suits down, yet lawyers reap
By Al Lewis, Staff Columnist
Sunday, January 22, 2006
First, Qwest's former
management got rich. Now, it's the lawyers' turn.
Of the $400 million Qwest has agreed to pay shareholders to
settle civil-fraud allegations, the lawyers representing
shareholders are expected to ask for as much as $101.2
million, according to documents filed this month in U.S.
District Court in Denver.
That includes 24 percent of the settlement, or $96 million,
plus $5.2 million for expenses. The money would go to
investor-lawsuit king William Lerach and his 160-lawyer
firm, Lerach Coughlin Stoia Geller Rudman & Robbins in San
Qwest shareholders, meanwhile, will get about 19 cents on
I wasn't able to get ahold of Lerach last week, but members
of his firm have previously said they may not ask for the
full amount. I don't know why they would do this, being
such shrewd negotiators. Are they worried about the
objections from a few Qwest shareholders?
"I'm going to be right in their face arguing that these
attorneys' fees are obscene -- that this is just gluttony,"
said Curtis Kennedy, an attorney representing retirees of
Qwest predecessor US West.
Last year, Kennedy filed a similar objection regarding a $50
million settlement that Qwest reached with shareholders over
a dividend cut. In that case, a state judge ruled that
Lerach's firm and others were entitled to up to 30 percent,
or $15 million, saying such fees were customary.
Bear in mind, it's also customary for Fortune 500 CEOs to
pay themselves as much as $10 million a year. Perhaps some
class-action lawyers hope to be worth at least as much as
the people they sue.
Legal fees in class-action lawsuits commonly run between 20
percent and 33 percent, said Joseph Grundfest, a former
Securities and Exchange commissioner and now director of
Stanford Law School's Securities Class Action Clearinghouse.
Perhaps, like outrageous CEO pay, it doesn't have to be this
"In a small percentage of these cases that involve very
large dollar amounts and have sophisticated institutional
investors as lead plaintiffs, (shareholders) can negotiate
(legal) fees of 10 percent or less," Grundfest said.
Imagine Lerach's firm asking for only 10 percent. What's
wrong with $40 million? Well, frankly, it's not $100
Besides, where would we be without class-action lawyers?
Auditors and securities regulators slept through the 1990s.
When the market tumbled, all investors could do was sue.
Lawyers, including Lerach's firm, bore most of the costs of
litigation. Now they are reaping the rewards.
Today, class-action shareholder lawsuits remain a vibrant,
albeit declining, industry. From 1996 through 2004,
shareholders filed an average of 195 lawsuits a year,
according to a recent study by the Securities Class Action
Clearinghouse and Cornerstone Research. Those cases were
associated with an average annual loss in market
capitalization of $127 billion among all the companies sued.
Last year, the number of class-action lawsuits declined to
176, with market-cap losses of $99 billion. That represents
a 17 percent decline from the 213 cases in 2004, when $147
billion was lost.
Grundfest said it's too early to tell if this is the
beginning of a trend, but he attributes the decline to three
1) The boom and bust that led to most of these lawsuits is
over. 2) There's better corporate governance now. 3) The
stock market "became less volatile in 2005 than at any time
since 1996," so fewer investors are losing money.
Most shareholder claims involve misrepresentations made in
financial documents and in statements from company officials
about business prospects, the study said. Yet the decline
in shareholder litigation comes amid a sharp increase in
corporate financial restatements.
Last year, there were 1,107 financial restatements at U.S.
companies, up from 514 in 2004 and 330 in 2003, according to
Glass Lewis & Co., an investor advisory firm. The surge in
restatements comes amid tough new reporting requirements.
"Not every earnings restatement is the result of fraud,"
said Grundfest. "It's hard for some people to believe, but
sometimes there are honest accounting errors that need to be
And when the errors are less than honest? Well, we can
always count on the lawyers to work for a piece of the
Al Lewis' column appears
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