Melvyn Weiss was sentenced to 30 months in jail yesterday. His one time senior partner, William Lerach, is currently serving a two-year jail term.   Perhaps many readers are not familiar with Mr. Weiss?  I never met the man but his actions and the actions of his law firm (Milberg Weiss) caused me lots of grief for several years (from 1998 to 2004).  Weiss' firm was and is known for bringing class action law suits against public companies.  More specifically the law suits are directed at officers and directors of public companies.

In order to bring such an action, Weiss' firm required the cooperation of a stockholder.  In theory the stockholder would go to the Weiss firm and state that he had been wronged in some fashion by actions taken by management of a specific public company.  But what happened in many cases was that the Weiss firm thought of a reason to sue a company and then would go out and find a stockholder who would be willing "to pretend" that he had been harmed and would then engage the Weiss firm to sue on behalf of all stockholders.  The reason that Weiss is going to jail with a bunch of his partners is that the firm illegally paid some of these "so-called harmed" stockholders to agree to be the harmed plaintiff when in actuality these people would have never thought of taking legal action if in fact the Weiss firm had not "bought" them to bring such action.

So what is my connection?  In 1998 the Weiss firm sued me and the board of my then public company, Mecklermedia, on behalf of stockholders.  The law suit had no merit.  It was constructed from 20/20 hindsight and the brief filed by the firm was fiction.  I am not totally certain but, based on what I have been reading about the Weiss case, there is a good chance that the stockholder that in essence sued me and the board, was in fact paid off by the Weiss law firm. 

Fortunately our company had insurance to defend such a legal action.  The costs for several years of litigation were many millions of dollars.  Ultimately the case was settled when the insurance company agreed to settle with the Weiss firm rather then continue the expensive and time wasting legal battle.  Stockholders of Mecklermedia (other than senior management and the board of directors) received a few million dollars (a fraction of what the law suit requested) and so did the Weiss law firm.  

I am sure there are many other law firms throughout America that make their money by copying the Milberg Weiss method of "buying stockholders" and I hope they get penalized by the government.  I am also sure that 90 percent of class action law suits  would never come to court if America adopted the British system of "Loser Pays."  With Loser Pays, the plaintiff, should it lose the legal case must pay not only their own costs but also the defendent's legal costs.  With such a system, the case against Mecklermedia would hever have come to court as the plaintiff would have to be very certain of legal victory or face huge legal costs (in other words they would have to pay their own costs and the costs of the defendent).  And better yet, thousands upon thousands of legal cases in America would never come to court and the cost of living and the costs of doing business in America would be greatly reduced.