The Lawyer Prop. 201 Backers Love to Hate
Bill Lerach, a frizzy-haired San Diego lawyer, is an inspiration, especially to the people who want to wreck havoc on his career by passing Proposition 201 on the March 26 ballot.
When they hold press conferences, 201’s backers invariably refer to Lerach--with a sneer. Executives, especially ones in the Silicon Valley whom Lerach often sues, have called Proposition 201 the “Get Bill Lerach Initiative.”
“He’s a greedy guy,” says Al Shugart, chairman of Seagate Technologies, a $5-billion-a-year firm that has been sued by Lerach three times.
More than any other lawyer, Lerach motivates corporate moguls to write out six-figure checks for Proposition 201. For incentive, Tom Proulx, the millionaire computer engineer who heads the campaign for Proposition 201 and two other anti-lawsuit initiatives on the ballot, has a Lerachism on his office bulletin board: “We’re like snakes. You cut us in half and we’ll still wiggle.”
Lerach, 50, is a securities lawyer who is widely viewed as the king of shareholder litigation. He knows backers of 201 “demonize” him. “If the cases were just a nuisance and an annoyance, they wouldn’t care,” he says. “Why are they coming after us? Because we’re effective.”
Proposition 201 would restrict--Lerach says abolish--lawsuits in state court by investors who have been bilked by publicly traded corporations. Lerach sees it as one more attempt by corporate bosses to have their own way.
“Like all very powerful people,” Lerach says, “they resent that some force beyond their control can hold them to account. They hate it very much and they want to put an end to it.”
Lerach (pronounced Leer-ack) sits in his high-rise office at the west end of Broadway in San Diego. It has a view of the harbor, but this is not a man who spends time idly gazing at the Pacific. Phones ring. He calls for a secretary to pull files. An associate gives him an update on a suit they intend to file. Lerach tells him he wants the work done soon.
His detractors say money is what motivates him. Lerach says he is driven by a desire to give protection and justice to small investors and to those with money in pension and mutual funds. State and federal regulators cannot keep up with all the securities fraud, he says.
“Insiders shouldn’t be able to cheat outsiders,” he says. “Our markets are largely honest . . . because people who are defrauded can do something about it.”
In the past 20 years, the 90-lawyer firm of Milberg, Weiss, Bershad, Hynes & Lerach has been on the plaintiffs’ side in virtually every major securities scandal in the country, from Wall Street and S & L debacles to Orange County’s bankruptcy. The firm has taken on Lincoln Savings & Loan, Washington Public Power Supply, junk bond king Michael Milken and Executive Life. When executives are sued by him, they often say they have been “Lerached.”
The bulk of his cases are not high profile. They involve declines in stock prices, insider trading, and sometimes mergers. He was among the lawyers who sued Times Mirror Co., parent company of the Los Angeles Times, when it spun off its cable holdings last year. The case was quickly settled.
“He’s one of the brightest, one of the most creative, and one of the most abrasive attorneys I’ve ever seen,” said San Francisco lawyer Joseph Tabacco, who often works with Lerach. “Bill has one speed: fast-forward.”
“We’re not talking about a junkyard dog,” adds San Diego lawyer Charles Dick, who opposes Lerach often. “This is a first-class lawyer. . . . Pick up a prospectus and see how much paper is devoted to trying to avoid Bill Lerach coming around after the fact.”
Lerach estimates that in the last 20 years, his firm’s suits have brought $4 billion to $5 billion in recoveries. In 1994 and 1995, the firm handled suits that settled for a combined $1 billion, according to the newsletter Securities Class Action Alert. Assuming plaintiffs’ lawyers take a fourth, Milberg, Weiss and its co-counsel shared $250 million in the last two years, the newsletter says.
Lerach won’t discuss his own finances. But Forbes magazine placed his 1994 income at $7 million, and he’s building himself a sprawling villa in Rancho Santa Fe in north San Diego County. The 11-acre spread has a lemon grove, guest house, quarters for domestic help, and a matching dog house. Despite the trappings, these are perilous times for Lerach. In December, Congress overrode President Clinton’s veto and passed the Securities Litigation Reform Act, limiting shareholder litigation. To generate support, backers of the federal legislation specifically took aim at Lerach, hiring a firm to put together and distribute a dossier on him. With other securities lawyers, Lerach fought back hard.
One recipient of Lerach’s political largess is Bill Clinton. Lerach held a fund-raiser for Clinton in 1992. As the securities bill awaited the president’s signature, Lerach spoke to Clinton at a White House dinner. Four days later, Clinton vetoed it.
Mother Jones magazine identifies Lerach as the nation’s second-largest donor to federal candidates--$480,000 between his wife and him since 1993. In the California litigation initiative war, Lerach’s firm’s contributions are second to none, $2.3 million so far.
Before the federal legislation, Lerach filed most of his securities suits in federal courts, where legal doctrine rejected by the California Supreme Court made them easier to prove. But Proulx and other executives assumed that with the new federal law, plaintiffs’ lawyers would turn to state court, so they had their lawyers draft Proposition 201 as a trump.
Typically, shareholders’ suits are filed when firms makes optimistic forecasts shortly before its stock price falls. Often, executives sell blocks of stock before the plunge. Backers of the measure say the high-tech industry is vulnerable to such suits, not because of fraud, but because the business is fast-changing, making stock prices volatile.
While Proposition 201 would limit shareholder litigation, it also would extend to all class-action securities litigation. Opponents and some supporters say it would make major fraud suits harder to bring. Some of its provisions include:
* Loser pays. The most far-reaching aspect of the measure, this provision requires plaintiffs to pay defense costs if the defense wins.
* Bonding. To ensure plaintiffs can pay if they lose, the plaintiffs must post collateral such as a bond equal to the estimated cost of defending the case. That could be millions in up-front costs.
* Settlements. If plaintiffs refuse a settlement offer, and win less in a trial than the settlement offer, they would have to pay defense costs.
* Lawyers. Plaintiffs’ lawyers could post bonds to cover the defense costs. But while a judge could waive the requirement that a defrauded investor must pay the defense costs, the initiative states the judge cannot waive the loser-pays requirement when the lawyer posts the bond.
Lerach called the proposition Draconian and would make securities lawsuits too risky for plaintiffs and their lawyers. “I didn’t get into law to live in a Las Vegas casino,” Lerach said.
Backers of Proposition 201 say that’s the intent of the measure. In the Silicon Valley, where an estimated 60% of the publicly traded firms have been hit with suits over stock price drops and fraud, Lerach is a pariah. Ten of the top 11 donors to Proposition 201 have been sued by Lerach, many more than once.
One is Shugart of Seagate Technologies, who has given $250,000. A colorful figure, Shugart, 62, tried to place Ernest, his Bernese mountain dog, on the 1996 ballot as a congressional candidate, and printed posters touting Ernest’s qualifications--friendly, intelligent, housebroken, not a lawyer. Beyond their love of canines, Shugart and Lerach share nothing but disdain.
A few years back, as Lerach was suing Seagate, Shugart ran an ad in a magazine calling on people fed up with securities litigation to send him their business cards.
Lerach took him up, sending his card with a note: “Dear Al, More is coming.” Lerach has sued Seagate twice since then. Seagate and its insurance companies settled the first case for $9 million. A judge dismissed the second and another is pending. In December, after Congress overrode Clinton’s veto, Shugart faxed a note to Lerach: “Dear Bill, More is coming. Sincerely, Al.”
Then things turned nasty. In their TV ads attacking Proposition 201, the opponents singled out Shugart. The ads open with a mug shot of Charles Keating, who is serving a 12-year prison term for plundering his Lincoln Savings & Loan. Then, the mug shot transforms into a picture of Shugart, and the ad concludes: “Stop the next Charles Keating.”
Lerach, who reviewed the ad for accuracy before it aired, defended it, saying Shugart made $20 million by selling Seagate stock before prices fell. Shugart, however, was stunned by the attack. He has never been accused of criminal wrongdoing and is suing the anti-Proposition 201 campaign for libel.
The ads had an impact. Recent polls show Proposition 201 trailing. Even if it passes, however, Lerach won’t go quietly. His law firm has donated $2.3 million and raised an additional $1.6 million from other firms for an initiative in November to expand securities litigation.
If it wins, California would be a mecca for the suits, says Tower Snow, a San Francisco lawyer who has battled Lerach. “Any company that thinks Bill Lerach is going to disappear,” Snow adds, “is not living in reality.”
