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Unsettling Days for King of Class Actions

Prosecutors may want to indict William Lerach, but his career and the shareholder suits he pioneered are booming.

July 23, 2006|Molly Selvin | Times Staff Writer

These days Bill Lerach is either at the top of his profession -- or on his way to jail.

A decade after Congress passed tort-reform legislation written partly to curb Lerach's growing clout against corporations, the class-action shareholder lawsuits he helped pioneer are booming and Lerach has roared back as one of the field's most successful practitioners.

He won final approval in May for a $6.6-billion settlement for Enron Corp. shareholders, bringing his total recoveries for those investors to $7.3 billion -- with more money likely to be flowing his way. That came after a string of recent class-action wins.

Federal judges continue to name Lerach's San Diego-based law firm as lead plaintiffs' counsel in new class-action suits, a nod to his negotiating muscle that will entitle him to a larger helping of the legal fees.

Lerach's bulging case files underscore his firm's top ranking last year from Institutional Shareholder Services, which annually lists the top 50 law firms in securities class actions.

But if these are the best of times for the 60-year-old king of class actions, they could also be among the most unsettling months of his career.

Days before the Enron civil settlements, federal prosecutors indicted the New York law firm of Milberg Weiss Bershad & Schulman and two former partners for fraud and conspiracy.

Lerach was one of the most prominent partners at Milberg Weiss until he left in 2004 after what friends have characterized as a titanic clash of egos with senior partner Melvyn Weiss. Many experts believe that Lerach is "Partner B" mentioned throughout the 102-page indictment, generating speculation that prosecutors may yet bring charges against him.

During a pretrial conference last week, government attorneys said there was "a significant possibility" of additional indictments in the seven-year-long probe.

Stephen Gillers, who teaches legal ethics at New York University Law School, said Lerach "has to be concerned. His name is still in play."

Meanwhile, Lerach continues to be criticized by business advocates, who say his tactics usually are nothing more than corporate shakedowns designed primarily to enrich lawyers. Should he be indicted, they say, it will be well deserved.

Lerach declined to be interviewed for this story. But one of his law firm partners, Patrick Coughlin, said, "Bill has always acted in an appropriate way in fighting on behalf of victims and consumers to hold companies accountable for their wrongdoing."

Economist and actor Ben Stein described his longtime friend as "not the slightest bit worried" about indictment. "I don't think he's afraid of anything," Stein said.

Christopher Patti, a University of California lawyer who has worked closely with Lerach since 2001 on the Enron case, said Lerach was "saddened, determined to move forward with respect to his own situation and do his work."

If Lerach does evade prosecutors' grasp, the man whose aggressive legal tactics caused corporate executives to gnash their teeth stands to capitalize on Milberg Weiss' troubles. Ironically, that could make him even wealthier and more powerful than before.

If so, it wouldn't be the first time that William S. Lerach slipped a lasso meant to catch him. His firm's fat book of business is also sweet revenge on members of Congress and tort reformers who a decade ago tried to shut him down.

Lerach through the years had wrung billions of dollars out of WorldCom Inc., AT&T Corp., Royal Dutch Shell, Apple Computer Inc. and a long list of blue-chip corporations. He did that generally through mammoth class-action lawsuits -- triggered by a drop in the target's stock price -- that alleged that boardroom misconduct and fraud had occurred.

Tort reformers and corporate executives cried foul, slamming Lerach's suits as meritless shakedowns. Any corporation that had to pay up as a result of his suits, critics said, had been "Lerached."

The 1995 Private Securities Litigation Reform Act largely was designed to curb Lerach-styled lawsuits. Before the law, the attorney who filed suit first became lead plaintiffs' counsel, whether his client owned five shares or 5 million shares in the targeted company. The law now gives the edge to the lawyer whose client has the biggest financial stake.

Lawmakers thought the switch would snuff out what they considered rapacious litigation. Instead, experienced firms such as Lerach's -- along with Milberg Weiss and a handful of others -- proved best positioned to lure large institutional investors including the California Public Employees' Retirement System and the Regents of the University of California, the lead plaintiff in the Enron shareholder suit.

As a result, "the litigation has been concentrated," said Francis McGovern, a Duke University law professor.

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