William Lerach is not the kind of guy who brings out ambivalence in a person. There are two distinct views of the flamboyant, high-powered 59-year-old San Diego securities lawyer. The first is that he’s a champion of innocent investors everywhere, holding irresponsible and rapacious companies to account for acts of negligence or fraud in stock price declines. The second is that he’s a shameless fee-hunting predator whose class-action lawsuits, under the guise of “justice,” have undermined honest companies. Lerach knows he’s got a national reputation as an S.O.B. During the 90s, with his then-firm, Milberg Weiss Bershad & Schulman, he filed well-publicized shareholder suits against legitimate companies, especially in the software industry, to recover damages triggered by sharp, unexpected price drops. He won often, raking in huge awards for his clients and huge fees for himself and his partners. Less well-known perhaps is his effectiveness in redistributing wealth on behalf of labor unions, many with an unenviable track record of corruption.
An article in the February 13 issue of Forbes magazine underscores the extent to which Lerach has delivered the goods for his clients, unions and the Democratic Party, the three categories heavily overlapping. Not that his clients are limited to unions. In 2005, as the lead partner in Lerach Coughlin Stoia Geller Rudman & Robbins LLP, he won a $7.2 billion settlement from Citigroup, JP Morgan Chase and CIBC for their roles in the Enron collapse, with the University of California acting as the main plaintiff. The case has generated fees of $680 million and counting. But it’s his work with unions that is attracting extra attention these days. The consulting firm, Cornerstone Research, reports that in 2005 he was the lead lawyer in 37 out of 119 securities class-action settlements in this country. Of those 37 cases, 13 concerned union-affiliated funds.
Lerach has cultivated a close working relationship with the unions. “We are clearly pro-worker, progressive Democrats,” he says. “Anybody who knows us knows that about us – they know our heart’s in the right place.” That sort of talk is music to the ears of labor chieftains and the political candidates they support. The reason for the shift in client base goes back a little over a decade ago. In 1995, Congress, responding to pressure by Silicon Valley executives to do something about Lerach’s take-no-prisoners shareholder suits, passed the Private Securities Litigation Reform Act. The legislation, among other things, made class-action plaintiffs wait at least 60 days before bringing forth a suit and required the largest aggrieved shareholders to be the lead plaintiffs rather than allowing them to persuade small investors to serve as fronts. Lerach almost derailed it. A major Democratic donor, he had given a combined nearly $500,000 alone during 1993-95. Flashing that kind of cash got him access to President Bill Clinton. On December 15, 1995 Lerach attended a White House dinner hosted by Clinton, who four days later “unexpectedly” vetoed the bill. Days later, the GOP-majority Congress had the last laugh, overriding the veto.
The days of quickly “locating” a class-action plaintiff front man suddenly were numbered. Lerach and the Milberg Weiss firm (from whom Lerach had a bitter split in 2004) had to fish for new clients – like unions. Since 2000, Forbes reports, funds associated with the United Brotherhood of Carpenters won the lead or representative plaintiff spot in at least 18 securities cases, while the Laborers and the Plumbers & Pipefitters unions won the lead position 15 and 13 times, respectively. The cases have generated some $1.1 billion in settlements and about $240 million in legal fees for Lerach Coughlin. He knows to give back generously. In 2004 his firm contributed $1.3 million to an AFL-CIO building trades political fund. Given the record of corruption of these unions, a few would-be plaintiffs’ attorneys have gotten riled. In a pending suit filed last year against Dana Corp. in federal court in Ohio, for example, lawyers for the City of Philadelphia challenged the Plumbers and Pipefitters National Pension Fund’s bid to be lead plaintiff “because there is growing evidence that this organization has not consistently upheld its fiduciary duties.”
It is in the nature of the plaintiffs’ bar to seek maximum settlements for clients. And the pendulum without question has swung toward its side over the last few decades. Lerach, in this context, is merely playing by the rules. But even in a system gone awry, rules at some point have to correspond to a larger sense of right and wrong in order to remain viable. And evidence suggests Lerach has flouted them. Recently, he retained the services of noted San Francisco attorney John Keker in connection with an ongoing government probe. A federal grand jury last June indicted a plaintiff who participated in various securities cases, Seymour Lazar, for receiving kickbacks from an undisclosed law firm – Milberg Weiss, as it later turned out – to serve as a “front” during 1977-2004. Lazar has denied wrongdoing, while Lerach has declined to comment. If Lerach goes down on this one, a whole bunch of unions might end up hurting as well. (Forbes, 2/13).