Sept. 20 (Bloomberg) -- Melvyn Weiss, the co-founder of securities law firm Milberg Weiss, was indicted in a seven-year probe of allegedly illegal payments to plaintiffs in class- action cases.

Weiss, 72, was charged with participating in a scheme to pay millions of dollars in secret kickbacks to plaintiffs in more than 225 class-action and shareholder lawsuits, the U.S. attorney's office in Los Angeles said today in a statement. Former Milberg Weiss partner Steven Schulman agreed to plead guilty to his role in the scheme, prosecutors said today.

Federal prosecutors have been investigating Milberg Weiss, which has recovered $45 billion for investors in securities- fraud cases since 1999 after Beverly Hills eye surgeon told them about secret payments he got from the firm to serve as a lead plaintiff. The law firm, along with Schulman and former partner David Bershad, were indicted last year.

``Mel Weiss has been one of the kings of the plaintiffs' bar for the last decade or so,'' said Robert Mintz, a former federal prosecutor who now works as a white-collar criminal defense attorney. ``He's led the most aggressive and successful class-action law firm in history. He's been one of the main targets of this investigation.''

Weiss is charged with conspiring to obstruct justice, conspiring to commit racketeering activities, obstruction of justice and making false statements about subpoenaed documents. The firm, based in New York, also is charged with obstruction of justice in the new indictment.

Possible Sentence

Weiss faces 40 years in prison if convicted of all charges. He's scheduled to appear in court Oct. 12.

``Although this indictment is a bitter disappointment, Mr. Weiss intends to fight these charges with all of the energy and talent that has made him one of the most outstanding members of the bar for more than 40 years,'' Benjamin Brafman, Weiss's lawyer, said in an e-mailed statement. ``We are confident that when the evidence is carefully reviewed at a trial of these charges, Mr. Weiss will be fully exonerated.''

Weiss, who started the firm in 1965 with Lawrence Milberg, was referred to only as ``Partner A'' in previous filings in the case. Bill Lerach, who left Milberg Weiss in 2004 to start his own firm in San Diego, agreed on Sept. 17 to plead guilty to one count of conspiracy and to serve from one to two years in prison.

`Affection for Mel'

``I have high regard and affection for Mel,'' Lerach said today in a phone interview. ``We were friends and partners for a very long time. I just wish him the best in what I know will be a very difficult time going forward.''

Bershad pleaded guilty in July. Schulman agreed to plead guilty to racketeering, prosecutors said.

Schulman, 56, faces 27 months to 33 months in prison and has agreed to cooperate with prosecutors, according to the U.S. attorney's office.

Prosecutors said Schulman also will pay a fine of $250,000 and forfeit $1.85 million. Schulman didn't immediately return a call for comment.

Milberg Weiss Bershad Hynes & Lerach was the biggest law firm representing shareholders in securities-fraud cases before Lerach left. Weiss headed what is left of the original firm, Milberg Weiss. The firm said in a statement yesterday that Weiss would quit his role as a manager to defend himself.

`Record Recoveries'

``Despite the government's announcement today, we will continue to fight for our clients and class members and to achieve the record recoveries for which our firm has long been known,'' spokeswoman Marina Ein said in an e-mailed statement. ``The firm's active partners, none of whom is alleged to have been involved in any wrongdoing, will maintain responsibility for the firm's management and litigation activities.''

Steven Cooperman, the former eye surgeon, pleaded guilty in July to receiving $6.1 million in kickbacks for serving as a lead plaintiff in securities lawsuits. He told investigators he first met Weiss and Lerach in Los Angeles in January 1989 to discuss methods to pay him a cut of the attorney fees in a lawsuit against Newhall Land & Farming Co.

The case is U.S. v. Milberg Weiss Bershad & Schulman, 05-587, U.S. District Court, Central District of California (Los Angeles).

To contact the reporters on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net; Jef Feeley in Wilmington, Delaware jfeeley@bloomberg.net.

Last Updated: September 20, 2007 19:26 EDT