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It has long been established that U.S. expert witnesses can't legally work for contingency fees. Lawyers in personal injury lawsuits almost always work for contingency fees, in which they take a percentage of their clients' financial recovery -- if and only if they win the case. Supporters of the arrangement say it gives the lawyers an incentive to work harder for their clients and cut out waste. But experts are barred by law from taking the fees, because contingency payment could cast doubt on their neutrality. Violating this rule could lead to criminal convictions for both the expert and the retaining law firm.
As of early March 2008, securities expert witness John B. Torkelsen is learning that lesson the hard way. Torkelsen, a Princeton, N.J. investor who served as an expert in securities lawsuits throughout the 1980s and 1990s, pleaded guilty Feb. 28 to one count of perjury stemming from false statements about his fees. According to a press release from the Department of Justice, Torkelsen's plea stems from a fee request he made in the 1999 case of Provenz et al. v. Miller et al., in San Jose federal court. The release says that fee request specified, under penalty of perjury, that Torkelsen was requesting fees under a "non-contingent engagement by plaintiff's counsel." In reality, the press release said, he had a contingency arrangement with the retaining firm.
In fact, Torkelsen may have submitted similar false declarations many times, according to the release. It says Torkelsen worked on a contingent basis for multiple law firms, to which he submitted more than $60 million worth of bills between 1993 and 1996. Federal prosecutors allege that the arrangements were made with the full knowledge of the retaining law firms. In order to conceal the arrangements, the release said, law firms submitted false reimbursement requests to the courts, and had Torkelsen submit false bills and false oaths stating he was retained on a non-contingent basis. Those false bills were inflated by more than $7 million, said the Department of Justice -- with $4 million in false bills at one law firm alone. If U.S. Attorneys can identify firms that lied about arrangements with Torkelsen, the firms would likely be subject to perjury and legal-ethics charges of their own.
The retaining firm in the Provenz case is referred to in court documents only as a Torkelsen client with principal offices in New York. However, a March 4, 2008 report published in the Wall Street Journal notes that New York is the home of Milberg Weiss LLP, with whom Torkelsen worked on many class-action trials over two decades. The firm, a securities class-action powerhouse, is fighting unrelated charges that it paid kickbacks to clients who agreed to bring its lawsuits. A former Milberg Weiss partner, William Lerach, has pleaded guilty to similar charges.
Torkelsen is already serving five years in federal prison for an unrelated fraud conviction. A decision by the Third U.S. Circuit Court of Appeals shows that Torkelsen and his venture-fund business, Acorn Technology Partners, were prosecuted in Philadelphia for taking millions in investment capital from the federal Small Business Administration and individual investors, then diverting it into personal accounts. At sentencing for the perjury charge, Torkelsen faces up to five more years in prison. The new plea also resolves tax-related charges.