Save This Firm! Milberg Weiss Is Nearing Iceberg

080706 article asm Save This Firm! Milberg Weiss Is Nearing IcebergOn Friday, July 28, a 160-foot-long yacht called Duchess docked along the Hudson River at 41st Street, decked out like a hula dancer for a corporate party with a Pacific-island theme.

It’s not rare for a big law firm like Milberg Weiss Bershad & Schulman, the event’s sponsor, to hold such a lavish do for no particular reason. On one floor, two Bambi-eyed perfectly Bain de Soleil’d women entertained with Tahitian dancing. Elsewhere, there was mock gambling.

Pale men in bright, billowy shirts cruised the decks. Their female colleagues, duly lei’d, teetered around the dining room, balancing plates piled high from the buffet and turquoise beverages bobbing with mini umbrellas. Dance music blared. Cameras flashed.

But in light of recent events at the firm, partiers could be forgiven if the jollity felt a little forced.

The law firm, which for decades has dominated the securities class-action bar, was indicted in May along with two of its name partners on charges that it paid illegal kickbacks to plaintiffs in securities-fraud cases.

The firm and its partners have pleaded not guilty. But since then, the firm has faced a series of internal and external setbacks. Several cautious clients have asked judges to replace the firm as their lead counsel. And the firm is bleeding attorneys and has had to close several branch offices.

In an interview, founding partner Mel Weiss struggled to sound hopeful—occasionally even lapsing into the past tense when talking about the firm.

“It’s heartbreaking and it’s sad,” he said, “because these people worked so well together, and we serviced our clients in the most remarkable way—and we still do.”

“How can it be the same?” he said of Milberg Weiss after the indictment that rocked the company. “It’s impossible. The government’s action was a very dramatic action that changed things.”

“The mood is intense, somber,” said Burt Neuborne, an N.Y.U. law professor counseling the firm. “Nobody is dancing a jig and cheering.”

A lawyer for a competing firm, who asked to remain anonymous, said that he had interviewed several Milberg Weiss employees seeking a position with his firm.

He said they have the same sense of the mood at the firm.

“That it’s sad, it’s a sinking ship, it’s like a funeral home. It’s extremely upsetting,” he said. “It’s like waiting for them to turn out the lights and close the door; they’re running for the exits.”

Aloha, after all, can mean hello or goodbye.

Abandon Ship!

Published reports have documented the departure of about two dozen attorneys since the indictments were handed down. That’s a lot in a firm of 125 lawyers.

And of the offices once listed on the company’s Web site—Los Angeles; Boca Raton, Fla.; and Manhattan—only the New York and California branches remain.

The firm once employed close to 500 people, including paralegals, investigators, messengers, secretaries, forensic experts and lawyers.

The firm is taking expensive measures to retain staff, according to Mr. Weiss. Associates and “other professionals,” he said, just received a raise. That was on top of “retention bonuses.”

Mr. Weiss would not detail the terms of those offers, but according to the attorney at a competing firm who has interviewed Milberg lawyers for jobs, employees who are still working at the firm on Sept. 15 are promised a bonus equaling 10 percent of their salary on Oct. 1.

And the firm has retained the services of several prominent lawyers, including D.C. defense lawyer William Taylor III, a veteran of the Whitewater investigations. There is also a battery of public-relations experts and crisis handlers, including three prominent law professors—Mr. Neuborne and his colleague at New York University, Samuel Issacharoff, and Arthur Miller of Harvard.

Mr. Neuborne said they were advising on how to keep the firm “delivering high-quality services.”

Providing public-relations advice is none other than Howard Wolfson, of the Glover Park Group, who is a key advisor to Senator Hillary Clinton.

“The firm continues to be involved in hundreds of cases across the country, and the firm continues to represent clients protecting consumer and shareholder rights,” he said.

The firm is actively defending itself in the public and in the press.

One theme of the renewed Milberg Weiss public-relations push is to portray judges who remove them from cases as disrespectful of the presumption of innocence until proven guilty.

It is perhaps unsurprising that the loyalty of those who remain at Milberg Weiss gets fiercer as the situation gets direr. One polished brunette stepping off the Duchess had sharp words for a reporter who asked about the firm’s woes.

“We’re a family,” she said. “We’ll muddle through this.”

She told the reporter that the partying lawyers knew there was a reporter waiting for them on the pier.

“They have a message for you when they get off,” she said before storming down the pier.

Fragile Entities

Last year, the Supreme Court overturned the Justice Department’s conviction of Arthur Andersen for obstructing justice by shredding Enron documents. But shortly after the firm was indicted and then convicted in 2002, a firm employing 26,000 in the United States dwindled to 3,000 employees that year.

The “experience with Arthur Andersen indicated that partnerships are fragile entities,” said Mr. Issacharoff. “That’s the reality.”

Mr. Weiss pointed to the many senior partners still with the firm.

As for Milberg Weiss, “as long as I exist, it will exist,” he said.

Founded in 1965 by Mr. Weiss and trial lawyer Larry Milberg, the firm pioneered the use of the class action to bring a case large enough to catch the attention of powerful companies, in instances where individual stock losses were so small that it wasn’t worth a lawyer’s time to seek recoveries. Bill Lerach—of shredded-Enron-documents fame—joined in 1976.

And though Mr. Weiss’ firm pursues consumer fraud in industries such as health care and life insurance, they are best known for their work in the securities arena.

That obviously brought the scrappy firm into contact with the giants of the defense bar—the Skadden Arps, the Sullivan & Cromwells. Its skyscraper headquarters hovering over not-so-chic Penn Station, the firm nonetheless acquired some big-firm luster.

That didn’t mean it attracted exactly the same kinds of talent as its adversaries. The typical Milberg Weiss lawyer, though sometimes hailing from the typical prestigious feeders—judicial clerkships, federal prosecutors’ offices—and even defense firms, was a little hungrier, more entrepreneurial. For those who wanted to earn impressive paychecks, Milberg Weiss offered something like a middle ground for those who didn’t want to go over to the dark side.

“It was a unique opportunity to bring out your pro-bono-type spirit—you know, helping the underdog—and at the same time the ability to make money and then to use that money in helpful ways,” explained Mr. Weiss. “We’ve always been big contributors to a lot of causes.”

Some say Mr. Weiss and Mr. Lerach are the highest-paid lawyers in America. In 1999, when they were sued by University of Chicago law professor Daniel Fischel, it was revealed that Mr. Weiss and partner Bill Lerach each took home about $13.6 million in 1998.

Wachtell, Lipton, Rosen & Katz may serve kosher lunches, but at Passover, Mr. Weiss—an active contributor to Democratic and Jewish causes—prepares matzo brei for the entire firm.

In 2003, long-simmering conflicts between Messrs. Weiss and Lerach came to a boil, and the firm split in two: Milberg Weiss Bershad & Schulman, headquartered in New York, and Lerach Coughlin Stoia Geller Rudman & Robbins, with offices in New York, Los Angeles, Boca Raton and a half-dozen other cities. And while indicted partners David Bershad and Steven Schulman have only officially taken a leave of absence, their names have been all but erased in the “rebranding” of the firm.

“It would be sophistry to say that an indictment of a firm has no impact,” said Mr. Weiss.

And even as he tries to hold the firm together, he feels powerless to compel people to stay.

“People are concerned about their future, and I never reprimand anybody who walks into my office to tell me that they feel they have to protect their families and they have to make these moves,” he said. “Virtually everyone comes in with tears in their eyes. It’s really very heartbreaking to see this. This was a wonderful home for them and a wonderful place to work.”

And then Mr. Weiss added a hopeful note on the future of the firm.

“I think that the ones who stay the course are going to come out stronger and better and will fight more for their clients,” he said, “because they fought more for themselves.”