Fear and Loathing in the Boardroom
Bill Lerach built a behemoth securities class-action law business
March 24, 2010.
By SETH HETTENA
San Diego's Bill Lerach was a man who inspired fear and loathing in corporate boardrooms across America. Lerach ran the West Coast operations of Milberg Weiss and was for many years the foremost class-action securities lawyer in America.
He extracted settlements in the millions, even tens of millions of dollars. That earned him powerful enemies. Congress tried to rein him in by overriding a presidential veto in 1995 to pass what became known as the "Get Lerach Act." But he went on to lead the biggest class-action lawsuit in history, the University of California's $7.2 billion judgment against Enron Corp.
In 2008, Lerach was sentenced to two years in federal prison after pleading guilty to conspiring to conceal kickbacks paid to plaintiffs. The 64-year-old Lerach spoke with us not long after he finished serving his prison sentence, part of which was spent in home confinement at his La Jolla mansion.
You cooperated with the authors of Circle of Greed, the book that chronicles your rise and fall. How fairly did the book portray you?
The book is tough on me. It's hard to write a book as long as that book is and not have some mistakes in it. I know and respect the authors very much and thought it was a very legitimate effort. Overall, I'm satisfied with it. Everyone wishes every book written about them portrayed them uniformly but I guess in my case that's not possible.
The book should have pointed out the work we did without expectation of compensation. We represented victims of the Holocaust in major, difficult lawsuits against major companies that cooperated with the Nazis. The book didn't talk about the work we did on behalf of workers, young women, brought to the Mariana Islands by Hong Kong businessmen and were exploited and had their civil rights and personal rights destroyed.
California's biggest law firms are in San Francisco or LA. What were the advantages or disadvantages of practicing in San Diego?
Other than getting out of bed a little early to fly to San Francisco and LA, I don't think there were any disadvantages and there were even some advantages. It's a great city, you're able to attract talent because people wanted to live here, and I found the defense bar, with a few exceptions, to be excellent. The local newspaper was horrid. So that was a disadvantage. It's the worst big city newspaper in America.
You've said that payments to plaintiffs that landed you in prison were standard practice among firms specializing in securities lawsuits. Why don't we see more prosecutions of securities lawyers?
I don't think we should have been prosecuted. I am only pointing out that as often the case, practices in an industry, whether they are good practices or bad practices, are industry practices. We would not have voluntarily shared our legal fees unless it was an absolute necessity to do so. We were in a competitive industry. Adam Smith's invisible hand is still at work. You don't give away money unless you have to.
You were a big Democratic supporter and you went after politically connected firms like Enron and Halliburton. Did politics play a role in your prosecution?
How can I say that? I wasn't the prosecutor and I wasn't sitting with Karl Rove. The facts are what the facts are and you've listed some of those facts. We were a terrible big sharp thorn in the accounting firms and investment banks that worship in the Republican temple. You make your own decision.
What's your take on what caused the financial crisis?
Don't focus on 2008. Go back and focus on 2000 where you had not as much of a systemically threatening crisis but you had a gigantic fraud by the dot-com companies. Trillions of dollars were lost by investors in financial markets. Then you had the most recent financial crisis.
These meltdowns are due to insufficient regulation of free-market capitalism. There is a lack of civil and criminal legal accountability on the part of powerful corporate and Wall Street actors who take the risks and engage in conduct that cause these ultimate meltdowns to occur. As night follows day, when the consequences for fraudulent behavior were reduced you got -- guess what -- more fraud...