Closing Argument: Mr. Lerach Mulls Life Behind Bars
Guilty but Defiant, The Plaintiffs' Lawyer Kicks Back in
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
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
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
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.
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
After law school at the University
of Pittsburgh, Mr. Lerach worked for several years at
Reed Smith, then an old-line
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.