June 02, 2008
For the last 30 years, Milberg Weiss was the dominant
plaintiffs’ securities class action firm. In 2006, the
Justice Department indicted the firm and several of its most
prominent partners for allegedly paying kickbacks to individuals
willing to serve as representative plaintiffs in these
actions. A number of individuals have pleaded guilty in the
case, including famed securities class action lawyer William Lerach
and the dean of the securities class bar Melvyn Weiss, who is
schedule to be sentenced on Monday. Nonetheless, the
prosecution remains controversial in large part because both sides
dispute whether these payments harmed absent class
members.
On Wednesday, Michael A.
Perino, the Dean George W. Matheson Professor of Law at St.
John’s, released an empirical study
that concludes that the kickback scheme harmed absent class
members. The paper analyzes the empirical question using a
database of approximately 730 class action settlements and fee
awards. The study found no statistically significant
correlation between cases alleged in the indictment and class
recoveries, but substantial differences in both fee requests and
fee awards. Statistical analysis of the data showed that: (1)
average fee requests and awards in the indictment cases were
significantly higher than those in the non-indictment cases; (2)
Milberg Weiss’s average fee requests and awards were significantly
larger than those of other plaintiffs’ law firms; and (3) within
the subset of Milberg Weiss cases, the firm’s average fee requests
and awards were higher in the indictment cases than in other
cases. Using linear regression analysis, Professor Perino was
able to demonstrate that as settlements grew larger, the fee
requests and awards in the indictment cases grew at a faster rate
than those in the non-indictment cases. These findings are
consistent with the hypothesis that absent class members were
harmed by the kickback scheme.
Press reports about Professor Perino’s study can be found in the
New
York Law Journal and at the
AmLaw Daily, the
Examiner.com, and
LegalNewsLine.com. The full study is available here.