Excerpted from a column in the Sept. 3 edition of the Los Angeles Business Journal by Editor Charles Crumpley
ews last month that William Lerach was retiring from his law firm to focus entirely on defending himself in a criminal case must have elicited muffled cheers in boardrooms across America.
The real cheers will come if Lerach,and to be fair, we should point out he hasn’t been indicted, at least not yet,is finally carted off to prison. In fact, Guantanamo might be a fitting place for Lerach, who’s been called an “economic terrorist.”
Lerach, of course, did not invent but did perfect the securities class action lawsuit. In that scheme, most any company that sustained a stock drop, even if it had nothing to do with anything of consequence, often found itself the recipient of allegations of fraud in a Lerach-engineered lawsuit. Likewise, companies that announced most anything negative could get the same kind of lawsuit,often within hours of the announcement.
Lerach then pounded the company, using the discovery process to find some little scrap somewhere in some underling’s file drawer that “proved” the company knew that bad news could develop.
It didn’t help that Lerach was an ugly bully, threatening to go after an executive’s home and interrupting lawyers and witnesses to issue threats. He reportedly spent years suing one expert witness who had the temerity to testify effectively on a company’s behalf.
He also reportedly bullied other law firms into cutting him into the bonanza; at one time, Lerach’s firm was involved in 80% of all securities class action lawsuits in California.
Most companies, figuring it’s better to pay the barbarian than let him ransack, simply gave Lerach millions of dollars to go away in what became a shakedown routine.
Lerach became rich. Legal fees were usually 25% to 30% of any winnings in any such contingency case. The individual stockholders could get pennies. (As a stockholder of such a company, I once got a check for $1.70. Thanks for watching out for us little guys, Bill.)
And just how did Lerach know that a company had committed fraud within hours of a stock drop or the announcement of a setback? Well, he boasted that he had an instinct for such things. Maybe so, but maybe he cheated. The criminal case, which was brought last year in Los Angeles, alleges Lerach’s former law firm, Milberg Weiss, paid $11 million in kickbacks to friends to be stand-by plaintiffs so the firm could quickly file class-action lawsuits. (One former partner at Milberg pleaded guilty to conspiracy and agreed to cooperate with prosecutors. The Milberg Weiss law firm and another former partner are fighting charges. Lerach, as noted earlier, has not been indicted. Also, to be fair, the San Diego law firm from which Lerach retired last week is not affiliated with Milberg Weiss.)
What’s been overlooked and underreported in all of this is the damaging effect Lerach-style lawsuits have had on business and the economy. Insurance is more expensive. Companies are more timid. Along with post-Enron “reforms,” such lawsuits have given companies a reason to clam up. Or go private. Or move offshore.
