STOCKGATE TODAY

An online newspaper reporting the issues of Securities Fraud

A Plea Bargain to Rattle Wall Street - July 11, 2007

David Patch

This week Milberg Weiss partner David Bershad pleaded guilty to conspiracy charges in Federal Court in Los Angeles. The announcement provided a scurry of news reports that insinuate that Bershad copped this plea agreement to save himself and in doing so would snare some larger fish for the Federal prosecutors to go after.

When the Feds come calling with a plea deal we have seen time and time again that it is the American way to rat out your co-conspirators in return for a soft sentence. Most expect that Bershad will be a good American sing like a canary.

But who Bershad rats out may be of more interest than what the mainstream press have concluded.

Most within the mainstream media have focused their sites on Bershad spinning tales of conspiracy against former partners Melvyn Weiss and William Lerach. These professional journalists are most likely correct in their assumptions regarding Weiss and Lerach but have left some possibly bigger names off their list. The John Does 1 - 50.

Consider carefully the language in the Federal indictment against Milberg Weiss last year. Item 46a of the 105 page indictment claims “Unlike the other class members in the Lawsuits, the paid plaintiffs purchased the securities issue anticipating that the securities would decline in value, in order to position themselves to be named plaintiffs in securities fraud class actions and to obtain kickback payments from Milberg Weiss, Bershad, Shulman, and others.”

What we have not yet seen addressed publicly is how these named plaintiffs had become aware of exactly which securities to place such investments. How did Milberg Weiss know exactly where to place their investments in anticipation of not just a stock decline but a stock decline associated with an SEC civil securities fraud charge that would warrant a class action?

I would imagine that David Bershad may be able to shed some light on this subject and the option I have concluded is none too pleasant to think of. It could rock the confidence of Wall Street if I were to be remotely accurate in my conclusions.

I tried to think of the various ways that Milberg Weiss would be capable of making such opportunistic stock picks and what approach would be the lowest cost, least risk approach for the firm to take. I also looked to common threads that may shed some light on the subject matter.

First, lets consider that maybe Milberg Weiss was planting people in stocks randomly casting a wide net and hoping to catch the right fish. Such a process would have to be expensive as the percentage of firms that receive an SEC securities fraud case against them is relatively small. Civil fraud cases take place in fractions of a percent of public companies. The outcome would be so unpredictable it would be unmanageable for Weiss and could result in significant trading losses.

For these reasons I would dismiss this venue as being a realistic approach for the firm to take.

There is a second possibility that the firm cast a wide net using private investigators to investigate public companies and infiltrate their executive staff in attempts at gaining inside information on possible securities fraud cases against the company. The level of infiltration would require gaining access to upper management levels, as it would be that level that would be the most knowledgeable of SEC investigations and possible allegations into fraudulent acts.

With the SEC policies against any type of confirmation or denial that an investigation exists, the net cast by Milberg Weiss would again be rather large and expensive to operate. Where to dedicate the work force would be a search for that needle in a haystack. A program such as this would also run the risk that someone approached would catch wind of what was happening and report it to federal authorities increasing the risk in an approach like this.

I have again dismissed this approach as being a high probability due to the risk vs. rewards of such a tactic. This approach also has the same unpredictability as the first option leaving the firm’s business at risk.

Then there is this third option. Get involved with the bulls eye itself.

All investigations originate from a center hub and then disperse out like spokes in a wheel. The number of spokes is rather limited at any given point in time and while there may be one or two spokes that have loosened over time, the odds of focusing on these particular spokes would result in the highest rate of return on success.

The bulls eye or center hub - The Securities and Exchange Commission.

Like Anthony Elgindy who infiltrated the FBI and used federal investigation information obtained by FBI officers for stock trading, so too could Milberg Weiss infiltrate the SEC or other Federal Agencies and obtain that very same information.

Elgindy is now serving 11 years in Federal prison after being found guilty in 2005 of racketeering, securities fraud, and obstruction of justice. Alongside Elgindy is former FBI agent Jeffrey A. Royer who was likewise found guilty after providing Elgindy with information pertaining to criminal investigations taking place at the agency against executives of publicly traded companies.

With the cases that Milberg Weiss was involved being civil securities fraud related matters, the best opportunity for success would then come via the route of the civil investigator, the Securities and Exchange Commission. All Milberg Weiss had to do was locate a few willing parties at the SEC to provide information and the right cases would just flow across the desk of the firm as the SEC went about their normal course of business.

Elgindy proved it was a road traveled and at least once, traveled with all the participants in the same vehicle. One source has identified documents that validate that at least one meeting transpired in Elgindy's office where the attendees included Elgindy, Royer, lawyers for Milberg Weiss, and SEC Attorney's. To be a fly on the wall to that discussion.

This venue would therefore be my bet as to the low risk, low cost methods a firm like Milberg Weiss would use to boost profits. As a law firm that engages in securities fraud related cases, the lines of communications between the firm and the SEC would already be in place making such arrangements easy to conjure up. The indictment against the firm has already detailed how creative the firm had become in hiding their payoffs [bribes] and with the short employment tenure of an SEC attorney, hiding some extra cash would not be all that difficult to do while employed at the agency.

Only time will tell as to how much the public will be made aware of the total Milberg Weiss conspiracy but one thing is for sure, Milberg Weiss was getting the inside scoop from somewhere as it was clearly identified in the indictment against the firm. Where that information originated I cannot say but if it were I, I would start with a www.investigatethesec.com (Investigate the SEC) campaign and see where it all leads.

Hey, I already started such a campaign several years back when it became apparent that the federal agency was outwardly conflicted in their approach at protecting investors. The agency was fostering an environment of protection for the white collar crooks running the show and the small investor and public companies were becoming the collateral damage to the agency policies of protectionism. Greed and political favors ruled over simply rights to a free and fair market.

Lets pray that David Bershad sings like a canary on all involved. It could be music to the ears of those who doubt the integrity of the system we have before us today.

For more on this issue please visit the Host site at www.investigatethesec.com

Copyright 2007