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Enron Legal Foe Finds Its Tactics Under Scrutiny

Courts: A probe of his law firm could hamper William Lerach's bid to represent the energy giant's shareholders.


The unfolding Enron mess should be William Lerach's finest hour, a chance for the nation's top litigator of shareholder class-action suits to take center stage in one of the largest corporate scandals in history.

Lerach's firm, Milberg Weiss Bershad Hynes & Lerach, appeared to be poised to grab control of the Enron shareholder litigation, proceedings that will showcase plaintiffs' lawyers at a time when the growing crisis in corporate accounting practices, restated earnings and tumbling stock prices could trigger more demand for their services.

But now Lerach's 190-member firm is under a cloud that could undermine his campaign to win appointment as the lead law firm representing Enron shareholders.

Two days after Lerach made a splash in Houston with a box of shredded Enron documents, it was leaked to the news media that a federal grand jury in Los Angeles was investigating Milberg Weiss in connection with possible improper payments to shareholders enlisted for suits.

The investigation reportedly stemmed from information provided by Beverly Hills eye surgeon Steven G. Cooperman after he was convicted in 1999 of arranging the theft of a Picasso and Monet from his home and defrauding Lloyds of London of $12.5 million. Cooperman, who is serving a 37-month prison sentence, was one of a group of shareholders who were named as plaintiffs in several shareholder suits filed by Milberg Weiss.

Milberg Weiss has acknowledged the probe and said it would cooperate. But its principals, including Lerach, have declined to comment further.

Lawyers on both sides of the shareholder lawsuit business said the timing of the leak had a political whiff about it, although none of them would speak for attribution.

Lerach was a major contributor to former President Clinton political campaign. Assistant U.S. Atty. Mike Emmick, a former member of Ken Starr's investigative team that looked into Clinton's Monica Lewinsky affair, is one of two prosecutors working with the grand jury in the Milberg Weiss probe.

A former federal prosecutor said there are so many other remedies for the allegations reportedly under investigation, including bar association and civil sanctions, that a criminal prosecution doesn't make sense. "I think it's so clearly politically motivated," he said. "Think of how many cases the U.S. attorney has ever brought against [lawyers], not to mention big law firms. I can barely think of any."

A corporate defense lawyer said he would be surprised if the firm had done anything illegal. "I think the Milberg Weiss lawyers are pretty smart, and they know what they're doing," he said. Lerach is "very talented. He's a true believer in what he does. And I think they're a creative, entrepreneurial group. He's obviously on a lot of people's enemies lists."

Thom Mrozek, a spokesman for the U.S. attorney's office in Los Angeles, refused to comment directly on the reported investigation. But speaking generally, he said, "The United States attorney's office does not initiate criminal investigations based on any political motivation."

The disclosure of the grand jury investigation came at a critical time in Lerach's campaign to win the firm's appointment as lead counsel in the shareholders' case against Enron.

"There's tremendous jockeying," said Trey Davis, a spokesman for the University of California board of regents, which lost $145 million on its Enron investment and has retained Lerach's firm to represent the institution. "Milberg Weiss is the preeminent firm to handle a securities fraud case of this magnitude," he said. "We're talking about the largest financial scandal in American history--billions and billions of dollars in losses."

Davis said the regents retained Milberg Weiss in December, about a month before word of the grand jury investigation leaked out, but they were not concerned about it. "Milberg Weiss has assured us that there is no merit to the inquiry," he said.

The contests among plaintiffs' lawyers for status as lead counsel can be as hard fought as the cases against the corporations themselves. The lead law firm gets to run the case and take home the lion's share of fees, which can total as much as a third of any settlement or judgment.

In pursuit of the Enron case, Milberg Weiss posted news releases and updates about the litigation on its Web site, inviting aggrieved shareholders to click to join the fray.

Lerach set up a command post in a Houston hotel in Enron's backyard, posing for the media with a box of shredded Enron documents. It was quintessential Lerach. The firm's most famous and controversial partner was doing what he does best--championing shareholder rights and staking his claim to what could be the biggest case of investor loss in U.S. history.

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