Enron case legal tab: $700 million
The San Diego law firm founded by William S. Lerach, who is awaiting sentencing in a criminal conspiracy case, is asking a judge to approve nearly $700 million in attorney fees for its efforts to help Enron Corp. shareholders and investors recoup billions they lost after the energy company collapsed.
If approved, the attorney fees would be the largest in a securities fraud case.
Lerach’s personal take could be as much as $50 million, according to a report Wednesday in the Wall Street Journal.
Coughlin Stoia Geller Rudman & Robbins, which dropped Lerach’s name after he resigned in August, said in court papers filed Tuesday in Houston that it had helped plaintiffs recover almost $7.3 billion so far, mostly from financial institutions that investors claimed played roles in the accounting fraud that led to Enron’s 2001 unraveling.
The firm asked for fees equal to 9.5% of the money recovered so far, or about $687 million.
Once one of the country’s most celebrated trial lawyers, Lerach, 61, pleaded guilty in Los Angeles last month to one federal count of criminal conspiracy in connection with an alleged kickback scheme at the New York law firm where he worked until 2004.
The alleged scheme paid millions of dollars to clients who agreed to serve as plaintiffs in class-action lawsuits. The firm, Milberg Weiss, and its co-founder, Melvyn I. Weiss, are under indictment and facing trial.
Lerach’s guilty plea doesn’t prevent him from collecting any money owed him for work he did while at the San Diego firm, said Stephen Gillers, a professor of legal ethics at New York University.
“The fee is not connected to the crime he admitted,” Gillers said. “Our law does not strip felons of their rights in property unrelated to the underlying crime.”
Law firms typically work out a formula spelling out how departing lawyers will be compensated for work they performed on cases while they were part of the firm, Gillers said.
As part of his guilty plea, Lerach agreed to pay $7.75 million in restitution and $250,000 in fines. He could also be sentenced to up to two years in prison.
The Enron fees the San Diego firm is asking for are fair, says Dan Newman, a spokesman for the firm, which represents the regents of the University of California, lead plaintiffs in the case.
“Millions of defrauded Enron victims will receive billions of dollars. It is the largest recovery in history and the most complex and successful securities case in history,” Newman said.
To Rod Jordan, a former Enron project manager waiting to see if he will get money from the settlement, the fees sound reasonable.
“When you look at the lawyers on their team and the number of years they’ve spent, my personal opinion is they probably earned it,” said Jordan, chairman of the Severed Enron Employee Coalition. “It would be nice to get a lawyer to do it pro bono, but you’re not going to get that.”
The nearly $7.3 billion that plaintiffs have recouped has come mostly from financial institutions such as Bank of America, JPMorgan Chase & Co., Citigroup and Canadian Imperial Bank of Commerce. The money recovered was part of a $40-billion lawsuit that alleged financial institutions that worked with Enron participated in the accounting fraud that led to the company’s bankruptcy filing.
Remaining defendants in the case include Merrill Lynch & Co., Credit Suisse First Boston and Barclays, as well as former Enron Chief Executive Jeffrey K. Skilling, who is now in prison. The banks and firms have denied wrongdoing.
The suit was put on hold this year by a federal appeals court ruling. Attorneys appealed to the U.S. Supreme Court. But the court neither accepted nor rejected it, instead deciding to hear another case that had similar issues related to setting boundaries in stockholder lawsuits for securities fraud. The court has not ruled in that case.
Tuesday’s court filings also asked that U.S. District Judge Melinda Harmon begin reviewing the plan for how the nearly $7.3 billion will be distributed. Investors and shareholders will be given a chance to give their formal comments about the proposed plan. The distribution won’t begin until Harmon gives final approval to the plan sometime next year.
Harmon chose Lerach as the lead lawyer in the case, noted John Coffee of Columbia Law School, even though other plaintiffs counsel represented states that suffered greater losses when the company imploded.
“She wanted Lerach and I think she picked the right person,” he said.
To be eligible for the settlement, investors and shareholders must have bought Enron or Enron-related securities between Sept. 9, 1997, and Dec. 2, 2001.
Houston-based Enron, once the nation’s seventh-largest company, entered bankruptcy proceedings in December 2001 after years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable.
The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.
Enron founder Kenneth L. Lay and Skilling were convicted last year for their roles in the company’s collapse. Skilling is serving a sentence of more than 24 years. Lay’s convictions for conspiracy, fraud and other charges were wiped out after he died of heart disease last year, before his appeal could be heard.
