The King of Pain Is Hurting
Loathed because he's so mean, feared because he's so
powerful, Bill Lerach is the lawyer everyone in
FORTUNE
By Peter Elkind Reporter Associate Doris Burke
In a huge office with a marble-topped bar and a perfect view of San Diego Harbor, paunchy, red-faced, Brillo-topped Bill Lerach--wearing a pitted-out green shirt, khaki slacks, white socks, and Top-Siders--is executing the sort of smash-mouth legal strategy that makes him the lawyer corporate America loves to hate. A partner rushes into his office with word of some recalcitrant adversary. "I'd haul his ass into court and smack him," Lerach advises. A young attorney stops by with a stock chart he plans to use as evidence in a shareholder suit Lerach is bringing. "Cut it off here," instructs Lerach, moving the line demarking the onset of the alleged corporate malfeasance. A friendly colleague buzzes through with an update on a thorny matter. "If they don't put up a shitload of money," Lerach declares, "the lids on the silos are coming off!"
Lerach, 54, is king of the shareholder class-action suit--the kind of suit
that is routinely filed when a company announces bad news and its stock
plunges. His domain lies literally at his feet, in dozens of bulging files
sprawled across the carpeted floor, each of which contains the presumptive dirt
on a public company he is suing--or is about to sue--for "securities
fraud." Lerach's past triumphs are evident too.
A 15-foot row of Lucite "tombstones," stacked three high atop a bank
of cabinets, memorializes the billions in out-of-court settlements that his
160-lawyer firm--New York City-based Milberg Weiss Bershad Hynes &
Lerach--has extracted from
Lerach is the lawyer who single-handedly turned shareholder litigation into
a lucrative volume business. "Milberg West"--the firm's
Many of the cases, of course, involve
Despite having some of the most powerful people in American business as his
sworn enemies, Lerach long appeared unstoppable; his grip over shareholder
litigation was too powerful, his "business model" too ruthlessly
efficient. But now, for the first time, the King of Pain seems vulnerable. Last
year a
What's more, FORTUNE has learned, Lerach's legal
tactics--as well as some dubious financial dealings--prompted a challenge
within Milberg Weiss. Lerach's former top lieutenant,
Instead, it was Schulman who departed; he recently told FORTUNE he considers Lerach "reckless," "vindictive," and "dangerous." "I did not want to be in a law partnership with him anymore," Schulman added. "That's why I left the firm."
Lerach dismisses such charges as just another effort by his powerful enemies to hurt him. "My view is, your article is coming about because the business community went to FORTUNE and got this written.... I really believe that," he says. "Once you become a public figure, you're just fair game." He shrugs nonchalantly. "I don't care what people say about me," he adds. "I care about what I think about myself."
Bill Lerach is explaining what he needs to file one of his infamous
shareholder class-action lawsuits: "Stock drops. Insiders trading. A
revelation of bad news. You're not going to have that and come up dry. It's not
going to happen." Plainly, it doesn't take much--which is one reason
Lerach is so reviled in corporate
To be sure, there are plenty of lawyers who sue at the drop of a hat. But
none are as loathed--or feared--as Lerach, either inside or outside his
profession. What makes him loathed is that he is mean: a belligerent, vengeful,
foul-mouthed bully. What makes him feared is that he is powerful. Many of those
who spoke to FORTUNE about Lerach describe him in Godfather-like terms,
likening him to a ruthless don, willing to do whatever it takes to protect and
extend his turf. To that end, Lerach developed an unprecedented system in which
other plaintiffs firms were expected to pay tribute to Milberg Weiss to do
business in
Lerach began his career, strangely enough, working the other side of the
fence. In college he was a rock-ribbed Republican, even leading a rally in
support of the Vietnam war. After graduating from the University of Pittsburgh
Law School, he joined Reed Smith Shaw & McClay, a
local white-shoe firm, where he did work for such clients as Mellon Bank and
U.S. Steel. But in 1976, Lerach was recruited to the plaintiffs bar by Mel
Weiss, the co-founder of Milberg Weiss, one of the earliest firms to focus on
securities work. At the time shareholder litigation was a backwater, its practitioners
viewed as bottom feeders. Because these firms were invariably small and underfunded--and dependent on contingency fees--they had a
hard time taking on big companies. Few cases ever went to trial; the
high-powered legal teams employed by corporations simply outlasted the
plaintiffs. Weiss thought that if he could attract some good defense lawyers to
his side, he could level the playing field and gain a measure of status, which
he craved. Lerach agreed to join the firm but insisted on opening an office in
From the start Lerach displayed all the traits for which he is now so well
known. He was, first of all, a very good lawyer. A brilliant legal strategist
and a cunning tactician, Lerach expanded shareholder litigation by dreaming up
new types of claims and naming new kinds of defendants--not just companies, but
their accountants, bankers, lawyers, and PR firms. Over time he honed the perfect
boilerplate securities complaint--virtually guaranteed to survive
early-dismissal motions by the defense. He worked like a dog; even today, he
routinely drafts complaints into the wee hours of the morning. And he was
tenacious: If a federal case was dismissed, he'd appeal. Or refile
in state court. Or wait for another opportunity to sue the company. "It's
like the Dracula movies," says
But Lerach was also a bully. He would scream at defendants in settlement
meetings, making vituperative threats to bankrupt their company and go after
their personal assets. "I'm going to take away your fucking condo in
He respected no boundaries--not even those imposed by a judge. In an early case against a company called H&H Oil Tool, after his original plaintiff had been disqualified, Lerach defied a judge's order and used a company-supplied shareholder list to find a new one. The judge was so furious that he removed Milberg from the case and made it pay $53,687 in attorneys' fees for the defense.
He was extraordinarily vindictive. In a 1983 episode, when an attorney moved
to block a Milberg suit, Lerach told him he'd see to it that his firm never
practiced in the securities field again. He later sued the firm twice in
separate cases. Years later Seagate Technology CEO
Finally, Lerach was fearless. Unlike most lawyers who filed securities
cases, he was absolutely willing to go all the way to trial--where Milberg
Weiss proved itself capable of winning big. In 1991, for instance, Milberg took
two Apple Computer executives to trial and emerged with a stunning $100 million
jury verdict. Though the award was overturned by the judge--and the case
ultimately settled for "only" $16 million--the episode had a dramatic
effect. Recalls Xilinx general counsel Tom Lavelle, who was then at Intel: "It put a huge scare
into
To truly comprehend why Bill Lerach is in trouble today, you have to
understand how his rise was founded on control and intimidation. Which brings
us to a ritual known as the "whack-up." This was the key to Lerach's power--the method by which he dominated shareholder
litigation in
His aim was to ensure that Milberg Weiss was named lead counsel in any suit the firm brought. For class-action lawyers, winning appointment as lead counsel is the Holy Grail. The lead counsel gets the biggest fees, controls the litigation, and even decides how much to pay the other firms in the case. Traditionally, the first lawyer to get to the courthouse, aggrieved plaintiff in tow, got the nod. And indeed, no firm was faster than Milberg, which was known to file complaints within hours of a big drop in a company's stock--hardly enough time, of course, to establish fraud.
Over time, however, Lerach set up what amounted to a patronage system, which
assured him a crack at almost every shareholder case filed in
Next he set about turning his new collaborators into "captive firms." As these joint cases dragged on for years, Lerach invited the East Coast firms working on them to station a lawyer or two in San Diego permanently--and sublease space in Milberg's offices. At least four firms did just that. This arrangement, too, came with a price: The captive firms couldn't file a West Coast case without cutting Milberg in.
From there he began the process of keeping potential upstarts in line. As
Invariably, the renegades were treated harshly. Lerach would hijack their
cases by getting his allies to file similar complaints--and then back Milberg
when it came time for a judge to appoint lead counsel. If Lerach won (and he
usually did), the insurgents would not only be shut out of that case but also
might get squeezed in some of the hundreds of other suits in which Milberg was
calling the shots. (Which is not to say that they wouldn't be Milberg allies
sometime in the future. "In the plaintiffs bar," Lerach used to tell
Milberg lawyers, "we have no permanent friends, no permanent
enemies.") Everyone got the message. Instead of rushing to the courthouse,
East Coast lawyers with a hot case called Lerach at home at
Then came the "whack-up": the ritual in which Lerach settled all accounts once a case came to its profitable conclusion. Lerach would take the overall lawyers' fee approved by the judge--usually 25% to 30% of a settlement--and dole it out among his supplicants. There were always more lawyers involved--four, six, even eight firms--than were needed to staff the case. Some had done nothing more than supply a presentable plaintiff; others had loyally backed Lerach for lead counsel. Those that did the work would submit memos to Milberg detailing the time and money they had put into the case. Ultimately, however, Lerach divided the pie however he wanted--and firms claiming similar hours sometimes got widely disparate fees. Though Lerach was regularly doling out millions of dollars, the subordinate firms were not allowed to know how much anyone else was being paid.
There was another way Lerach controlled litigation: He filed an astounding number of lawsuits. Rounding up plaintiffs was no problem. In addition to lawyers and brokers who brought him plaintiffs, Lerach had a list of shareholders who owned stakes in hundreds of companies and allowed him to attach their names to his complaints--and then stayed out of his way. ("I have the greatest practice of law in the world," Lerach once boasted. "I have no clients.") He also had lawyers on staff whose only job was to draft complaints--and monitor the financial wires, looking for new companies to sue. Like any fast-growing business, Milberg was in constant need of new revenue sources. "We were under enormous pressure to file everything that could conceivably be filed," says a former Milberg lawyer. When one colleague complained that there were no damages in a certain matter, Lerach ordered him to look closer. "Don't tell me there's no case there!" he scolded. And the Lerach lawsuit machine was made complete by John Torkelsen, a damages expert based in Princeton, N.J. Torkelsen's calculations of shareholder losses routinely supported the hundreds of millions of dollars Lerach sought--and he was fabulous in front of a jury should a company decide to fight.
For
Nine out of ten cases settled--some without any discovery. The companies had
insurance that picked up most of the tab. For Milberg the risk of
"contingency litigation" was minimized. "It became an incestuous
relationship between the plaintiffs and defendants," says a prominent
A pretty good Milberg case might bring a $10 million settlement, with the
firm bagging the lion's share of a $3 million fee, plus expenses. "You
have enough of those," says a former Milberg partner, "you have a
very, very profitable law firm." By the mid-1990s, Milberg had become very
profitable indeed. In 1995, for instance, Milberg Weiss made $112 million. It
employed around 100 lawyers--an enormous number for a firm that depended on
contingency fees--half of whom were in
It's important to note that Lerach didn't always win. Sometimes his complaints were dismissed, and there were even a few occasions when he voluntarily dropped a suit after being persuaded he had no case. In retrospect, though, there was one loss Lerach suffered that would matter more than all the others put together: the Nucorp Energy case.
The case was tried in 1988.
Lerach decided to try the case personally, and boasted it would produce the biggest jury award in the history of securities litigation. After a six-month trial the deliberating jurors asked for a calculator, presumably to calculate damages. Lerach insisted that they be provided with one that had space for a nine-figure sum. When the jurors instead found for the defendants, Lerach was stunned.
Both the Wall Street Journal and Barron's credited Lerach's
defeat to one man: Daniel Fischel. A conservative
lawyer-economist from
The Nucorp trial had two lasting results. First, Lerach never again tried a case himself. (He hired a former federal prosecutor to try Milberg West cases.) And second, he began a vicious, decade-long feud with Fischel, an adversary who would turn out to be as cunning, resourceful, and relentless as Lerach himself.
At this point, we need to ask a simple, obvious question: How rampant is
corporate fraud? To listen to the howls of rage from those who have been Lerach's targets, you'd think it doesn't exist. But that's
nonsense. Over the years there have been plenty of shocking examples of
companies cooking the books, recording imaginary revenues, even shipping bricks
instead of products to inflate profits and hype their stocks. Think back to
Cendant, to Waste M
In interviews, both Lerach and Mel Weiss play this angle to the hilt.
"I represent people who have been defrauded," declares Lerach.
"I sue companies as often as they deserve to be sued." Adds Weiss:
"This is a unique operation we've built here. The victims of
To be sure, Milberg Weiss has helped bring some high-profile fraud cases
that have recovered huge sums, most notably the $800 million the firm won in
litigation involving
Inevitably, the outcry over Le-rach's tactics
moved from
This was an important moment for Lerach; it took him from the courthouse,
where he was the undisputed king, to the halls of Congress, where he was
hopelessly overmatched. A major donor to the Democratic Party--his
contributions over the years have totaled more than $1 million--Lerach decided
to lead the fight against the bill himself. It was a big mistake. By making
himself so visible, he gave his opponents a very fat target. When Lerach showed
up to testify at one subcommittee hearing, Cox likened securities lawyers to
The Private Securities Litigation Reform Act passed Congress in 1995--with
enough Democratic votes to overcome President Clinton's veto. "The way to
understand the reform act," says one
The new law did not put Lerach out of business, of course. But it took dead
aim at his most controversial practices. For instance, it targets
"lawyer-driven litigation" by directing that "lead
plaintiff" status--which determines the lead counsel--go not to the
plaintiff who files first but to the investor who has suffered the biggest
loss. It requires judges to dismiss complaints that lack specific allegations
of fraud. It gives limited immunity to the accountants. It bars discovery--where
Lerach usually finds his "incriminating documents"--until after the
judge has ruled on whether the case should be dismissed. And it gives legal
protection to "forward looking" forecasts made by company m
It is rare indeed for the U.S. Congress to single out a private citizen and
publicly thrash him. It's even rarer when the citizen responds by flipping
Congress the bird. But that, in effect, is what Bill Lerach did. Instead of
slinking back to
Perhaps you remember this initiative. It was called Proposition 211--the
"Lerach Initiative"--and it received enormous nationwide publicity as
it was being fought in the fall of 1996.
Lerach raised $12 million in the losing effort. By far the biggest
contributor--at a reported $4.8 million--was Milberg Weiss itself. Lerach put
up hundreds of thousands more out of his own pocket. John Torkelsen,
his damages expert--who was also a major donor to the Democratic Party (he
attended one of
For years firms that did business with Lerach had kicked in money to his
political causes. ("There was definitely an understanding," says a
former Milberg partner, "that if you participated with the firm in cases,
you were expected to contribute when Bill called upon you.") But this was
on a different scale. In addition to "requesting" contributions,
Lerach masterminded a plan to impose a 5% "tithe" on all
Even within Milberg Weiss, Lerach's Prop. 211
campaign--and his heavy-handed fundraising--did not go over well. His biggest
critic was
Yet Schulman had always been uncomfortable with the way Lerach mixed the firm's business with his political fundraising. And with the Prop. 211 campaign, he felt Lerach had gone too far. In addition to his belief that Lerach's strong-arm tactics were inappropriate, he had a second, more serious concern. Lerach, he believed, was using money that rightfully belonged to the partners to overpay firms in the whack-up--as a quid pro quo for their contributions to 211. Certainly Schulman was in a position to know: He had access to Milberg West's books, and was the person most familiar with how Lerach operated.
Lerach denies that he overpaid in exchange for political donations. But he acknowledged to FORTUNE that he has always been willing to give "something extra" out of Milberg's share to firms that he has "a warm working relationship with." He adds, "It's part of building relationships. How we choose to divide our fee is our business."
When Schulman took his concerns to the executive committee, however, the group, over Lerach's vehement objections, cut off the firm's funding of Prop. 211. (Weiss and Lerach say this was only because by then the initiative was so obviously doomed.)
Schulman was also becoming increasingly agitated about the financial relationship between Lerach and Milberg Weiss' damages expert, John Torkelsen. Over more than 20 years, Torkelsen's firm, Princeton Venture Research, not only had made tens of millions working for Milberg--by far its biggest client--but also had become the damages expert of choice for the entire plaintiffs side of the securities bar.
Theoretically, expert witnesses are supposed to be objective. In reality, most experts tend to favor one side over the other. In the case of Torkelsen, his assiduous courting of plaintiffs lawyers was legendary. He sent thousand-dollar gift baskets as baby presents, and he invited his many friends in the plaintiffs bar to an annual black-tie Christmas party that was mind-boggling in its extravagance. At one, guests arriving in Torkelsen-provided stretch limos were heralded by buglers and greeted by costumed Disney characters. Entertainment was invariably provided by a big-name act: Little Richard one year, Aretha Franklin another.
Lerach and Torkelsen were friends. They vacationed
together in the
He also consistently delivered outsized bills. He'd submit a bill for $150,000--an appropriate fee for a lengthy case--for a suit that had settled quickly and should have cost only $40,000. Schulman, who had been given checkbook authority at Milberg West, would refuse to pay, triggering ugly confrontations with Lerach, who viewed such matters as his personal prerogative.
There was a second Torkelsen issue: Milberg was effectively
paying him on a contingency-fee basis--a big ethical no-no because expert
witnesses are not supposed to have a financial stake in litigation. The
Yet two former Milberg partners say it was widely known that the firm paid Torkelsen on contingency, and a partner at another plaintiffs firm that used Princeton Venture says Torkelsen told him flatly that "he did cases on a contingency basis for Lerach." Indeed, in a 1998 sworn deposition Torkelsen admitted what amounts to working on contingency even as he was denying it. Under intense questioning, he described an arrangement in which he would defer payment until Milberg Weiss had gotten its money--often a matter of years--and said that on "several occasions" when the lawyers had recovered nothing, he'd never been paid.
In an interview Torkelsen adamantly denied that he ever worked on a contingency basis for Milberg. "They pay us as we go," he told FORTUNE. "That's important for our own integrity." Lerach also denied it. "They were paid on a case-by-case basis," he said. "The basic compensation arrangement with John was that he would always get paid--win, lose, or draw."
Mel Weiss, however, acknowledges that Torkelsen did work for Milberg on a contingency basis in many cases--but defends the arrangement by explaining that the firm always wrote him a check before he had to be deposed or take the stand. This, of course, would allow Torkelsen to testify truthfully that he'd been paid. Insists Weiss: "There's nothing wrong with hiring an expert on contingency until that person takes the stand. When he takes the stand, he has to be fully paid."
In the 1998 deposition Torkelsen faced another serious allegation: Los Angeles attorney Marshall Grossman accused him of charging Milberg extra in cases with big recoveries to make up for getting paid nothing in cases that came up dry. This would be highly improper; it would mean that Lerach's clients in one class action were getting hit up to pay Torkelsen for work he'd done for a different set of clients. Again, FORTUNE spoke to a well-placed source who confirms the charge. "John told me, 'If I didn't get paid in one case, I simply tacked it onto another one, and Milberg said they would pay me,' " the source said. "John was not on a pay-as-you-go. It was always on a success basis." Both in the deposition and to FORTUNE, Torkelsen denied receiving such makeup payments. And Lerach denies authorizing them.
In late 1997 the
The
Weiss and Bershad summoned the damages expert, who confirmed his financial woes. Weiss issued firmwide orders to cut him off. Deprived of his biggest source of revenue, Torkelsen laid off almost his entire staff just weeks before Christmas--though he still threw his annual black-tie bash. And according to a lawsuit filed by American Express, Torkelsen and his wife ran up more than $1 million in delinquent credit card charges. That amount, American Express alleged, included hundreds of thousands of dollars that Torkelsen fraudulently charged at his wife's antiques store to obtain cash. (The suit has since been settled. Torkelsen, who says he has repaid the credit card debt, insists that American Express falsely accused him of fraud "to force a settlement.")
Ultimately, Milberg Weiss orchestrated a bank refinancing of Torkelsen's debt; two senior partners signed documents at the loan closing. Milberg paid just $2.5 million to retire Torkelsen's $10 million in receivables. For his part, Torkelsen insists there was nothing bogus or inflated about his bills, but that he accepted a severe haircut to put the episode behind him. Torkelsen has now resurfaced in the expert business, opening a new firm, Equity Valuation Advisors. In fact, the damages expert was recently spotted accompanying Lerach to a settlement meeting in a class-action suit.
What does Lerach say about Torkelsen's problems? He shrugs them off: "He's paying his taxes, and he settled the case. No different than what a lot of people do in litigation." Lerach denies approving inflated receivables.
After the Torkelsen debacle, everything came to a head. Schulman and Lerach, once close allies, were barely on speaking terms. Lerach's petty vindictiveness and political shenanigans--they had finally become too much for Schulman. In the fall of 1998 he took his concerns to the firm's co-founder. "He's going to destroy everything you've built," Schulman told Weiss. "He's going to take us all down with him." Then he issued an ultimatum: "Either he goes or I go."
Even though Lerach had made them all millions, the senior partners on the
executive committee seriously weighed Schulman's demand. Two of them, with
Weiss' knowledge, even consulted an outside attorney to explore the process
required to oust Lerach. Ultimately, it was Weiss' call. Such a move would
surely trigger a bloody war, and in the end, Weiss didn't have the stomach for
it. Late one night in December 1998, as Schulman pressed Weiss in his room at a
Schulman left Milberg last fall. This past January he opened a
Just months after Schulman's attempted coup, his prophecy came to pass. Catastrophe hit Milberg Weiss--and it was brought about entirely by Lerach's vindictive behavior. Since the late 1980s, Lerach had been trying to put his old archenemy from the Nucorp case, Daniel Fischel, out of business. Instead, Fischel turned the tables--and came a lot closer to succeeding than Lerach.
Fischel, now dean of the University of Chicago Law
School, spent much of his career as an expert for hire, just like Torkelsen--but for the defense. His career had been greatly
enhanced by his victory over Lerach in Nucorp. A
free-market ideologue, Fischel commanded $390 an
hour, and he worked enthusiastically on behalf of many of the more infamous
figures of the 1980s, including
After
Though Lexecon was dropped from the case in 1992--after paying the plaintiffs the $716,960 fee it had earned from Keating--Milberg aggressively wielded its complaint as a weapon, trotting it out, for instance, in an unsuccessful effort to disqualify Fischel in the 1991 Apple case. In chambers a Milberg attorney told the judge that Fischel was "a crook" who "helped Lincoln Savings carry out one of the largest frauds in the country."
Fischel was furious at the way his name was being
besmirched. But unlike the
And what a trial it was! Fischel's lawyers vividly cast Milberg as a gang of thugs, seeking to kneecap an enemy who threatened its franchise. A string of characteristically aggressive Milberg behaviors were recounted to make the point. There was the episode when Fischel introduced himself to Mel Weiss during a break in a big court proceeding, and Weiss told him, "I'm going to destroy you." There was the 1992 missive sent by a Milberg lawyer noting that the firm had located material that could help portray Fischel "as the reprehensible slob that he is"--and inviting the recipient to provide "additional dirt." There was even testimony about Milberg lawyers' contacting Lexecon clients, suggesting that they drop Fischel because he was tainted goods. And on and on.
You could argue, as Milberg lawyers do today, that the trial was a classic example of how unfair litigation can be: how you can get a judge who won't allow the jury to hear your evidence but gives free rein to the other side; how statements can be taken out of context; how benign documents can appear damning; how hard-nosed business practices can be made to look vicious. Or you could argue that the episode was an example of chickens coming home to roost. Milberg was finally getting a taste of what it had doled out all those years.
The jury, for its part, had no doubt: It returned a $45 million verdict for Lexecon after deliberating for less than a day. When the judge announced that testimony on punitive damages would begin the next morning, Milberg's senior partners realized the firm was in jeopardy. Because they would have to post a bond covering the entire damage award before they could appeal, the addition of hefty punitives might bankrupt the firm. On the spot, they decided to accept Fischel's settlement terms: $50 million, paid within 24 hours. (As it turned out, Milberg may have miscalculated. According to The National Law Journal, the jury had already decided that no punitive damages were in order.)
When FORTUNE asked Lerach what lessons he had learned in the Lexecon affair, he was unrepentant. "Don't get
transferred to
As for Fischel, who declined to talk to FORTUNE for this story, he recently sent a thank-you note to a Milberg Weiss lawyer who had made a donation to the University of Chicago Law School. "I'd love to...discuss how we can send more of our students to Milberg Weiss," Fischel wrote. Apparently Lerach isn't the only one with a philosophy of "no permanent friends, no permanent enemies."
If you ask Bill Lerach today how his firm is doing, he'll say, unenthusiastically, "Our business is okay. Doing all right." In fact, the King of Pain is hurting. The torrent of bad publicity from the Lexecon suit is only part of Lerach's problem. Profits in 1998, it was revealed during the Lexecon trial, were $91 million, nearly 20% less than in 1995. Two other senior lawyers, in addition to Schulman, have left the partnership--as have a raft of midlevel partners. Emboldened competitors, such as Bernstein Litowitz, where Schulman now works, have been winning control of big cases--while emboldened companies such as 3Com have been choosing to fight Milberg in court (see box). And judges are tossing out far more securities complaints than before.
The real issue for Lerach is that the PSLRA, the 1995 congressional reform
act, has changed the rules of securities litigation, and Milberg Weiss has been
slow to adapt. For instance, the "lead plaintiff" provision--which
handed control of the case to the investor with the biggest loss--gave a huge
advantage to law firms with big institutional clients, particularly public
pension funds. Milberg is
At first Lerach tried to get around the law by aggregating hundreds of
individual plaintiffs and arguing that he had assembled the "entity"
with the biggest loss. After a few years courts stopped buying that argument.
He has since resorted to tactics that look, well, a little desperate. In the
ongoing securities-fraud case against Waste M
On two occasions, to get a foothold in one case, Lerach attacked the few big
institutional clients that Milberg's
Perhaps most damaging of all, last year the Ninth Circuit Court of Appeals
sustained a lower-court decision to throw out a Milberg case against Silicon
Graphics. The lower court's grounds? Milberg hadn't shown that company
executives had acted with "deliberate recklessness." Thanks to this
new, tougher interpretation of the reform act, securities suits in
Securities cases are now harder to bring, slower to settle, and more difficult to win. Lerach's tried-and-true techniques don't work the way they once did. In response to these new market conditions, Milberg Weiss has been trying to diversify. It has jumped into the antitrust arena--suing Microsoft, for example--and won some big recoveries against life insurance companies.
On the East Coast, Milberg Weiss has become a respected member of the legal community, and Mel Weiss, at 65, has the status he always craved. He is widely acknowledged as the dean of the class-action securities bar, and travels the world in a private jet. He has garnered praise for his part in negotiating a billion-dollar settlement for survivors of the Nazi Holocaust. Weiss was even retained by IBM--to help defend it in a class-action securities suit!
On the West Coast, Lerach remains a pariah. A few years ago his third wife, Star, generously agreed to host a fundraiser for cerebral palsy at the Lerachs' home. But when word got out about the arrangements, many of the group's members announced that they would boycott the event if it were not moved. Even to benefit charity, they would have nothing whatsoever to do with Bill Lerach.
Enough,
Since 1989,
Milberg's nonstop litigation against 3Com is evidence of either (a) a deeply corrupt company or (b) what's wrong with class-action attorneys. For Lerach, the answer is obvious: "3Com is a company that has gotten itself in trouble, for whatever reason, on more than one occasion. The cases that are pending against them are extremely strong, where there is massive insider selling."
3Com, of course, sees it differently. General counsel Mark
Here's a look at one company's on-going struggles with Milberg Weiss.
1. In re 3Com (1989): Stock drops, Milberg sues. Case settles four years later for $9.85 million.
2. Frimmer v. Benhamou (1993): Milberg sues after 3Com misses quarterly earnings. 3Com considers suit so frivolous, it voluntarily gives Milberg a box of internal documents. Case dropped.
3. M
4. In re U.S. Robotics Shareholders (1997): Derivative suit filed on behalf of modem maker's investors; claims they were shortchanged in acquisition by 3Com. Settles for $500,000, all of which goes to lawyers. Plaintiffs' reward? A copy of U.S. Robotics' latest 10-Q.
5. Hirsch v. 3Com (1997): State suit triggered by stock drop, earnings
shortfall, after company slashed prices to match competition. Trial looming,
maybe by year-end. Boies on deck. Snickers Lerach:
"We'll see if
6-7. In re 3Com (1997): Federal suit alleges accounting, disclosure, and inside-trading abuses involving U.S. Robotics merger. Additional state suit on hold pending federal outcome.
8. Euredjian v. 3Com (1998): Federal case filed one day before deadline, with help from evidence gathered in companion state case (No. 5). By May 2000, Milberg has done little discovery. With trial set for fall, Lerach drops the suit.
9. Gaylinn v. 3Com (1999): Third Lerach stock-drop suit pending in federal court. Overlapping filing infuriates co-counsel in 1997 federal suit (No. 6), who unsuccessfully moves to remove Milberg. Case dismissed twice; Lerach has refiled again.
"I don't know what we do to deserve it," says 3Com's
Silly Suits When Bill Lerach is on the prowl for lawsuits, even Pikachu is fair game.
Silicon Valley CEOs think the cases Bill Lerach files against them are frivolous. They don't know the half of it. Here's a look at some Lerach legal moves that are really frivolous.
--Sought class-action status on behalf of Milli Vanilli fans on grounds that they were defrauded because the pop group lip-synced its songs. Though fans got a $3 rebate for each Vanilli CD they'd bought, and $2.50 for each concert stub, Milberg got shut out.
--Sued Mike Tyson and boxing promoter Don King for depriving fans of a fair heavyweight title bout after Tyson bit off a piece of Evander Holyfield's ear. Case dropped.
--Sued souvenir vendors at Nascar Winston Cup stock-car races for price fixing. Under the proposed settlement, Nascar fans will get a few bucks' reimbursement or discount coupons good for the purchase of more souvenirs--after producing receipts, proof of attendance, or sworn affidavits. The lawyers are asking for up to $3.4 million.
--Slapped a racketeering claim on 4Kids Entertainment, the licensor of Pokemon cards, alleging that it was operating an illegal
gambling enterprise. The suit sought class-action status for parents of boys
between ages 6 and 9. Oops! 4Kids had been a Milberg East corporate client for
years. Milberg quickly dropped the suit, but not before 4Kids fired the firm.
(Coincidentally, 4Kids leads our list of
--Filed a class-action suit against the manufacturer of Citrus Hill Fresh
Choice orange juice for misleadingly labeling it "fresh." Under
pressure from the feds, the company had already relabeled the juice. But Lerach
announced he would go after "many, many millions" in ill-gotten
profits, with the money to be distributed to consumers or given to charity.
Instead, the judge refused to certify the class after Lerach's
plaintiff testified that he never actually thought the juice was fresh.
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