Thursday, May 25, 2006

Ever since the accounting firm Arthur Andersen LLP imploded in 2002 under the weight of an obstruction-of-justice indictment and 28,000 people lost their jobs, federal prosecutors have shied away from filing criminal charges against corporate entities.

Instead, the Justice Department has cut deals with cooperative companies such as Computer Associates International Inc., accounting firm KPMG LLP and drugmaker Bristol-Myers Squibb Co., agreeing not to press criminal charges in exchange for sweeping management changes, large financial penalties and help putting individual employees behind bars.

Last week, federal prosecutors in Los Angeles broke with that trend, filing a 20-count criminal indictment against the phenomenally successful class-action law firm Milberg Weiss Bershad & Schulman LLP. The indictment alleges that two of the firm's top partners, David J. Bershad and Steven G. Schulman, who were also indicted, secretly paid more than $11.3 million in kickbacks to individuals to serve as plaintiffs in class-action securities cases and then lied about it under oath.

The firm and the lawyers have denied wrongdoing. "We have been assured by the partners involved that they didn't engage in wrongdoing," said the firm's attorney, William W. Taylor III. "The firm stands firmly behind them." Bershad and Schulman have taken leaves of absence to fight the charges against them.

The Justice Department's decision to move against the firm, which has 125 lawyers and 240 support-staff members, has been highly controversial because most observers think simply being indicted could force a professional-services firm such as Milberg Weiss out of business.
Indeed. Although professional-services firms, especially law firms, recognize the importance of reputation, perhaps that recognition should do more to constrain the conduct of its attorneys and agents, so as to avoid the appearance of impropriety, let alone indictment.