Closing Argument:  Mr. Lerach Mulls Life Behind Bars
Guilty but Defiant, The Plaintiffs' Lawyer Kicks Back in La Jolla
By Peter Lattman
The Wall Street Journal
Tuesday, February 12, 2008

Staring at a pile of newspapers stacked before him over breakfast recently at the La Jolla Beach & Tennis Club, fallen class-action lawyer William Lerach recalled how for years he read as many as six papers a day.  He was looking for reports of corporate setbacks that could create fodder for his lawsuits.

Now, as he faces prison, he's counting on his subscriptions to serve a different business purpose.  "Most prisoners can't afford them, so I hear they're very good currency," Mr. Lerach said.  "A sports section is supposed to win you a lot of favors."

End of Career

Yesterday in Los Angeles, U.S. District Judge John Walter sentenced Mr. Lerach, 61 years old, to two years in federal prison for conspiring to obstruct justice in connection with alleged kickback payments made by his former law firm, Milberg Weiss LLP.  Mr. Lerach is also paying an $8 million penalty.  He has been suspended from the practice of law and will be disbarred.

The punishment brings to an end a controversial legal career.  The costly class-action lawsuits Mr. Lerach pursued in the name of shareholders made him loathed in America's boardrooms.  Executives hit with his suits said they had been "Lerached."  His defenders maintained he had championed investors and helped keep companies accountable.

It's the latter view that Mr. Lerach, who has earned more than $200 million, sees as his legacy.  He recently looked back at his career and the case against him in an interview at his club and at his home, an Italianate California mansion perched on a cliff overlooking the Pacific Ocean in La Jolla.  And, with his Chihuahua, Tommy, on his lap, he looked ahead to being in prison and to getting out.

"I hope that no matter how hostile Congress and the courts are to investors," he said, "there will always be lawyers like me with the guts to stand up to them."

The criminal case against Mr. Lerach stemmed from the very lawsuits that made him rich.  The suits typically followed a drop in a company's share price and alleged that executives had misled investors.  The suits were brought on behalf of many shareholders, but law requires that court papers include a plaintiff identified by name who was an actual stockholder.  That's where Mr. Lerach and his former partners got in trouble.

Federal prosecutors in Los Angeles in 2006 charged Milberg Weiss with a 20-year conspiracy, alleging it had secretly paid millions of dollars in kickbacks to certain people to persuade them to serve as lead plaintiffs in these lucrative suits.

Financial Conflicts

The government maintains that the kickbacks created financial conflicts between the named plaintiffs and the other plaintiffs and also argues that Mr. Lerach and his colleagues deceived judges by failing to disclose the illicit payments.

"I participated in what was being done and was wrong," said Mr. Lerach, who admitted to contributing cash to a secret fund for paying plaintiffs.  "I have to stand by my guilty plea, and I do stand by it."

But while acknowledging wrongdoing, Mr. Lerach has his own take on the case.  He questions whether what he sees as an ethical violation should rise to the level of a criminal offense.  "Nobody was ever prosecuted for this," he said.  And he insists that the payments to lead plaintiffs didn't harm other plaintiffs.  "Believe me, it was industry practice.  The clients that we represented, cared about and fought for were not harmed by the wrongful conduct."

Yesterday, Judge Walter said that argument missed the point.  "This whole conspiracy corrupted the law firm and it corrupted it in the most evil way," he said.

The investigation began in 1999, when Steven Cooperman, a Beverly Hills eye surgeon convicted of insurance fraud, cut a deal with the government for a lighter sentence by implicating Mr. Lerach and the Milberg firm in the kickback scheme.  Dr. Cooperman was a Milberg lead plaintiff in cases against companies and has pleaded guilty and admitted to receiving improper payments from the firm.

Mr. Lerach says that by the time the government began its investigation, he had stopped participating in Milberg's scheme.  A 1995 federal law had changed the rules pertaining to class-action litigation.  It had become more important for a law firm to have a large institutional client, like a pension fund, than to be first to the courthouse.

"I left the old ways behind," he said of the kickbacks.  But his partners continued the practice, even after the government's investigation ensued, court papers show.

"It is incredible and I could kill David for doing it," said Mr. Lerach, referring to David Bershad, the now-former Milberg Weiss lawyer who managed the firm's finances and who continued the kickback scheme as late as 2003, according to court papers.

Mr. Bershad and Steven Schulman, another former Milberg partner cooperating with the government, have pleaded guilty.  The firm's co-founder, Melvyn Weiss, is fighting the charges, as is the firm.  A trial is scheduled for August.

Mr. Lerach isn't cooperating with the government, though he believes that had he done so he could have avoided prison.  "I just wouldn't do it because it's not in my nature."

The son of a salesman, Mr. Lerach was raised in a middle-class home in Pittsburgh.  His father, who lost his family's money in the 1929 crash, died of a heart attack just before Mr. Lerach graduated from high school.  His mother, whom he described as "tough and opinionated," is also deceased.

After law school at the University of Pittsburgh, Mr. Lerach worked for several years at Reed Smith, then an old-line Pittsburgh firm, before Mr. Weiss recruited him to join Milberg.  In 1976, he opened the firm's West Coast branch.  In 2004, after years of escalating tension between the West Coast and East Coast branches of the firm, Mr. Lerach left Milberg Weiss to found his own firm, now called Coughlin Stoia Geller Rudman & Robbins, which he has now left.

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