The Fall of William S. Lerach

The Washington Post reports on the ethically challenged William Lerach:

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.

Lerach's donations and his fierce criticism of the Bush administration over the Enron case won him foes among the Republican elite, whom people close to Lerach blame for the investigation that will result in the loss of his law license and freedom.

Lerach used the media brilliantly, and he routinely succeeded in the courtroom without having to spend much time there. Instead, as his prowess became known, he successfully pressured executives to settle lawsuits in their early stages.

Having grown up in a working-class Pittsburgh home, Lerach regularly described himself as an advocate for "the little guy." Legal experts agree that his cases gave investors who lost money a new avenue to recover at least pennies on the dollar. His cases also infuriated his opponents in the corporate and political arena.

"Bill Lerach transformed the securities class action in ways that both benefited many investors through compensation and deterrence and contributed to some backlash," said Joel Seligman, a securities law historian and president of the University of Rochester. "It is very rare for any individual to have had so profound an impact on litigation and legislation."

For years, defense lawyers have swapped tales of Lerach's often outrageous behavior. Sometimes he filed court papers without bothering to substitute the names of his new corporate targets for the old ones. He cussed a blue streak. During negotiations on one hard-fought case, he threatened to seize a chief executive's house. Everything about the fuzzy-haired advocate got under his opponents' skin -- from his unorthodox appearance to his acute strategic intelligence, concealed under layers of bluster.

He sometimes repeatedly sued the same company. John Doerr, a top Silicon Valley venture capitalist, once called Lerach an "economic terrorist."

In at least one instance, Lerach met his match. Lexecon, a Chicago economic consulting firm, filed a lawsuit alleging that Lerach and others had abused the legal system to attack an opposing expert witness. After years of fighting, including a round in the Supreme Court, Lerach's former law firm paid $50 million to settle in 1999. "The theme of our trial was lawyers behaving as though they were above the law," said Alan N. Salpeter, who represented Lexecon.

After the settlement, Salpeter said, he got dozens of phone calls and letters, including one from the chief executive of a California clothing company, a man he had never met. "He wrote, 'Dear Alan, I don't know who you are, but I love you,' " Salpeter recalled. "It shows that corporate America was fed up with a lot of the abusive-type class actions."

The ground was shifting beneath Lerach. The Republican-controlled Congress passed the 1995 Private Securities Litigation Reform Act, curtailing "strike" suits in which an investor with a few shares of stock in a company filed a quick lawsuit and thereby became the lead plaintiff. Instead, the law directed judges to give preference to plaintiffs with the biggest dollar losses, allowing their lawyers to control the course of a case.

So Lerach and his law partners adapted. They began courting managers and politicians who oversaw state pension and retirement funds. The relationships they forged proved lucrative for both sides.

By the 21st century, he shrewdly had taken center stage in the Enron investigation, the biggest corporate fraud case in a generation. In the Enron shareholder case alone, Lerach's law firm is on track to earn 8 to 10 percent of a $7.3 billion settlement pool -- the single largest payday ever for investors, according to legal experts. In the three years since Lerach bitterly split with his old law firm, Milberg Weiss, his new firm, Lerach Coughlin, has been named lead firm in 150 cases.

At some point in the early 1980s, according to Lerach's plea agreement, he and his associates went beyond recruiting plaintiffs and began paying them. In all, they funneled more than $11 million to a roster of people who were enlisted to purchase stock and were then offered money to join lawsuits in 150 cases that ultimately brought the firm more than $200 million in fees, government lawyers said.

The investigation began with federal officials looking into the tax problems of a man named Steven G. Cooperman. Cooperman turned out to be one of Lerach's repeat plaintiffs -- he pleaded guilty in Los Angeles in July to charges related to this case -- and soon the probe expanded, lawyers in the case said.

No word yet from Bill Clinton on this one.