Reuters Flushed Alison Frankel’s Blog. However, We’re Keeping Her Article On Lawyer Mikal Watts.

(Reuters) – If you have a few minutes, watch the YouTube video Texas plaintiffs’ lawyer Mikal Watts of Watts Guerra posted yesterday after the unsealing of a 95-count federal fraud and identity theft indictment against him and six codefendants.

As I’ll explain, Watts is accused of orchestrating a scheme to defraud BP and the courts by asserting claims on behalf of more than 40,000 phantom plaintiffs who purported to have suffered damages in the 2010 Deepwater Horizon oil spill.

Watts and his defense lawyer, Robert McDuff of McDuff & Byrd, issued a four-page rebuttal to the charges, to which Watts pleaded not guilty on Thursday. He’s headed for a Dec. 7 trial date.

Obviously, Watts’ fate will be decided by jurors in federal court in Gulfport, Mississippi, not in my column.

But here’s what bugs me about his video response to the criminal charges:

Watts – like so many other big-name plaintiffs’ lawyers accused of taking advantage of the judicial system – emphasizes that the real bad guy isn’t him but an evil corporation, in this case BP.

He’s under attack, he says, because he’s been so successful in standing up for the victims of corporate wrongdoing.

Really? I’m certainly not going to spare any sympathy for the company, which apparently made a bad deal when it agreed to settle claims by seafood workers – the bulk of whom were Watts’ “clients” – for $2.3 billion.

The company also has its own civil suit under way against Watts and various codefendants. BP can take care of itself.

But the indictment against Watts isn’t brought in BP’s name. It’s brought on behalf of the United States because this lawyer stands accused of corrupting the federal justice system to make money for himself and his investors.

(Yes, investors. We’ll get to that below.)

If Watts did what he’s alleged to have done, it’s no excuse that his crimes were committed in litigation against BP.

Plaintiffs’ lawyers may start out on the moral high ground when they represent victims of corporate wrongdoing, but they don’t always stay there. Breaking the rules or taking advantage of the people you’re supposed to be helping is a mudslide straight down into the same muck occupied by those heartless corporations.

Wrong is wrong, no matter where you started out.

Watts’ claims in his defense statement that he entered the litigation against BP with the best of intentions. According to the written statement, after the spill, he engaged a team of investigators who had previously helped Watts Guerra sign clients in litigation over formaldehyde-tainted Federal Emergency Management Agency trailers.

The team was supposed to locate deckhands and other seafood industry workers affected by the spill. Within months, the field team provided the Watts firm with information on more than 40,000 seafood workers.

That was fast, Watts statement said, but not out of line with other cases the firm has handled.

According to the statement, Watts and others at his firm were unaware that some of their subcontractors in the field had apparently fabricated information on some of these more than 40,000 “clients.”

The statement said the misconduct of these hired hands does not mean Watts or anyone else in his office knew about the wrongdoing.

“Obviously, fraud was committed somewhere down the line by others,” the statement said. “But as the evidence at trial will show, there was no fraud on the part of Mikal Watts.”

The government’s indictment, however, alleges the Watts firm had plenty of reason to suspect problems with its purported 40,000-case docket – and a powerful financial incentive to ignore those suspicions.

Watts wasn’t acting alone when he hired a team to sign seafood worker clients. According to the indictment, he was backed by two other Texas lawyers, one of whom paid Watts $3.1 million for a piece of his docket, and the second of whom paid $7.8 million.

The second lawyer was, in turn, funded by a businessman in Texas who apparently saw the BP litigation as an investment opportunity.

Watts paid more than $10 million to the “field workers” who went out to find seafood industry clients for his firm. (The Watts contractors seem to have spent a sizable chunk of that money on fancy cars, judging by the indictment.)

According to the government, the Watts case generators, two of whom are named as codefendants, “would obtain names, addresses, dates of birth and social security numbers of individuals from any source available to create ‘clients’ for anticipated litigation.”

The indictment alleges that people listed as clients were often not even contacted by Watts firm representatives.

By August 2010, Watts’ brother, a non-lawyer executive at his firm, was already questioning data on some of the firm’s purported clients, according to emails quoted in the indictment. In October 2010, the indictment said, he found five dead people listed in the client database and alerted others at the firm.

(According to the indictment, Watts later referred in an email to one of the dead clients as “Another fine example of the shit we paid for.”)

Those five dead people were subsequently included in the Watts firm’s list of clients in November 2010. So was a supposed deckhand on a commercial seafood boat named Lucy Lu.

Lucy Lu, according to the indictment, was actually a dog.

Watts’ investors quickly developed concern about the quality of his docket, according to the indictment. In December, one of them wrote in an email to Watts, “We don’t have 41K ‘clients’; we have a list of 41K names whom we hope (we) can convert into ‘clients’ over time.”

The other said in a January 2011 email, “Clearly the 40K clients are ghosts in the wind. No amount of $$ will bring them back and time is an enemy.”

When BP nevertheless agreed in March 2012 to settle the seafood workers’ claims, most of which were generated by the Watts firm, for $2.3 billion, Watts and his investors were relieved, according to the indictment.

Watts announced the deal in a celebratory email to his business partners: “Importantly, BP pays the $2.3 (billion) whether the proof supports it or not. It does not  Hope this makes everyone feel better about our eggshell plaintiff docket. To quote Monty Python, ‘It’s merely a flesh wound; I’m not dead yet!’ Mikal.”

Though the Watts firm initially presented more than 44,000 claim forms to BP, including a nearly $46,000 claim by the dog Lucy Lu, it ended up asserting claims for just 786 clients. According to the indictment, only four were deemed eligible for payments.

So the Watts docket was clearly a mirage. Was it a scam as well?

In the defense rebuttal statement, Watts’ lawyer said no.

The Watts firm had no reason to sign phony plaintiffs because it knew meritless claims would eventually be sifted out.

Watts’ statement said that the U.S. attorney’s office in Mississippi cherry-picked emails to make it seem as though he and his firm should have known trouble was afoot but, in fact, the firm was in the dark. “Although at times (Watts) and others in his office expressed frustration with the data regarding some of these individuals,” the statement said, “Mikal believed that the vast majority of the people on the list were real people with real damages.”

That’s a reasonable defense and I’m looking forward to seeing Watts and his alleged partners in crime assert it. But to return to my original point, Watts won’t get any break from me because – in his account – he thought he was helping oil spill victims.

And I hope his jurors refuse to credit his pandering assertion that he’s playing David to BP’s Goliath.

David didn’t cheat. And neither should plaintiffs’ lawyers.