Mel Weiss Sentenced to 30 Months for Kickback Scheme

Mel Weiss, the former king of the plaintiff's class action bar, was sentenced to 30 months in prison after plead guilty to charges that he and some of his partners obtained $251 million dollars in attorney fees, by paying $11 million in illegal kickbacks to lead plaintiffs. While that is a typical prosecutor's view of the world, there was a kickback scheme since Weiss plead guilty to a federal racketeering conspiracy charge, admitting he lied to judges and secretly paid kickbacks to plaintiffs, in cash or through intermediary law firms, as part of a criminal enterprise that lasted 25 years.

Weiss also agreed to forfeit $9.75 million and to pay a $250,000 fine.

The WSJ is reporting that Milberg is close to a $75 million dollar settlement with prosecutors, his trial is set to begin in August.

The story is at Law.com - http://www.law.com/jsp/article.jsp?id=1202421890210&rss=newswire

Restrictive View of 10b-5 Statute of Limitations Prevails

Law.com - Judge Finds Securities Lawsuit Over Zyprexa Is Time-Barred

Judge Jack B. Weinstein, in the federal district court in New York, dismissed a securities class action case against Eli Lilly and Company that challenged the drug manufacturer's alleged misrepresentations about the anti-psychotic drug Zyprexa, holding that the plaintiffs failed to file their suit within the statute of limitations.

Judge Weinstein rules that the plaintiffs The "reasonably should have known" that they sustained damages because of Eli Lilly's purported fraud more than two years before filing the suit.

Federal securities laws claims have a two part statute of limitations - 5 years from the event or 2 years after the discovery of the facts constituting the violation.

While the plaintiff's argued that the two years began to run with the publication of three investigative articles about the drug in The New York Times in December 2006, Judge Weinstein ruled that the time began when when documentation supporting these potential claims first became available to attorneys and institutional investors.

That is a difficult position for individual investors, because despite Reg FD, access to information is not always equal, and the ability to process such information is not always present. Maybe attorneys and institutions knew when seeing the documentation, but that does not mean that investors knew of the fraud at that time.

But this may be a sign of things to come, as the pendulum of justice continues its swing back to corporate America:

The individual unsophisticated investor's lack of awareness is ignored; the law tilts the substantive-procedural balance against such a consumer. It applies the much-debated caveat emptor principle favoring greater and freer commerce by limiting litigation, and requiring dismissal of this case.

Caveat Emptor.

Former Brocade CEO Found Guilty on All Counts

Gregory Reyes, the former CEO of Brocade Communications, was convicted Tuesday on 10 felony counts relating to the backdating of stock options. Reyes was the first of a string of executives to be indicted on charges of misdating stock options. Most of those accusations involved backdated options granted to themselves, or frauds that stretch beyond changing dates. But Reyes' indictment accused him only of altering dates, and not of profiting directly from the scheme. His potential sentence is 20 years.

A 100 Million Dollar Legal Bill?

We all know that legal costs are rising, but this takes the cake. Former NYSE Chairman Dick Grasso says that his legal billing fighting Spitzer's old office have exceeded $100 million.

WHAT? I like Dick Grasso and support his defense of the Spitzer case, and have done so many times in this blog, but has he lost it? How in the world could the legal bill be one hundred million dollars?

The article says that there were 62 depositions. 62 depositions is a lot, but fine. A day for the dep, a day to prepare, 124 days of work. He is using a big law firm, so we can assume that there is a partner and an associate at each deposition, and another associate in the office . That is about $1,500 an hour.

The fees could not possibly be any higher than this, and that works out to "only" $1.5 million. Where the heck is the other 99 million dollars?

The man has to be wrong. No one could possibly charge $100 million dollars in this litigation, and no one would - the amount at stake is $189 million.

But if its true, will someone please tell Mr. Grasso that experienced securities litigators at small firms are not charging $1,500 an hour? Could someone please tell him that small firms, would handle 62 days of deposition for less than $50,000? And probably handle the entire case, through trial for less than 1% of that hundred million.

NYSE Member Suits Move Forward

The WSJ reports today that New York State Supreme Court Justice Ramos has ruled that former NYSE members can continue their suit over what they contend were misleading statements made by the Exchange and Mr. Thain in the months leading up to the announcement of the merger with Archipelago.

There was some interesting speculation in the industry about those disclosures, and the profits made by some seat holders prior to the merger - we commented on some of those rumors here and here.

Can Small Firms Handle Big, Complex Cases?

The Wall Street Journal Law Blog asks the question, and provides an analysis - the answer is yes. Having spent my entire career at small firms, it is no surprise that my answer to this question is "of course, and we do it more efficiently." The real surprise however, came from the comments in the WSJ blog's post on the topic.

Certainly, large firms have an advantage. In a case where 60 depositions need to be taken in 60 days, a 10 attorney boutique cannot handle the matter by itself. That statement begs the question - when was the last time there was such a case? In 25 years of practicing law, I have never seen such a case, nor have I ever heard of such a case. Does that mean they do not exist? I am sure that they must, but I cannot imagine the senario where an experienced litigator would allow himself to be placed in such a position.

When that case comes along, I will refer it to a mega firm. However, the fact is, litigation is going to be handled by a small group of attorneys, typically two or three with some support, and it does not matter whether the law firm has 10 attorneys or 1,000.

If you have the right attorney, who has the right experience and skill, the size of the firm is irrelevant.

SEC Comments on Issuer Filings Now Online

The Internet is a constantly evolving source of information, making research easier and easier. We learned today from the Corporate and Securities Law Blog, that the SEC is placing its comments letters on issuer filings online through EDGAR.

That should make for some interesting reading for all of those IPO class action lawyers.

SEC Correspondence May Come Back to Bite You

Loser Pays?

The decision in the Enron Class Action, where Judge Harmon ordered a class action firm to pay Alliance's legal fees, is getting big play in the press. A Wall Street Journal editoral was unabashed in its praise:

One reason the tort bar files so many frivolous lawsuits is that there have been very few penalties for its legal abuses. So congratulations are due to a Texas judge who last week ordered class-action kingpin Bill Lerach to pay up for his latest wretched excess

"Wretched excess" is, at a minimum, hyperbole, but what is it that makes some commentators so crazy over a loser pays decision. Sure, the class action bar is currently the favored whipping-post for the press, and there certainly have been some excesses in that arena. But is loser pays really such a great idea?

As a defense lawyer, I should be in favor of loser pays, and there is a terrible temptation to endorse it. However, it is undoubtedly not good for society. Too many benefits have been derived from the little guy taking on the big guy. While loser pays is often proclaimed to be the savior of tort reform, it is the little guy who loses in loser pays. What individual plaintiff is going to sue corporate america if he runs the risk of paying the legal fees if he is not successful?

Plus, today's winner is often tomorrow's loser.

Update: Apparently that editorial is creating a storm of its own. Lerach, who is representing the shareholders, fired back with his own editorial, and while the WSJ printed his letter, it has apparently overlooked the fact that Alliance waived the award of legal fees in return for an agreement not to appeal the ruling.

The roundup is at the WSJ Blog, and thanks to 10b-5 Daily for alerting us to the posts.

Settle to Avoid Suit, Get Sued Anyway?

I don't have any first hand information about this, but something is odd. The NYT is reporting that Spitzer's office has sued the mutual fund manager J. & W. Seligman & Company on Tuesday, contending that it owes investors $80 million in compensation for improper market-timing trades.

According to the Times, Seligman claimed that it only had 4 cases of market timing arrangements, repaid investors the damages from those arrangements and reduced its management fees going forward. Spitzer still required documents and testimony, and claims to have uncovered another 35 timing agreements for prior years, going back to 1998.

I'm not sure whether this is a case of unclear reporting, a vindictiveness by the government, or mis-reporting by the company, but something is certainly odd about this series of events.

In what might be a bit of nastiness, the suit also names Seligman's president, personally.