Court papers filed recently suggest two partners at one of the nation's most active firms for shareholder lawsuits asked a federal court to approve expenses that were improperly inflated.
The documents were filed in federal court last week as part of a guilty-plea agreement for John Torkelsen, a former expert witness on damages who was used by Milberg Weiss LLP and other plaintiffs class-actions firms in the 1980s and '90s. Mr. Torkelsen agreed to plead guilty to perjury for making false statements in federal court.
In connection with the plea agreement, the government submitted a statement, which Mr. Torkelsen attested to as true, saying that on at least three occasions he submitted inflated fee requests to courts, and that the law firm he worked with knew the requests were inflated. That firm, which the plea papers refer to only as a New York firm, was Milberg Weiss, according to a person familiar with the situation.
Two partners at the law firm now called Coughlin Stoia Geller Rudman & Robbins LLP, which spun off from Milberg Weiss in 2004, were involved in a lawsuit mentioned in the plea statement while they were lawyers at Milberg Weiss. Filed in 1995, the lawsuit alleged that Sunrise Medical Inc., a medical-product manufacturer, fraudulently overstated its income. In 1996, Mr. Torkelsen filed a sworn statement that his firm incurred $420,000 in fees in the case. But according to the plea statement, that amount was inflated by $130,000, a discrepancy that both Mr. Torkelsen and the law firm knew about, according to the plea papers.
In 1996, Coughlin Stoia lawyer Keith Park, then at Milberg Weiss, filed a sworn declaration in the Sunrise case that asked the court to reimburse its expenses for experts. Mr. Torkelsen's firm was one of Milberg's experts in the case. Mr. Park asserted that Milberg Weiss had kept an accurate record of its expenses.
Coughlin Stoia name partner Patrick Coughlin, then a Milberg Weiss lawyer, filed a sworn statement asking the court to approve the settlement and to reimburse Milberg Weiss for its expenses in the case. Mr. Coughlin described Mr. Torkelsen's firm and other experts in the case as "instrumental in developing the evidence and quantifying the damages suffered by the class." The expenses were approved, as was the settlement of the case, for $21 million in damages.
It isn't known whether Messrs. Park or Coughlin knew fees were inflated. They aren't named in Mr. Torkelsen's plea papers. "Any suggestion that anyone here did anything improper in this matter is inaccurate and irresponsible," said Coughlin Stoia in a statement. A firm spokesman declined to provide specifics. Through a spokesman, Messrs. Coughlin and Park declined to comment.
Neither of the lawyers, nor the firm, has been accused of wrongdoing, and prosecutors are unlikely to charge any lawyers in connection with Mr. Torkelsen's criminal conduct, according to people familiar with the investigation
"We are not aware of any partner of Milberg Weiss LLP having knowledge of any of the misconduct detailed in Mr. Torkelsen's plea agreement," Milberg Weiss said in a statement.
The government's investigation of Mr. Torkelsen was part of a broader investigation of Milberg Weiss, which was charged in 2006 with paying improper kickbacks to clients. Milberg Weiss and its senior partner, Melvyn Weiss, are fighting the charges. Three other former Milberg Weiss lawyers, including William Lerach, who moved to what is now the Coughlin firm at the time of the 2004 split, have pleaded guilty.
As part of Mr. Lerach's plea agreement, reached last fall, the government agreed not to prosecute Messrs. Coughlin or Park in connection with various matters, including the work of a "Princeton" damages expert for Milberg Weiss or Coughlin Stoia. Mr. Torkelsen's firm was called Princeton Venture Research Inc. No other lawyers were specifically named in Mr. Lerach's plea agreement.
The government said Mr. Torkelsen's inflated fees were part of a broader scheme to help conceal the true nature of "the New York law firm's" payment arrangement with the expert. A person familiar with the matter identified the firm as Milberg Weiss. Mr. Torkelsen would present himself to courts as an independent expert when in fact he was paid on a contingent basis, with his payment depending on the plaintiffs prevailing in the case, the government said. Securities lawyers say that kind of payment arrangement creates a potential conflict, because it could encourage an expert to exaggerate the extent to which plaintiffs have been harmed.
Plaintiffs lawyers typically must front their expenses, such as expert fees, in contingency-fee suits, and they recoup them if the suit is successful. By paying an expert on a contingent basis, a law firm wouldn't have to take that risk.
Inflating fees in successful cases allowed the New York firm to make up for fees not paid out to Mr. Torkelsen in unsuccessful cases, the plea papers say. The costs of these makeup payments were borne at least in part by class-action plaintiffs, who in some instances paid for work that Mr. Torkelsen didn't perform in their cases.
Mr. Torkelsen is in federal prison after being convicted on unrelated charges. His lawyer didn't respond to a request for comment.
Mr. Torkelsen once was one of the top damages experts in the securities-fraud field, according to securities lawyers. From 1993-96, he billed class-action firms more than $60 million, according to the papers accompanying his plea agreement.
Coughlin Stoia is one of the nation's leading firms in securities class actions, in which shareholders typically blame stock losses on misleading statements by corporate executives. The firm topped the charts in terms of total settlements in such cases in 2006, the most recent year for such data, according to RiskMetrics Group Inc.
Coughlin Stoia has been particularly active of late in the area of securities class actions related to the subprime-lending meltdown. According to a report last month by Navigant Consulting, it has filed more such suits than any law firm -- more than a dozen. Mr. Coughlin is the lead lawyer in the Enron Corp. securities-fraud litigation, in which Coughlin Stoia seeks almost $700 million in fees for itself and other plaintiffs lawyers in the case.