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Indicted Lawyer's Firm Smelled Trouble
An internal Best Best & Krieger memo worried that
its handling of referral fees from the Milberg Weiss firm was
questionable
Justin
Scheck
The
Recorder
01-03-2006
Nearly 12 years ago, an internal memo from the
Southern California firm Best Best & Krieger expressed concerns
that it was acting as a conduit for legally questionable payments
from the plaintiff firm Milberg Weiss to Seymour Lazar, the lead
plaintiff in dozens of securities class actions.
The memo,
filed in court by prosecutors last week, expresses particular worry
about the Best firm recording payments from the firm then known as
Milberg Weiss Bershad Hynes & Lerach to Lazar as firm income,
which would then be secretly credited to Lazar for future legal
services.
"To us it just smells bad," the memo says, "and
probably would to an investigator."
That concern came to
fruition in June, when Lazar and his attorney, Paul Selzer -- a
former partner at the Best firm -- were indicted by a Los Angeles
federal grand jury for allegedly taking more than $2 million in
illegal kickbacks from Milberg Weiss.
The L.A. U.S.
Attorney's Office has spent the past five years probing whether
Milberg Weiss -- which split in 2004 when star partner William
Lerach broke off to form his own San Diego-based firm -- paid
illegal kickbacks to lead plaintiffs in class actions.
After
several years of investigation with few public developments, the
Lazar and Selzer indictments were widely seen as an effort to force
the two defendants to testify against Milberg Weiss and its
partners.
Prosecutors have also given immunity to at least
two other former clients who say they received kickbacks from the
firm via other attorneys. Lawyers familiar with the case say their
allegations are similar to those detailed in the Lazar indictment.
In a series of detailed charges, Lazar and Selzer were
accused of taking dozens of payments from Milberg Weiss that would
have been illegal because they gave lead plaintiff Lazar a different
incentive than the rest of the plaintiff class members, and were
never reported to the courts.
The indictments referred to
"kickbacks" paid by Milberg Weiss to Lazar and disguised as
"referral fees" paid to Selzer, then a partner at the Best firm. And
while the indictments laid out a complex series of financial
transactions, they did not claim to have proof that Milberg Weiss
intended to pay anything other than a referral fee to the Best firm.
Prosecutors attached the internal Best firm memo last week
to a seemingly routine objection to Lazar's request to end his house
arrest.
The 1994 document from Best Best & Krieger --
which represented Lazar in business matters in the 1990s -- outlines
concerns about Lazar's arrangement with Milberg Weiss, which is
referred to as "the New York law firm." The name of the memo's
author has been redacted.
"Seymour [Lazar] has requested
that Best Best & Krieger treat monies received from Seymour's
class action law firm in New York as current income of Best Best
& Krieger, not as Seymour's funds held in trust," the memo says,
explaining that Lazar wanted the firm to credit the money toward his
future legal fees, and possibly to car payments and charitable
contributions.
Best Best & Krieger's current managing
partner said his firm is not under investigation.
The memo
"is something that the government has had for a while," said Eric
Garner in a voicemail message left Friday. He added that the Best
firm "is not a target or subject of the investigation."
Selzer left the firm in 1995. According to the memo, he
wanted the firm to put the arrangement with Lazar in writing.
"Mr. Lazar does not wish to have this relationship
documented," the memo continues. "He points out that this
relationship has been going on for years and has never been
documented."
Lazar's desire for the payments to remain
secret apparently raised hackles inside the Best firm. "We have
indicated to him on several occasions our concern over participating
in some type of conspiracy to defraud the Internal Revenue Service
or to otherwise violate the laws prohibiting plaintiffs in class
actions from receiving fee splits," the memo says.
It goes
on to dismiss concerns about the IRS and focuses on the
fee-splitting question, pointing out that, even if the fees paid by
Milberg Weiss are reported as income for the Best firm, it wouldn't
take much digging to reveal the true nature of the arrangement.
The memo concludes that Lazar "apparently does not want to
document the relationship so as to avoid confirming the 'matching'
of fees received by Best Best & Krieger and the services
provided to Seymour Lazar."
Patrick Robbins, a former
federal prosecutor now specializing in white-collar cases at
Shearman & Sterling, said that if it can be authenticated, the
Best memo could prove to be an important piece of evidence.
"It strongly indicates that there was money laundering with
the funds derived from the New York law firm," he said. But, Robbins
added, the document is old, and would only be useful in a case where
the government is trying to prove an ongoing conspiracy that would
not be rendered obsolete by the five-year statute of limitations.
Lazar's criminal defense lawyer, Thomas Bienert, and lawyers
for Selzer and New York-based Milberg Weiss did not return phone
calls, and John Keker, who represents Lerach, would not comment on
the case.
While prosecutors attached the document to their
opposition to Lazar's bail motion as evidence of the strength of
their claims, the main argument to keep him under house arrest is
that financial transactions -- including the wire transfer of $4
million to an off-shore account -- indicate Lazar is a flight risk.
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