Guilty Plea to End Crusading Lawyer's Lucrative Run
Wednesday, September 19, 2007
In a three-decade career, California lawyer William S. Lerach won tens of billions of dollars for his clients by suing executives embroiled in corporate scandal. Casting himself as the voice of victimized shareholders, he chalked up unprecedented awards in the Enron accounting mess and the Exxon oil spill.
His victories spawned a nationwide legion of imitators, who adopted his quick-draw tactics and bombastic rhetoric, transforming what was once a backwater, class-action investor lawsuits, into one of the most lucrative sectors of the legal business. That success, coupled with his brash style, won him enemies throughout corporate America and inspired Congress to pass a 1995 law imposing limits on shareholder cases.
Now Lerach, 61, is headed to prison, brought down not by adversaries in executive suites or on Capitol Hill but by his own hubris.
Yesterday, he agreed to pay the government fines and penalties of $8 million and to plead guilty to a charge of conspiracy to obstruct justice. The deal ends a seven-year investigation into allegations that he and his former law firm secretly paid people to serve as plaintiffs. Under the terms of the plea, which requires court approval, he will serve at least one year and no more than two years in federal prison.
"I have always fought for my clients aggressively and vigorously in order to hold powerful corporations responsible when their actions harmed people," Lerach said in a statement. "However, I regrettably crossed a line and pushed too far. For my actions, I apologize and accept full responsibility for my conduct."
Lerach and his team "symbolized a whole industry of litigation, the transformation of the class action from something relatively marginal in the legal world to a great big moneymaker," said Walter Olson, a senior fellow at the Manhattan Institute and a critic of such cases. "They seemed to take such relish in it, the roosters strutting in the barnyard."
His conviction could cast a pall on plaintiff lawyers, whose tactics have come under government scrutiny in cases around the country. Lerach's troubles also have touched off a fierce battle among firms seeking control of cases related to the debacle in subprime mortgages, home loans extended to people with flawed credit.
The roots of Lerach's success, and his downfall, date to the 1980s, when he and his former partners at the New York law firm Milberg Weiss enlisted a group of people who held stock -- often, only a few shares -- in publicly traded companies to serve as plaintiffs.
According to court papers, Lerach's team would file suit on their behalf as soon as a company's stock price dropped or if the company failed to meet financial targets. Speed was important: In those days, the lawyers who got to the courthouse first gained control of the cases and stood to gain the most financially.
It was a wildly successful technique, and it soon made Lerach one of the most prominent business lawyers in the nation. Through the 1980s and '90s, he watched from his San Diego headquarters as the stock prices of tech companies in his backyard went up and down, honing his strategy and extracting settlements that made him rich.
By 1993, he had a mansion in the exclusive Rancho Santa Fe neighborhood. He collected sculpture and African art and traversed the country on private jets.
He and his firms gave more than $3.6 million to Democrats in the past decade, according to campaign finance records. The firms gave $1.7 million more since the 2002 campaign cycle to "527" issue-advocacy groups, according to CQ MoneyLine. President Bill Clinton spent a night at Lerach's mansion in the late 1990s and later appointed him to the U.S. Holocaust Memorial Council.