Free Bill Lerach?

I have been ambivalent about the investigation of Milberg, Weiss and Lerach which may bring a criminal indictment not only against individual lawyers, but also against one or more law firms.

On the one hand, it’s hard to admire what Lerach has referred to as his “business model” – bringing sometimes flimsy class actions in hopes of extorting settlements. 

But there are two other hands.  First, as I have written, Lerach’s lawsuits sometimes serve an arguably valuable monitoring function, particularly after the Private Securities Litigation Reform Act forced a revision in Lerach’s “business model” -- as long as you are willing to assume that securities fraud actions are valuable. 

Second, one wonders about the substance of the federal investigation, and whether it belongs in the category of the post-Enron excesses that, among other things, brought Andersen down and egregious sentences against people like Jamie Olis and Bernie Ebbers.

A NYT profile (thanks to Tom Kirkendall for his usually alert link and analysis) goes a way toward clarifying things for me. 

There are several apparent problems with justice’s pursuit of Lerach and his firm. First, it’s based on the notion that legitimate fees to law firms were in fact disguised kickbacks to a frequent plaintiff, Seymour Lezar.  This will be hard to prove, and the NYT article points to circumstantial evidence indicating that Lezar was a legitimate plaintiff for whom kickbacks would have been unnecessary.

Second, the history of the investigation is suspicious. It started with a defendant in an art fraud case making a deal for a light sentence by fingering Milberg Weiss in the alleged kickback scheme – but that was years ago. The criminal investigation against Milberg Weiss apparently didn’t heat up until 2002 when Lerach started filing high-profile suits arising out of Enron, as well as, even more suspiciously, Halliburton. 

This adds to the already well-known facts that Lerach is a prominent contributor to Democratic candidates and organizations and that class actions have become a political target.  Obviously putting somebody like Lerach out of business, and indicting his firm as well, would not only send a warning to the class action bar to lay off, but also eliminate one of its most prominent players.

Finally, the criminal investigation serves little legitimate deterrence purpose, since the main abuse it targets – lawyer-driven securities class action using nominal plaintiffs – has already been addressed by the PSLRA.

It’s hard not to think of other high-profile, highly successful challengers of the powers-that-be like Mike Milken who ended up in jail for their efforts.  I realize there’s a big difference between Milken and Lerach.  Milken developed new business practices that, in my judgment, had real economic value, in the process challenging laws (namely the Williams Act) that reduced economic value. Lerach, in my opinion, can be viewed as an economic parasite who is made possible by laws – namely those that facilitate securities and other class actions.

But there are more fundamental values at stake here – the power of government and the rule of law.  There are aspects of this pursuit of Lerach that smell here.  I hope that those who condemn Lerach for his abuse of law will be equally alert to any signs that the government is abusing the law to “get” Lerach.

Comments

[Jessica]

I, in no way agree with what is being said here about Bill Lerach, perhaps you should know some history on the man and the subject that he stands for. If it weren’t for ballsy lawyers, such as Lerach, investers would still be at a disadvantage in the markets. I agree with his genuine efforts to reform the reformed securities acts of 1933, 34.

[How to Get the Girl of your Dreams]

I agree. Mel Weiss is a giant of the plaintiffs bar