Bill Lerach on CEO misbehavior

Over at WaPo (HT Law Blog), Bill Lerach, who has admitted paying illegal fees to litigants, thinks that “the legal system is a lot tougher on shareholder lawyers than it appears to be on Wall Street executives.” As Lerach sees it, he’s going to jail “because, in my zeal to stand up against this kind of corporate greed over the years, I stepped over the line.” He’s upset that corporate CEOs like Citi’s Prince and Merrill’s O’Neal get to pocket huge payments after having “engineered. . . catastrophes” at their firms.

I'll put aside Lerach’s attempt to characterize his culpability as righteous zeal rather than greed and focus on his more important mistake that we need comparable criminal penalties to deal with corporate executives. Lerach’s wrong because markets, contracts and civil lawsuits are more than enough to deal with problems like Prince and O’Neal. That would be the case even if their behavior were worse than it apparently was – that is mere mistakes in business judgment. The criminal justice system is wildly inappropriate to deal with this sort of case.

By contrast, Lerach was operating in an environment where the market provides little protection. Instead, we have to rely on the integrity of lawyers and other participants in the judicial process. When that goes bad, we need strong legal medicine to deal with it.

That’s not to say there’s no problem with criminalizing Lerach’s behavior. Bruce Kobayashi & I have argued in the recently published Hypocrisy of the Milberg Indictment that there may be an inconsistency between letting the government “pay” witnesses with plea deals and throwing the book at Lerach. But even Kobayashi and I recognize the potential need for strong penalties when the payments aren’t disclosed.

Comments

[save_the_rustbelt]

So where is the line?

It is likely that some nursing home patients died of nelgect after private equity firms bought groups of nursing homes and cut staffing to enable management fee payments (I'm an expert in nursing home finance and operations). The NYT (your favorite) has been on this story.

So should the the private equity fund management team be help criminally liable? To date they have not and probably never will.

The private equity funds have also created a shell company setup for operations so that there are no assets to pay malpractice awards and/or regulatory fines. Is this acceptable or over the line?

Very clever lawyering, but over the line?