For six years, federal prosecutors with the U.S. Attorney's Office in Los Angeles have been investigating alleged criminal misconduct by Milberg Weiss, a law firm that has targeted hundreds of corporations, including Tenet Healthcare (THC), with lawsuits on behalf of shareholders. But some lawyers in the office apparently have faith in Milberg's work. It turns out that for more than three years, the same prosecutors' office has been calling on Milberg lawyers for help in a Medicare fraud case against Tenet.
In November, 2002, the firm then known as Milberg Weiss Bershad Hynes & Lerach filed a civil suit in federal court in Los Angeles accusing Tenet of inflating its earnings. The suit charged, among other things, that the nation's second-largest for-profit hospital chain had for years been overcharging the government Medicare program by millions of dollars. Tenet has been fighting the charges against it.
At about the time the suit was filed, Milberg lawyers alerted the U.S. Attorney's Office of the case, and offered up what evidence the firm had against Tenet, according to sources close to the case. Three months later, the Los Angeles Attorney's Office filed its own case against the Santa Barbara (Calif.)-based hospital company, accusing it of manipulating Medicare claims in order to inflate its government reimbursements (see BW Online, 4/5/06, "Prudential Upgrades Tenet Healthcare to Overweight").
PLAINTIFF PAYOFF? Thom Mrozek, a spokesman for the U.S. Attorney's Office, says, "Milberg is not involved, and has not been involved" on the Justice Dept.'s Tenet case. However, sources tell BusinessWeek that the cooperation is ongoing.
Even as the Tenet cases move along in U.S. District Court in Los Angeles, the U.S. Attorney's Office has warned the law firm, now known as Milberg Weiss Bershad & Schulman, that it remains a target of a criminal investigation into whether its lawyers paid kickbacks to plaintiffs in dozens of securities class-action lawsuits similar to the one filed against Tenet (see BW, 3/6/06, "Lerach and Weiss in the Clear").
In court documents filed Apr. 28, Howard Vogel, a retired real estate mortgage broker, says he received nearly $2.5 million in kickbacks for agreeing or having a family member agree to be lead plaintiff in 40 Milberg lawsuits. Vogel has agreed to plead guilty to lying to investigators.
OUT IN THE OPEN. Legal ethicists say there's nothing necessarily wrong with the Justice Dept. working in concert with a firm it happens to be investigating. But problems could arise if a prosecutor gets cozy with the firm, then uses that relationship to help a prosecutor across the hall make a criminal case against it. "It raises obvious concerns," says Deborah Rhode, the Ernest W. McFarland Professor of Law at Stanford University.
Still, ethics standards for government agencies are a bit looser than they are for private lawyers, say Rhode and other ethicists, because the government has a duty to look out for the public's interest, even if that means using information from a firm it's investigating.
And if Milberg doesn't mind, there's less question of whether a conflict exists. "It's not as if the potential conflict isn't known to Milberg," notes former U.S. Attorney JoAnne Epps, a professor and associate dean at Temple University Beasley School of Law. "One thing lawyers do well is compartmentalize."