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34 J. Corp. L. 153 (2008-2009)


This paper examines the criminal prosecution of Milberg Weiss, formerly the most successful plaintiffs’ securities class action firm in the country, for allegedly making undisclosed incentive payments to class representatives. In particular, the article examines the government’s primary charge - that the firm’s practice violated the “honest services” theory of mail and wire fraud. The government’s application of this theory presumes a fiduciary relationship between the class representatives and the class which has never been clearly delineated and, indeed, is against the weight of case law and the realities of class action litigation.

The Article proceeds on two different levels. First, it delineates the theoretical underpinnings of the indictment, including the substance of the fiduciary duties the government alleged that class counsel and class representatives owed to absent class members. The Article demonstrates that the tri-partite relationship between class counsel, named plaintiffs, and class members is sui generis and cannot be equated with the traditional attorney-client relationship. It also reveals the inchoate nature of the “honest services” fraud charge which relied on these presumed duties. On a second level, the Article reviews the historical context necessary to understand the charges raised by the prosecution. Finally, the Article raises questions about how the criminal prosecution of Milberg Weiss impacts the on-going public policy debate over the extent to which private securities litigation acts an important tool to supplement the government’s enforcement of the federal securities laws.


Originally published in Journal of Corporation Law.


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