IN the 1980s, Steven Cooperman had it all.

The Beverly Hills eye surgeon had homes in Los Angeles and Palm Springs, collected Monets and Picassos and owned letters signed by Brahms and Napoleon Bonaparte. But by the 1990s his fortunes had nosedived and he was facing 10 years in jail.

Accused of malpratice, Cooperman’s medical licence lapsed. He ran up debts of $4m (£2m) and lost a fortune on the stock market. As a way out, Cooperman faked the heist of two of his art works, collecting on a $12.5m insurance policy. The Feds weren’t far behind and in 1999 he was convicted of insurance, tax and wire fraud.

Cooperman had one asset left: his story. In return for a lighter sentence, he offered to tell prosecutors how Milberg Weiss, one of the most successful law firms in America, had hired him as a professional plaintiff, paid with illegal kickbacks.

Cooperman is one of several Milberg clients whose names turned up repeatedly on lawsuits stretching back to the 1980s. The handy supply of victims allowed the firm to file class-action suits against companies at lightning speed and ensured Milberg was lead counsel in the cases and thus entitled to larger legal fees.

Prosecutors claim another alleged accomplice, Seymour Lazar, his relatives and an “affiliated entity” were plaintiffs in about 70 lawsuits.

Milberg Weiss paid “approximately $2.4m in secret and illegal kickback payments for the benefit of Lazar”, according to the authorities. Lazar has pleaded not guilty and his defence has moved to dismiss the charges against him on the grounds of ill health.

Meanwhile, Cooperman is singing like a canary. Last week he pleaded guilty to a role in a lawsuit prosecutors claim netted $216m for the firm. In return, they will recommend he serve just 18 months in prison.

Cooperman’s plea came a day after David Bershad, a former partner at Milberg responsible for the firm’s financial affairs, admitted guilt in the same probe.

Bershad and another partner, Steven Schulman, were indicted last May in Los Angeles along with the law firm, and accused with others of participating in a scheme to pay millions of dollars in illegal kickbacks to plaintiffs in more than 150 suits.

According to the indictment, the firm has received more than $200m in fees from these lawsuits over the past 20 years.

Last April, Schulman fired back claiming class members were not injured by fee sharing.

“The government’s theory of prosecution . . . is a legal bridge too far,” he asserted.

But with two insiders now prepared to testify, the pressure on Milberg to settle is mounting. Prosecutors said in a statement that Bershad, 67, would forfeit $7.75m, pay a $250,000 fine and continue to cooperate in the case. His sentencing was scheduled for June of next year.

The back-to-back pleas have also intensified speculation that indictments are likely for former partner William Lerach and firm co-founder Melvyn Weiss, two of the nation’s most successful class-action lawyers.

They inspired fear and loathing in executive suites across America. Lerach in particular became famous for prosecuting his cases in an aggressive and dramatic style.

After the postmillennum stock-market crash and Enron’s collapse, he arrived outside a Houston courthouse with boxes of shredded “evidence”. The image personalised Enron’s complex collapse and made news across the world.

Enron and the dotcom collapse were heaven for Milberg Weiss, and the firm battered company after company into settling out of court. Lawyers would threaten to take every penny from corporate executives, and after the plethora of accounting scandals the general public, who had lost billions in investments and retirement plans, had little sympathy for them.

But along the way the firm made powerful enemies, with friends arguing the investigation had been inspired by attacks on firms like Halliburton, where vice-president Dick Cheney was chief executive, and Enron, whose late chairman Ken Lay was a friend of president George Bush’s family.

“Lerach has made a lot of enemies, but if the allegations in Bershad’s plea are correct, this is widespread fraud,” said Adam Pritchard, a securities-law professor at the University of Michigan and a former Securities and Exchange Commission lawyer.

In December 1995, payments to plaintiffs in class-action lawsuits were specifically prohibited under the Private Securities Litigation Reform Act. The act seemed designed to curtail Milberg Weiss. But thanks to the rash of corporate scandals in the US, and clever lawyering from Milberg’s partners, the firm’s influence only grew.

Behind the scenes many rivals and legal experts had their doubts about the firm.

Pritchard said: “How is it there are all these guys with 100 shares in a company many of whom show up case after case?

CASE HISTORY

MILBERG WEISS was the lead law firm in the case against junk-bond specialist Drexel Burnham, which was driven to bankruptcy in the 1980s. The settlement was in excess of $2 billion (£980m).

Among its other big wins are a $250m settlement and a jury award of $1 billion against American Continental/Lincoln Savings, and a further $1 billion in the Nasdaq market-makers antitrust case where 37 brokerage firms were accused of price-fixing.

It was always suspected plaintiffs were getting paid but there was never proof. Now we are beginning to see some evidence.”

Bershad has been charged with “conspiring to obstruct justice and to make false statements under oath” by the US Attorney’s office of the Central District of California. He faces five years in jail and has “agreed to plead guilty to the conspiracy charge, to forfeit $7.75m, pay a $250,000 fine and cooperate in the government’s ongoing investigation and prosecution of other participants in the conspiracy”, according to a statement from the attorney’s office.

Cooperman’s plea agreement says he conspired with “Partner A” and “Partner B” at Milberg, as the indictment referred to them. The unnamed partners are believed to be Weiss and Lerach.

Lerach left the firm amid acrimony in 2004 and founded his own San Diego-based practice, from which he reportedly plans to retire within two months.

“His stepping aside is pretty clearly an effort to save the firm he set up,” said Pritchard. “Milberg’s firm is under indictment– it would be very hard to save that firm from collapse.”

In a statement last week Milberg Weiss said Bershad’s plea was “not unexpected”.

“We remain confident that his actions will have no effect on the firm’s commitment to its clients and its ongoing work to protect public shareholders and consumers,” said the firm.

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