Class-action lawsuit fraud is not a victimless crime. At the very least, it harms the clients on whose behalf the lawyers are supposed to be working. So concludes respected St. John’s University law professor Michael Perino in a new data-driven analysis that shows a clear correlation between the incidence of corruption within disgraced law firm Milberg Weiss and higher fee requests and fee awards by and to the firm. Of course, if a law firm receives a larger portion of a court settlement, the firm’s clients receive proportionally less — which, in Perino’s words, is indeed “a real economic harm” to those same clients.
To review, four Milberg Weiss senior partners of the infamous class-action securities law firm have pleaded guilty recently in an $11.7 million kickback scheme that federal prosecutors said involved more than 250 cases, beginning in 1981.
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The kickbacks went to “professional plaintiffs” who filed class-action cases against companies almost as soon as their stock price dropped, no matter why it dropped. The firm’s bribes ensured it would be selected as lead counsel by the lead plaintiff in such suits, thus ensuring that Milberg Weiss garnered the lion’s share of legal fees.
Perino is a congressionally recognized securities law expert who recently completed a multiple regression analysis of 731 class-action settlements. “As settlements grew larger,” he reported, “the fee requests in the [Milberg Weiss] indictment cases grew at a faster rate than the fee requests in the non-indictment cases, which means that on average Milberg Weiss asked for an increasingly greater share of the settlements it obtained even though there is no evidence that it obtained superior results.” Put otherwise, Milberg Weiss lawyers went after a bigger share of the fees whenever one of its favored plaintiffs was involved.
Clients lost in a second way as well because the lawsuits further depressed the value of the companies being sued. The threat of suits alone was often sufficient to induce company executives to settle out of court, including payment of plaintiffs’ legal costs. Among them, the four convicted Milberg Weiss partners snagged at least $200 million in a 22-year span, according to federal prosecutors.
In short, this was little more than piracy, practiced in the courtroom rather than on the high seas. Congress so far has refused to investigate how widespread the piracy was, or whether it continues under other guises. If Congress had any sense of responsibility, the Perino report would spur it to action.
