Law firm Milberg Weiss & Bershad LLP held talks this week with federal prosecutors about settling a criminal case that alleges the firm made improper kickbacks to class-action clients, according to two people familiar with the case.

The development comes as prosecutors are in plea negotiations with Milberg partner David Bershad. Milberg Weiss was indicted in May 2006, along with Mr. Bershad and Steven Schulman, a former partner who has since resigned. Mr. Bershad is on a leave of absence from the firm. The 20-count indictment against the firm alleges that Milberg paid more than $11.3 million in illegal kickbacks to clients in more than 150 class-action and shareholder derivative actions.

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