to Side With Enron Plaintiffs
Agency Asks Court to Back Shareholders
By Carrie Johnson, Staff Writer
Saturday, June 2, 2007
Federal securities regulators will throw their weight behind
investors in a big-money dispute that could resolve whether
shareholders can sue bankers who enabled their corporate clients
to engage in fraud, two people familiar with the decision said
The Securities and Exchange Commission has asked the U.S.
solicitor general to file court papers supporting investors in
an upcoming Supreme Court case, an action that has not been made
public. The agency's decision follows intense lobbying by
industry groups, unions and plaintiff lawyers, including
well-known California attorney William S. Lerach.
The move is a significant victory for Lerach, who won $7.3
billion in settlements with banks and law firms that helped
Enron disguise its financial problems. If the Supreme Court
adopts the agency's position, it could breathe new life into a
stalled case filed by Enron shareholders against Merrill Lynch
and Barclays Bank. But the SEC backing comes at a bittersweet
time for Lerach, whose own future is in question because of
Earlier this week, Lerach, 61, told partners and clients he
might leave his three-year-old San Diego law firm, Lerach
Coughlin. The news came at about the same time a former law
partner began to explore a plea agreement with federal
For seven years, the U.S. attorney's office in Los Angeles has
been investigating the role of Lerach and his former law firm
partners in a system they allegedly used to funnel improper
payments to people in exchange for serving as plaintiffs in
large class-action cases. Prosecutors obtained indictments in
2006 against Milberg Weiss, Lerach's former law firm, and
partners David J. Bershad and Steven Schulman.
Lerach and his former partner Melvyn I. Weiss, among the most
well-established and wealthiest plaintiff lawyers in the nation,
have not been charged with wrongdoing, but lawyers involved in
the case say they are government targets.
In a written statement issued by Lerach Coughlin yesterday, the
firm said it was not a target of investigators. But it
pointedly did not address whether Lerach himself faced legal
jeopardy. "Mr. Lerach is cognizant of the fact that . . . the
investigation should not become a distraction to our firm and
its ongoing work," the statement said.
Bershad, who for years was principally responsible for the
Milberg Weiss firm's finances, and Schulman have been fighting
criminal conspiracy charges. In recent weeks, however,
Bershad's lawyers have held discussions with prosecutors,
raising the prospect that he could plead guilty and implicate
others under investigation in exchange for leniency from the
government. No action is imminent, according to four people
briefed on the probe who spoke on condition of anonymity because
the investigation is ongoing.
Representatives for Milberg Weiss met Wednesday with officials
in the Los Angeles U.S. attorney's office to discuss settlement
possibilities and financial terms. The urgency of negotiations
is heightened because a guilty plea by Bershad or a similar
high-ranking official could affirm the guilt of the law firm
under a legal principle known as vicarious liability. Similar
talks between Milberg Weiss and prosecutors collapsed last year,
shortly before the indictment. A trial of the firm and the two
partners is scheduled for January.
Lawyers for Lerach, Weiss, Schulman and Bershad did not return
calls yesterday. A spokeswoman for Milberg Weiss declined to
The investigation is being watched closely by business groups
and corporate lawyers, some of whom have excoriated Lerach for
his aggressive and often successful tactics that have wrested
billions from corporate America and prompted Congress to pass
limits on securities class-action cases a dozen years ago.
Rival plaintiff firms, too, are following the buzz for
opportunities to poach partners and clients from Lerach Coughlin
and Milberg Weiss.
Lerach Coughlin nodded to that possibility in its statement,
attesting to its experience and pointing out that 175 lawyers
would remain even if Lerach departed.
Securities class-action lawsuits can be lucrative for
plaintiffs' lawyers, underscoring the importance of the SEC's
position to companies and the lawyers who sue them. Lerach and
his firm have not yet collected their share of the $7.3 billion
in Enron settlement proceeds, estimated to be 8 to 10 percent,
and Lerach could have to forfeit his portion as part of a
criminal case or plea agreement.
The University of California, the lead plaintiff in the Enron
case, issued a statement yesterday saying it would move ahead
with the same legal team even if Lerach departs.
An SEC spokesman declined to comment on the agency's decision
yesterday. But last month, SEC Chairman Christopher Cox told
lawmakers the government "would do its very best to make sure
that injured Enron investors receive the full amount of recovery
to which they are entitled in our legal system."
The Supreme Court will hear the case, over an issue called
scheme liability, in its next term.