Defendant to plead guilty today in Milberg case

July 9, 2007, 8:04 PM UTC

(This item is by Roger Parloff and Fortune Editor at Large Peter Elkind.)

Defendant David J. Bershad, 67, a named partner at the indicted class-action law firm now known as Milberg Weiss & Bershad, is expected to plead guilty to conspiracy to obstruct justice at 2 p.m. PT today in Los Angeles federal court. (At 2 pm ET, the U.S. Attorney’s office in Los Angeles confirmed this in a press release, and also released certain accompanying documents, including the information, the plea agreement , and the statement of facts. See more updates at end of post.)

By pleading guilty to non-fraud counts, Bershad appears to limit his sentencing exposure under the guidelines a range of 27 to 33 months. Because he is cooperating with the government, he will be eligible for a significant “downward departure” from that range.

Bershad’s plea relates to the core allegations of the indictment: misleading judges into believing that plaintiffs were not receiving any special, secret compensation from Milberg Weiss, when in fact they were. A “factual statement” accompanying the plea is also expected to unveil new details of the government’s allegations against the still unindicted “Partner A” and “Partner B,” who are widely assumed to be, respectively, name partner Melvyn Weiss and former name partner William Lerach. Lerach and the San Diego-based west coast office of Milberg Weiss split away from Milberg Weiss in 2004 to found Lerach Coughlin Stoia Geller Rudman & Robbins.

Lerach said last month that was considering retiring. (See posts here and here.) The Los Angeles Daily Journal reported on June 28 that Lerach and Weiss had each turned down a plea agreement that would have required each to serve three to four years in prison. (See earlier post here.)

Since the split, Lerach Coughlin has probably been the nation’s premier class-action firm, and it has thus far recovered more than $7 billion from various banks on behalf of Enron bondholders. Lerach has also been leading the fight, both in the press and in the courts, to have the U.S. Supreme Court recognize the concept of “scheme liability,” which was crucial to his recoveries in the Enron case. The concept is coming before the High Court next term in the case of Stoneridge v. Scientific-Atlantica, and Lerach has asked the Court to also review what remains of his Enron case, too, after a federal appeals court rejected scheme liability theory and dismissed the case against nonsettling banks Merrill Lynch (MER), Credit Suisse (CS), and Barclays (BCS).

Another character in the investigation, Steven Cooperman, is also scheduled to plead guilty of conspiracy to obstruct justice tomorrow morning at 9 a.m. Some details of his agreement have been known since January, however, when he filed a written plea agreement with the court. A former eye surgeon and frequent class-action plaintiff for Milberg Weiss, Cooperman kicked off the Milberg Weiss investigation in 1999, when he began talking to prosecutors in a bid for leniency after being himself convicted of an unrelated insurance fraud. For Peter Elkind’s November 2006 Fortune feature story about the whole Milberg Weiss investigation, click here.

UPDATE: According to the plea agreement, Bershad has agreed to forfeit $7.75 million, in addition to paying a fine of up to $250,000. The government has agreed to recommend a downward departure from the sentencing guideline range, which appears to me to be 27-33 months.

Bershad’s statement of facts refer to, but do not name, three more illegally paid plaintiffs in Florida, in addition to the ones already alleged in the indictment: Seymour Lazar, Howard Vogel, and Cooperman. Bershad says that he, Partners A, B, and E all personally delivered some illegal payments in cash. (A and B have previously been reported to be Weiss and Lerach, respectively, while E has previously been reported to be Robert Sugarman, who left Milberg Weiss in 1999 and was later granted immunity by prosecutors.) Bershad describes incidents that implicate co-defendant Steven Schulman, partners A and B, and two other Milberg Weiss partners described as F and G. He says that he, A, B, F and G contributed personal money to a fund that was used to make secret payments to plaintiffs, and that the partners were then effectively reimbursed by the firm through bonuses. The firm’s partnership agreement, first formalized in 1986, had provisions designed to facilitate this process, Bershad says. He also describes in some detail the $1.1 million payment to plaintiff Vogel in December 2003, which occurred while the firm was under investigation. Bershad says Milberg Weiss provided false information to accountants, tax preparers and the Interal Revenue Service in order to hide and disguise the illegal payments.

Here’s a statement from the defendant Milberg Weiss firm, issued at 3:09 pm:

“We understand that David Bershad will plead guilty today to conspiracy
to obstruct justice. Mr. Bershad had been on a leave of absence since
May 2006 and his relationship with Milberg Weiss LLP has been
terminated. His plea was not unexpected as we indicated in a statement
we released May 30, 2007 (and which is available on We remain confident that his actions will
have no effect on the firm’s commitment to its clients and its ongoing
work to protect public shareholders and consumers. “