William Lerach isn't the type of guy who brings out ambivalence in someone. People generally hold two views of the flamboyant, high-powered San Diego attorney who's made a mint representing investors in class-action suits against many of the nation's largest corporations.
The first view is that Lerach (pronounced LEER-ack) is a champion of wronged shareholders everywhere, holding reckless companies to account for acts of negligence and fraud. The second is that he's a power-mad trophy hunter who has undermined the reputations of countless companies whose only crime was to hit a stock price downturn. Those in the latter camp, understandably, are feeling pretty good lately.
On Monday, October 29, Lerach pleaded guilty in Los Angeles federal court to felony conspiracy in connection with a scheme that enriched himself and his former law firm, Milberg Weiss Bershad & Schulman, now known as Milberg Weiss. Lerach, now 61, admitted before U.S. District Judge John F. Walter that he helped provide $11.4 million in illegal kickbacks to parties agreeing to serve as lead plaintiffs in civil actions. The tactic generated an estimated $250 million in legal fees for about 25 years.
The punishment is anything but severe. Lerach, who acrimoniously left Milberg Weiss in 2004 to form Lerach Coughlin Stoia Geller Rudman & Robbins (from which he has left as well), faces only one to two years in prison. The $8 million he owes the government in penalties and fines pales before his more than $100 million in personal income over the years. What's more, he remains eligible to collect tens of millions more from the $7.2 billion settlement his new firm extracted from Citigroup, JPMorganChase, Canadian Imperial Bank of Commerce and other defendants for their roles in the Enron collapse. And once out of prison, he will be allowed to serve as a "non-legal consultant." All in all, it's a sweet deal.
Meanwhile, the dominoes are falling at Milberg Weiss. Lerach is merely the latest of more than a half-dozen people thus far to plead guilty in a case stemming from a federal investigation that began in 1999. Two of them were lead partners David Bershad and Steven Schulman, each indicted by a grand jury in May 2006. Firm co-founder Melvyn Weiss, 72, along with the firm itself, have pleaded not guilty and have rejected settlement overtures.
In his plea, Lerach admitted he "crossed a line and pushed too far." That operating style was a lifetime in the making.
William Shannon Lerach was born in 1946, destined to mistrust the stock market. Way back in September 1929, his father, Richard, having received a substantial inheritance, had gone to work as a stockbroker, investing all his wealth in stocks. The following month the market crashed, wiping him out and relegating him to selling metal parts. If someone were to make a movie about his son, this would be the perfect back story.
As a young adult, William Lerach found his niche in law, graduating second in his class at University of Pittsburgh Law School and landing a job with Pittsburgh's elite firm of Reed Smith Shaw & McClay. Though he made partner in record time, he became highly uncomfortable over the way the firm treated opposing clients, especially in one case where a shareholder appeared to have a legitimate case but lost.
Convinced he was playing for the wrong side, Lerach in 1976 took a job with the New York firm of Milberg Weiss, which was looking to expand. Lerach opened a branch in San Diego, specializing in suing companies for securities fraud. The office came into its own a decade later, when Lerach launched a succession of cases against Silicon Valley disk-drive maker Seagate Technology. In the first case, Lerach's firm squeezed a $5 million consent decree from Seagate, payable to 17,000 shareholders.
Milberg Weiss smelled blood. In short order, the firm would emerge as an S.O.B. litigation powerhouse, filing scores of class-action suits each year. By the fall of 2006, Milberg Weiss boasted of having won $45 billion worth of settlements from a long list of defendants, including AT&T, Lucent, WorldCom, Microsoft and Prudential Insurance. Bill Lerach's reputation as a populist legal firebrand was cemented. To admirers, he was right up there with John Edwards, Willie Gary and Joe Jamail, someone who could scare the living daylights out of the high and mighty. "I just always wanted to represent people who had been hurt or cheated or defrauded to get a recovery," he said in an interview with his law school alma mater.
In his pursuit of justice, Lerach would get rough with adversaries. One of favorite tactics was to scream at CEOs. He shouted at one executive: "I'm going to take away your f***ing condo in Maui! I'm going to take away every penny you own!" Those were strange words coming from the owner of a mansion in San Diego's exclusive Rancho Santa Fe community, plus vacation homes in Steamboat Springs and Hawaii. Continued... |