How One Greedy Lawyer (Bill Lerach) Hurt Business

This comes from a book review in the WSJ From Bully to Felon: How Bill Lerach shook down corporations, until his scam was uncovered. From the 3-2-10 issue, p. A21. Exerpts:

"In 1972, a young lawyer co-authored an article for the University of Pittsburgh Law Review. He targeted class-action securities lawsuits, calling them "procedural monstrosities." They were legal extortion, he said, in which plaintiffs simply use "allegations as a bargaining weapon to be disposed of when an appropriate premium has been extracted from the defendant.""

"In the course of 30 years at the New York-based firm of Milberg Weiss, Mr. Lerach would become the most feared tort lawyer in the country, pioneering an assembly-line model of "strike" lawsuits against corporate America.

In a typical case, he would charge that a company had misled shareholders; he would then sue for damages, claiming to represent a class of people who had lost money on the company's stock; and, finally, he would bully the company into paying over a settlement. In 2008 he became a national symbol for the corruption and greed that lay behind such lawsuits, going to federal prison for helping to orchestrate one of the longest- running legal scams in history."

"Along the way they show how the plaintiffs' bar has transformed the process of class actions into big business."

"Mr. Lerach (eventually with the help of dozens of employees) would monitor company stock prices, waiting for one to plunge. Then he would find some prior sunny statement from the chief executive, dig up an inside trade or two, locate a shareholder plaintiff, and scream investor fraud. Subpoenas would often open up new targets for yet more accusations. Mr. Lerach would then threaten to bankrupt the firm in court or go away for a hefty sum. "I'll own your f---ing house in Maui and the diamonds on our wife's fingers," he once warned a CEO."

"By 1992, Milberg commanded 25% of the country's securities class actions; 90% were settled out of court. The firm's profits in 1993 exceeded $100 million."

"Nobody knew until later that a lot of this legal gamesmanship was rigged. Mr. Lerach had no trouble identifying corporate targets; the hard part was rustling up plaintiff-shareholders to represent. In 1976 an investor named Seymour Lazar proposed a solution: He'd buy stocks and serve as a plaintiff—for a kickback of any payout. It was illegal to pay individual plaintiffs to serve in lawsuits, lest their interests conflict with those of the rest of the plaintiffs' class; Milberg Weiss got around that restriction by sending the kickback money through middlemen lawyers."

"The federal government wouldn't catch on to the scam until the late 1990s, when yet another of the firm's professional plaintiffs was caught in an unrelated crime and came clean."

"Democratic Party thrives on campaign contributions from the securities bar and in return blocks the reforms that might put an end to such legal extortion"