May 18 (Bloomberg) -- Milberg Weiss Bershad & Schulman, the law firm that has won more than $45 billion for investors in securities-fraud cases, and two of its partners were charged with participating in a scheme to pay illegal kickbacks to clients.

The 20-count indictment issued by a federal grand jury in Los Angeles today charges the firm, Steven Schulman, 54, and David Bershad, 66, with felonies including mail fraud and conspiracy.

The charges, which legal experts say involve the largest U.S. law firm ever indicted, might inhibit New York-based Milberg Weiss's ability to represent clients in securities cases. The charges may also threaten the firm's management of 309 class actions for shareholders who claim initial public offerings were manipulated by investment banks to inflate market prices.

``This will probably mean the end of the firm,'' Larry Hamermesh, a law professor at Widener University in Chester, Pennsylvania, said in phone interview. ``It will probably end up in receivership in a couple months and begin to dissolve.''

Milberg Weiss, which has 125 lawyers, called the indictment ``unjust, misguided, and misinformed'' in a statement.

Attorney-Client Privilege

The indictment came after six months of ``intense negotiations'' between Milberg Weiss and government lawyers which couldn't be resolved because the firm refused to waive attorney- client privileges to avoid being charged, Milberg Weiss said. The firm said it also refused to make unfounded statements against its partners accusing them of crimes.

Melvyn Weiss, the lead partner at Milberg Weiss, and William Lerach, Weiss's former partner who now leads a spinoff San Diego firm, Lerach Coughlin Stoia Geller Rudman & Robbins, were told in February that prosecutors didn't have plans to charge them in the case.

Weiss, in a videotaped statement on a firm Web site, said he was ``outraged'' by the indictment, which charges the firm with seven counts, including conspiracy, mail fraud and money laundering.

``Our firm is the champion of consumers and investors,'' Weiss said. ``We will not allow the indictment today to deter us from our watchdog role. We will vigorously defend ourselves and our partners against these charges.''

A,B and E

Today's indictment names three unidentified senior partners at Milberg Weiss who participated in the scheme. The partners, described as Partner A, B, and E, weren't charged.

Bershad and Schulman, who took leaves of absence from the firm earlier this week, denied the charges in e-mailed statements from their attorneys. Both men may appear in June to hear the charges against them, prosecutors said.

``David Bershad categorically denies the allegations of the indictment,'' his attorney, Andrew Lawler, said. ``He intends to vigorously fight the charges and is confident he will win.''

Herbert Stern, a lawyer for Schulman, said his client will plead not guilty. ``We look forward to his ultimate vindication,'' Stern said.

Bershad was indicted on nine counts, including racketeering and money laundering. Schulman faces seven counts, including mail fraud and racketeering.

Prosecutors said the firm, from 1984 though 2005, paid three clients more than $11 million ``in secret and illegal payments'' for cases in which the firm made $216.1 million in fees. The payments were made in cash or checks through intermediary lawyers or other professionals, according to the indictment.

`Stable' of Clients

``Milberg Weiss had a stable of individuals ready and willing to serve as plaintiffs,'' U.S. Attorney Debra Wong Yang said during a press conference. Under New York law, it's a crime for an attorney to give anything of value to ``induce'' a person to bring a lawsuit, the indictment said.

Two of the clients, Howard J. Vogel and Steven Cooperman, have reached plea agreements with prosecutors and agreed to cooperate with the investigation. A third, Seymour Lazar, was charged with mail fraud and money laundering last year and refused to assist prosecutors. Lazar, a retired attorney, was also named in today's indictment.

Lazar and Cooperman served as plaintiffs on about 70 lawsuits and received $2.4 million and $6.5 million in secret payments, respectively. Vogel was a client on 40 cases and got about $2.5 million, the indictment said.

`Credenza'

The firm obtained the money in a manner to make the payments difficult to trace, including from casinos, prosecutors said in the indictment. The money was kept in a safe located in a ``credenza in Bershad's office at Milberg Weiss, to which access was strictly limited.''

The indictment may give a boost to President George W. Bush and others who favor legislation to limit damages and to make it harder for shareholders to sue companies.

``It's going to give a great deal of ammunition to lobbying groups who've long wanted to close down plaintiffs' class actions,'' said Columbia University law professor John C. Coffee Jr.

Since 1999, U.S. prosecutors have been investigating claims that Milberg Weiss Bershad Hynes & Lerach, the biggest firm representing shareholders in securities-fraud cases before it split in two in 2004, illegally paid shareholders to file the suits. At the time of the breakup, the firm had represented clients in half of all securities class actions filed in the past decade, including those against Enron Corp. and WorldCom Inc.

Since 1965, Milberg Weiss lawyers, before and after its 2004 split-up, won more than $45 billion in recoveries for its shareholder clients, including large pension funds such as the California Public Employees' Retirement System, according to the Web sites of the two firms.

`Greatest Respect'

``We are extremely saddened to learn of these indictments,'' Lerach Coughlin said in a statement. ``We have the greatest respect for the ability and integrity of Milberg Weiss Bershad & Schulman, its lawyers and the good work they have always done.''

Yang said some of the compromised cases include lawsuits against Standard Oil Co. and British Petroleum Co. in the 1980s, Genentech Inc. in the 1990s and Barnesandnoble.com more recently.

If convicted, Schulman face a maximum of 40 years in prison. Bershad faces an additional 20 years on one count of money laundering. The government is also seeking to recoup each man's share of the tainted attorneys' fees, which total $26.6 million for Bershad and $9.5 million for Schulman.

Schulman, who has a 15 percent interest in Milberg Weiss, made more than $67 million from the firm's profits between 1991 and 2005, prosecutors said. In 2004, he represented Walt Disney Co. shareholders who sought to hold former Chief Executive Officer Michael Eisner liable for the $140 million severance paid to Michael Ovitz, a former talent agent who served as Disney's No. 2 executive for 15 months.

Bershad owned between 10 percent and 17.7 percent of the firm between 1983 and 2005 and made more than $160.9 million from profits, the indictment said.

Bershad represented Nortel Networks Corp. investors who sued for damages from an accounting fraud. Shareholders will receive about $2.7 billion from the settlement, making it the fourth largest U.S. class-action securities fraud case. Bershad also represented Lucent Technologies Inc. shareholders in securities lawsuits that settled for about $620 million.

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

To contact the reporter on this story: Sophia Pearson in Wilmington at spearson3@bloomberg.net

Last Updated: May 18, 2006 21:50 EDT