Weiss and Lerach as entrepreneurs

Lattman has a post in honor of the recent Mel Weiss indictment (and Lerach plea) quoting Stephen Weiss portraying his father as a sort of pioneering entrepreneur.

Apropos of that, there's Gilles & Friedman, Exploding the Class Action Agency Costs Myth: The Social Utility of Entrepeneurial Lawyers, They argue that it's misguided to focus on "the agency costs problem long derided in class action practice" because

in the majority of small-claims class actions, there is no legitimate reason to care whether class members are being undercompensated (or compensated at all), nor any reason to worry that entrepreneurial lawyers are being overcompensated. Rather, we assert that the driving force behind class action practice -- and any effort to reform, reduce, redirect that practice -- should be deterrence. All that matters, we argue, is whether the defendant-wrongdoer is forced to internalize the social costs of its actions -- not to whom it pays those costs.

So are Weiss & Lerach sort of like Mike Milken – much derided but actually the agents of socially productive creative destruction, brought down by the corrupt and complacent status quo they sought to destroy?

The argument isn't totally off the mark. Bruce Kobayashi & I have theorized for better protection of the intellectual property created by class action lawyers (Class Action Lawyers as Lawmakers), and for a reconsideration of the illegality of the witness/plaintiff payments that Lerach et al were prosecuted for (The Hypocrisy of the Milberg Indictment)

But, hey, let's not get carried away. The fundamental problem here is the securities fraud remedies, as well as remedies under other laws, that are central to the business plan of "entrepreneurs" like Lerach. Because of these laws, these legal entrepreneurs have been a factor in stifling the other sort of entrepreneurship, which is arguably much more socially productive.

The important point of the analogy between the lawyers and the other entrepreneurs is that, in fact, they are all business people in legitimate industries. Therefore, misguided precedents and norms created in prosecuting these businessmen carry over into other forms of business. Two wrongs (in criminal prosecutions) not only do not make a right, they compound the problem of excessive criminalization of business. In particular, the plea bargain practices used in prosecuting Lerach and Weiss were similar to those used and justly criticized in Enron and other cases.

So, if we have problems with the class action lawyer business model, let's address them at the source.  In particular, we should examine whether we really do need the deterrence they provide, as suggested by Gilles & Friedman, and at what cost.