Angry shareholders for the past couple decades have known one thing above all else: William Lerach (in photo) was the man to see. The high-powered, flamboyant San Diego attorney, for many years through the New York-based firm of Milberg Weiss Bershad & Schulman, and then starting in 2004 with his own firm, Lerach Coughlin Stoia Geller Rudman & Rollins, displayed expertise and bulldog tenacity in winning expensive settlements from publicly-traded companies allegedly guilty of stock fraud that triggered a price decline. But there is a separate angle to this story. As Union Corruption Update described at length in its February 13, 2006 issue, Lerach, a highly partisan Democrat, in recent years had taken on a good many union-affiliated funds as clients. A few weeks ago, the unions learned this cash conduit would be cut off, at least temporarily.
On October 29, William Lerach pleaded guilty in Los Angeles federal court to felony conspiracy in connection with a scheme to enrich himself and his colleagues while at 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 over a period of about 25 years. Milberg Weiss would provide up-front cash to individuals or groups to serve as lead plaintiffs (it is illegal for a plaintiff to receive any portion of the legal fees), and then award its partners bonus payments equal to the kickbacks they’d paid out.
The practice continued through 2005, said the indictment, a full decade after Congress in 1995 passed the Private Securities Litigation Reform Act over President Clinton’s veto. What prompted the measure, more than anything else, was Lerach’s common practice of locating small shareholders to “front” as the lead plaintiff. The new law forced Lerach to become more inventive in his headhunting. Labor unions, or at least their pension and other funds, proved to be one way to do it. In 2005, noted Cornerstone Research, Lerach was the lead lawyer in 37 out of 119 securities class-action settlements in this country. And in 13 of those 37 cases, the principal plaintiff was a union-affiliated fund.
Lerach’s career for the time being is out of commission. But it’s not likely either friends or foes have seen the last of him. His guilty plea calls for him to spend no more than two years in federal prison when he comes up for sentencing this January. And though he will have to pay the government a combined $8 million in penalties and fines, the sum pales before the more than $100 million in fee-related personal income he’s raked in over the years. Additionally, he’ll be eligible to collect tens of millions more from the $7.2 billion settlement pool that his new firm extracted from Citigroup, JPMorganChase, CIBC and other defendants for their roles in the Enron collapse. And once out of prison, he will be permitted to serve as a “non-legal consultant.” It looks like a pretty sweet deal.
Meanwhile, dominoes continue to fall at Lerach’s former Milberg Weiss firm, from whom he had a bitter split in 2004. Two of the more than half-dozen people to plead guilty in the case, triggered by a federal investigation that began in 1999, were partners David Bershad and Steven Schulman. Each had been 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 offers. What will the unions do in the face of this? Luckily for them, there is no shortage of targets. Stock prices have been tanking at a number of firms lately, and no more so than at Wall Street financial giants such as Merrill, Lynch and Bear Stearns, each of whom had high exposure to the now-collapsing subprime mortgage market. Even with Bill Lerach on the sidelines, plenty of lawyers stand ready to take calls. (Forbes, 2/13/06; Fortune, 11/3/06; Washington Post, 10/30/07).