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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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September 24, 2007 12:01 AM ET
Bloomberg
SMILE, THOUGH YOUR SENTENCE IS PENDING William Lerach faces a multimillion-dollar fine and jail time.
Early last week, William S. Lerach, the once powerful and feared securities litigator responsible for netting multibillion-dollar cash settlements for shareholders of shamed companies like Enron and WorldCom, himself pleaded guilty to one felony count of conspiracy to commit fraud in a kickback scheme that paid people to serve as plaintiffs in his lawsuits. Two days later, Melvyn Weiss, the New York lawyer who trained Mr. Lerach and with whom Mr. Lerach practiced throughout his career until a rift brought about by their legal troubles drove the two apart in 2004, was himself indicted in the very same case and on even more severe charges: conspiracy, racketeering, obstruction of justice and making false statements to a grand jury. Former partners David Bershad and Steven Shulman have pleaded guilty in the case and have agreed to cooperate with prosecutors. But the probable downfall of Messrs. Lerach and Weiss is unlikely to further diminish a securities litigation bar that has already been significantly disarmed by regulatory reforms and recent Supreme Court precedents. The guilty plea of Mr. Lerach and the indictment of Mr. Weiss likely mark the beginning of the end of the vaunted law firm, formerly known as Milberg Weiss Bershad Hynes & Lerach, then Milberg Weiss Bershad & Shulman, and now merely Milberg Weiss. To contain the damage of the Justice Department case originally brought against Milberg Weiss last year, Mr. Lerach, who retired from his three-year-old San Diego law practice just a few weeks ago, will now also forfeit $7.75 million in income and spend as long as two years in federal prison. It is a shameful end to a career that was always perceived as influential, if not distinguished. And how ironic, some observers said, that the very same legal tactics and aggressive strategies that drove corporate titans to quickly open their purse strings, making Messrs. Lerach and Weiss very wealthy men in the process, could fail the scrappy lawyer in the biggest case of his career: the defense of himself. In a telephone interview earlier this summer, in which Mr. Lerach came to the defense of a peer at a competing law firm who was also facing scandal, Mr. Lerach, the soon-to-be admitted felon, argued that a lawyer’s job is to “push the envelope…in defense of his clients…. Sometimes you step too far [and] the toothpaste gets out of the tube.” Sure enough, excess lawyering now appears to be exactly what overwhelmed Milberg Weiss. The original indictment against Milberg Weiss accuses the firm of funneling $11 million in earnings—out of a total of more than $216 million from 150 cases between the 1970s and 2005—back to clients in the form of “kickbacks” for having signed on as “lead plaintiffs” in the firm’s lawsuits. While Mr. Lerach’s plea and the government’s pending case against Mr. Weiss may be fodder for critics of securities class actions, the practical impact of Milberg Weiss’ downfall will likely be limited. For starters, a Stanford Law School study shows the rate of securities class actions is already in decline: 59 such lawsuits were filed in the first half of this year, compared with an average of nearly twice that, or 101, at midyear of every year between 1996 and 2005. Moreover, lawyers say the practices at issue in the case against Milberg Weiss, while widespread decades ago, have already changed, thanks to regulatory actions starting with the Securities Litigation Reform Act of 1995, which shifted plaintiff status away from small individual shareholder to large shareholders, like public pension funds, which are much harder to bribe (in theory, at least). “This [case] is about the past rather than the future of securities litigation,” said John Coffee, a professor at Columbia Law School. Recent decisions by the Supreme Court have further raised the bar for investors wanting to bring class-action lawsuits against corporations, including a ruling in June in the so-called Tellabs case in which the court said investors must show more than the mere possibility that company officials knew that they were engaging in wrongdoing. But since class-action lawsuits ebb and flow with the public’s sense of corporate malfeasance, the tide could be rising again, thanks to the subprime mortgage mess. Stanford’s research aside, NERA Economic Consulting expects the number of securities class actions to tick up by the end of 2007—driven partly by the first wave of subprime lender-related claims—to an estimated 152 lawsuits, marking a 12% increase over 2006. “[The Milberg Weiss] case is more symbolic than anything else. It may give some people pause [over] what’s really going on here with this explosion of class-action lawsuits,” said Tony Buono, a professor of management and sociology at Bentley College in Waltham, Mass. “But it’s too late to stem the tide. You’re still going to see these suits unfold.” In the end, the biggest impact the demise of Messrs. Lerach and Weiss will have on the securities litigation landscape may be that competing firms now have a chance to grab market share. “If one of them—or both of them—isn’t there anymore, it will leave opportunities for other firms,” said Tom Dewey, a securities litigation partner at Dewey Pegno & Kramarsky in New York. “And to an extent that’s happening already.” FW
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