violates federal and state law. The payments allegedly set up a conflict of interest between the named plaintiffs and other class plaintiffs.
• Milberg Weiss went to great lengths to hide such arrangements.
• From 1984 through 2005, Milberg Weiss paid more than $11.3 million in kickbacks."

Other facts from the WSJ article of 6/4/07:

"According to the indictment, Mr. Bershad allegedly directed kickbacks to plaintiffs by writing checks to "intermediaries" who then disbursed funds to clients. Mr. Bershad also allegedly kept cash in a safe in his office -- to which access "was strictly limited" -- to pay kickbacks, according to the indictment." (This behavior smacks of the corporate fraud that the plaintiffs lawyers are trying to fight against.)

"Lawyers say Mr. Bershad used a detailed knowledge of corporate finance to figure out how much could be demanded of Milberg's targets. Mr. Bershad, who had a Bloomberg terminal in his office, would suggest creative financial solutions to settling cases if, for example, a company didn't have a lot of cash, says a former partner."

So, Congress wasn't way off base in their concerns about class action lawsuit abuse by the plaintiffs' bar. Also note that the criminal indictments include a period of a decade (1995-2005) after the passage of the PSLRA.