The Milberg Weiss Prosecution: No Harm, No Foul?

Abstract

For the last 30 years, Milberg Weiss was the dominant plaintiffs' securities class action firm. The Justice Department's decision to indict the firm and several of its most prominent partners for allegedly paying kickbacks to individuals willing to serve as representative plaintiffs in these actions has been controversial, in large part because both sides dispute whether these payments harmed absent class members. This paper analyzes this empirical question using a database of approximately 730 class action settlements and fee awards. The paper finds no statistically significant correlation between cases alleged in the indictment and class recoveries, but substantial differences in both fee requests and fee awards. Simple means comparisons show that: (1) average fee requests and awards in the indictment cases were significantly higher than those in the non-indictment cases; (2) Milberg Weiss' 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. Linear regression analysis shows the impact of the Indictment variable is not uniform across cases but instead varies with the size of the settlement. 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.

Keywords: Milberg Weiss, class actions, lead plaintiffs, witness payments, attorneys' fees

JEL Classification: K20, K22, K40, K42