Lawsuit king wins one on his way to prison
As he negotiated the deal that would send him to prison and seal his disgrace, the king of class actions was still working the system.
William S. Lerach, in agreeing to plead guilty to one count of conspiracy in connection with a kickback scheme that paid people to serve as plaintiffs in lawsuits, insisted that the firm he founded in San Diego in 2004 be shielded from prosecution.
Its reputation as a litigator of class-action suits against what Lerach once called the “dishonorable and despicable greed” of corporate America could be preserved. Maybe a little of his own reputation would be too.
“He’s falling on his sword,” said David Lisi, a corporate defense lawyer in Silicon Valley. “You have to admire loyalty like that.”
Lerach has been more loathed than admired by corporate executives. He was so effective at shaking awards and settlements loose from companies that he became a verb -- as in “getting Lerached.”
T.J. Rodgers, chief executive of San Jose-based Cypress Semiconductor, said he was celebrating that “there is justice after all” with a bottle of champagne. Lerach, he said, “took millions of dollars under false pretenses from honest people.”
He also made history, pioneering modern-day securities class-action litigation with his former partner Melvyn Weiss, who practically invented the field in the 1960s.
On Wednesday, Weiss’ firm, Milberg Weiss in New York, said that it expected to be indicted anew in the kickback case and that Weiss would be indicted too. Milberg Weiss already faces conspiracy, mail fraud and money laundering charges leveled in a 2006 indictment that alleges the firm ran a criminal kickback operation, paying people to sign on as lead plaintiffs in more than 150 lawsuits.
Another former partner of Lerach’s, Steven Schulman, has agreed to plead guilty, the Los Angeles Daily Journal reported Wednesday. The guilty pleas have piled up, amounting to five so far -- with Lerach’s the most recent.
The rise and fall of the lawyer Wall Street loved to hate, said Columbia Law School professor John Coffee, “has the sense of a Greek tragedy.”
The woolly-haired, chubby-faced Lerach issued a statement when his plea was filed Tuesday in Los Angeles federal court, saying, “I have always fought for my clients aggressively and vigorously in order to hold powerful corporations responsible when their actions harmed people. However, I regrettably crossed a line and pushed too far.”
That contrition was a sobering contrast to Lerach in his heyday. He was so successful that Congress wrote a law that changed the rules for awarding fees. He filed hundreds of lawsuits, suing at the drop of a missed revenue projection or slipping share price. Perhaps his most celebrated victory was against Enron executives and others involved in the fraud at the now-defunct company, defendants from which the Lerach team has extracted settlements of more than $7.2 billion.
Some executives who faced him in court or at the settlement table called him a brilliant strategist and said his dogged advocacy of victims of corporate avarice helped lead to reform. Some called him a bully who intimidated defendants into settlements and dispatched opponents with obscenity-laced rants.
Lerach was rich, with homes in Hawaii and Colorado and a personal collection of Shona stone carvings from Africa. He was famously flamboyant, hoisting for television cameras at a Houston courthouse a box of shredded Enron documents that he called “a smoking howitzer.”
Democratic politicians counted him as a friend and fundraiser. He slept in the Lincoln Bedroom in the Clinton White House. On Wednesday, John Edwards’ presidential campaign said it had donated to charity $4,600 in contributions from Lerach.
The deal Lerach made would send him to prison for a one-to-two-year term. He will pay the government $8 million and will probably be disbarred.
The 2006 indictment against Milberg Weiss, two former partners, a frequent plaintiff and that plaintiff’s lawyer referred to “Partner A” and “Partner B” -- widely believed to be Lerach and Weiss -- as it laid out the allegations that Milberg Weiss made $11.3 million in payments over many years to people who agreed to be lead plaintiffs in class actions and allowed the firm to be the first to sue an accused company.
Before Congress passed the 1995 law, lawyers who filed first, not necessarily those representing clients with the most at stake, could claim a bigger cut of legal fees.
With a law degree from the University of Pittsburgh, Lerach, who began as a corporate defense lawyer, joined Milberg Weiss in 1976, signing on as the bull market and the biotech boom began to gather steam. The Securities and Exchange Commission during Ronald Reagan’s presidency was cutting back on staff, enforcement and disclosure rules, creating a perfect storm for securities lawyers that generated waves of new business.
Shareholder suits rely on a section of the 1934 Securities and Exchange Act requiring full and accurate disclosure of events that could affect stock prices. Executives have complained that Weiss and Lerach took advantage of the provision, deliberately blurring the line between fraud and the inherent ups and downs of running a business.
Their lawsuits targeted some of the largest U.S. corporations, including AT&T; Lucent; WorldCom; Sears, Roebuck & Co.; and Microsoft.
Lerach was Weiss’ disciple, initially in awe of the senior man’s smarts and courtroom bravado. The student eventually outshone his teacher, racking up billions in jury awards and settlements.
Companies and executives so feared him that they often settled rather than took on the risk and expense of going to trial. It was such a shrewd, efficient, high-volume strategy that settling such cases became the cost of doing business in Silicon Valley.
Norman Blears, a Menlo Park, Calif., lawyer, said his clients took the Lerach factor seriously.
“For those of us who represented corporations and directors, we would get questions phrased not in terms of, ‘Is this going to be a problem with the SEC?,’ or, ‘Is this going to be a technical violation of the law?,’ but, ‘If we do this, is it going to end up on Lerach’s radar screen?’ ” Blears said. “I remember him telling people that this wasn’t just some corporate issue that was going to go away. He was going to cause them to feel personal pain.”
The late Al Shugart, a co-founder of Seagate Technology in Scotts Valley, Calif., and a defendant in four Lerach suits, declared war on him in the 1990s, taking out a full-page ad on the back cover of a technology magazine: “Enough is enough. Are securities lawyers holding your company ransom?” Shugart asked executives to send him their business cards. He received a couple of dozen, among them one from Lerach, which read, “Dear Al: More is coming.”
The shareholders he helped remember a different Lerach. Charlie Prestwood, an Enron employee who lost his pension and life savings worth $1.3 million when the company disintegrated, praised Lerach for helping him recoup $53,000 and said he was “a super-nice person.”
Christopher Patti, an attorney with the University of California, which received $250 million from a Lerach-filed suit against what was then AOL Time Warner and stands to recover a large sum from the Enron settlement, called Lerach “an incredibly talented, tenacious and very, very smart lawyer” who played “a very important role in eliminating abusive practices and in keeping the securities markets free from fraud and abuse.”
At Milberg Weiss, the competitive instincts that served Lerach and Weiss so well in court ultimately ruined their friendship. Lerach left in 2004 and built his San Diego firm into a 180-lawyer powerhouse with outposts in nine cities. The headquarters, to which Lerach’s Chihuahua, Tommy, was a frequent visitor, boasts a grand view of the bay. He resigned from what is now called Coughlin Stoia Geller Rudman & Robbins last month, and his name was removed from the door.
--
jessica.guynn@latimes.com
The Associated Press was used in compiling this report.
