Law firm Milberg in settlement talks: sources

LOS ANGELES/NEW YORK (Reuters) - Indicted U.S. law firm Milberg LLP is in settlement talks with federal prosecutors to resolve a long-running criminal case involving accusations it paid illegal kickbacks to clients, sources close to the talks said on Tuesday.

New York-based Milberg, scheduled to go on trial in August, is discussing ways to resolve the case with the U.S. Attorney's Office in Los Angeles, according to two people with knowledge of the talks who asked not to be identified because of the sensitivity of the negotiations.

Prosecutors contend Milberg, a specialist in investor class-actions long feared in corporate America, provided secret cash payoffs to clients over a span of 25 years. The firm is accused of hiding the arrangements from judges and other plaintiffs, reaping $250 million in attorneys' fees in more than 225 lawsuits in which it paid individuals to bring cases.

The firm did not immediately respond to a request for comment. The U.S. Attorney's Office declined to comment.

It was not immediately clear how advanced the talks were or what possible resolutions were being discussed.

Milberg co-founder Melvyn Weiss, one of the best-known U.S. shareholder lawyers, pleaded guilty on April 2 to racketeering charges in connection with the alleged scheme and faces as much as 33 months in prison when he is sentenced in June.

The firm, now named after firm co-founder Larry Milberg, who died in 1989, dropped Weiss' name in March after the plea deal was announced. At the time, Executive Committee member Sanford Dumain said that Milberg was "seeking to find a fair and appropriate resolution of remaining issues" so that it could move forward with its work.

Since its May 2006 indictment, the firm has struggled to hold on to clients and lawyers, rarely bringing new securities fraud class-actions and instead working on its overhang of previously filed litigation.

Still, the firm was the top-ranked U.S. plaintiff's law firm in terms of class-action securities fraud settlement winnings last year, getting $3.8 billion in finalized pacts on behalf of investors, according to shareholder advisory firm RiskMetrics Group. Much of that is due to a $3.2 billion settlement for investors who sued Tyco International Ltd following an accounting scandal

Six other individual defendants have pleaded guilty in the Milberg criminal case, which prosecutors have been investigating for eight years. Weiss's protege, William Lerach, who left the firm in 2004 to form his own San Diego-based law practice, pleaded guilty to a single count of conspiracy last year and was sentenced to two years in prison.

A court document filed in the case last month, seen on Tuesday by Reuters, also mentioned talks between the government and the Milberg firm about resolving the case. The March 28 filing said "the government and defendant Milberg are currently engaged in discussions concerning potential disposition as to Milberg."

The filing, signed by lawyers for the government and for the firm, asked the judge overseeing the proceedings to postpone several pretrial deadlines related to hearings and motions, saying that both sides "believe that it would facilitate their case disposition discussions to delay the deadline" for Milberg to file certain documents in the case.

According to prosecutors, Milberg recruited clients with large stock portfolios who would serve as lead plaintiffs in stock fraud cases in exchange for a share of the firm's legal fees. Before class-action reforms were enacted, the kickbacks allowed Milberg to be the first to file lawsuits, allowing it to obtain lead counsel status and lucrative legal fees.

Legal experts say there likely is little incentive for the law firm to go to trial now that Weiss and other individuals have pleaded guilty. They say prosecutors also do not like to put corporate entities on trial, given what a criminal conviction can mean for rank-and-file employees.

A case in point was auditing firm Arthur Andersen, which was found guilty of obstruction of justice related to the destruction of Enron Corp. documents in 2002. That conviction was later overturned but came too late for the thousands of Andersen employees who had lost their jobs.

"The issue for the Department of Justice is how much do we want to penalize the institution?" said Dan Tyukody, a securities litigator at Orrick in Los Angeles who has followed the Milberg case. "If you put the firm out of business you've also harmed the careers and livelihoods of a whole bunch of people who had absolutely nothing to do with it."

(Reporting by Gina Keating and Martha Graybow; Editing by Brian Moss and Tim Dobbyn)