May 28, 2008 1:18 PM

Study Says Milberg Weiss Harmed Class Members

Posted by Nate Raymond

As he awaits sentencing, Melvyn Weiss must be wondering whether all those kickbacks his former firm allegedly paid to name plaintiffs were worth it. The answer, according to a study released today, is no-- at least so far as the absent class members go.

Milberg Weiss, now known simply as Milberg, has argued that the kickbacks, which it called "referral fees," were victimless since they came out of attorneys fees and helped it achieve high settlements. But in a paper presented today at the American Enterprise Institute, St. John's University law professor Michael Perino found no correlation between the illegal payments and settlement size.

"While recoveries in the indictment cases are statistically indistinguishable from recoveries in the non-indictment cases, there are substantial differences in fee requests and fee awards," the paper says. The average fee request by Milberg Weiss in cases mentioned in the federal indictments was 31.8 percent, compared to 29.8 percent in non-indictment cases. And the firm asked for fees 5 percent higher than those of other law firms."That would obviously come out of the class's pocket," says Perino, who was in Washington, D.C. today to present his findings to AEI. (Perino says he did not receive funding from the conservative pro-business group for the study.)

A call to Milberg for comment was not immediately returned.

Perino says he conducted the study after receiving several questions from reporters asking if anyone was really harmed by the payments. Milberg Weiss had argued that the alleged payments did not harm the class "because the government's alleged 'conflict of interest' between the lead plaintiff and the class is completely illusory."

"Milberg Weiss's referral fees are paid out as a percentage of the attorney's fees awarded by the court," the firm argued on its now-defunct Web site milbergweissjustice.com. "Generally, higher settlements translate into higher attorney fees. If a lead plaintiff was being paid a percentage of the attorney fees, the lead plaintiff would have every incentive to maximize the settlement amount. Referral fees also come out of the attorney's share of the damage award, not the class's share."

But Perino's study suggests the payments may have created an incentive to increase the size of the attorney fee requests to pay for the kickbacks.

"These findings cast doubt on Milberg Weiss' claim that paying kickbacks was a completely victimless crime," Perino's paper says. "They are consistent with the hypothesis that Milberg Weiss asked for and got a greater share of the settlements in these cases than it otherwise would--a real economic harm to the class members who therefore would have had a lower net recovery."

All told, Milberg Weiss obtained more than $216 million in attorneys' fees in the suits mentioned in the indictments, according to the government. Out of those fees went $11.3 million in kickbacks.

Weiss, who pled guilty in April to racketeering conspiracy, is scheduled for sentencing Monday. Prosecutors have asked for a 33-month sentence. Weiss is asking for 18 months, with at least half in home confinement or doing community service. He previously agreed to forfeit $9.75 million and pay a $250,000 fine.

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