March 2002


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Written by
Jonathan Potts

courtesy of
Richard F. Lerach

The SEC has long championed the role of plantiff lawyers in policing corporate behavior. Bill Lerach (Pitt Law 1970) has done his share. He is the lawyer who brought shareholder litigation to the forefront. His firm has won several high-profile fraud cases, most notably $800 million in litigation involving Michael Milken. He’s also made a few enemies along the way.

Lead Attorney

The warrior sinks into the living room sofa. Today, he’s not dressed for battle, not wearing the suit-and-tie uniform of the army he leads.

Instead, he’s donned a powder-blue sweater and matching shirt, khakis, and casual black shoes. The intensity others describe is hard to find in his face. He has put down his cell phone and switched off the financial news. Yesterday, he left San Diego for Pittsburgh, to visit his brother who lives in Mount Lebanon. Today, he rests. But for Bill Lerach, there is no uninterrupted peace. He fights on, no matter how many arrows his enemies fling at him, whether in corporate boardrooms or in the halls of Congress.

Lerach, senior partner in the law firm Milberg Weiss Bershad Hynes & Lerach,* is one of America’s most feared and successful attorneys. He files class-action lawsuits against corporations when—perhaps because of wrongdoing—their stocks plummet, losing millions or billions of dollars of shareholders’ money. It’s money that might have belonged to millionaires, or money that might have been a part of a pension fund that working men and women were counting on for their golden years. Lerach is such an incendiary symbol of his profession that a bill passed by Congress in 1995 aimed at curbing such lawsuits was nicknamed the Get Lerach Act.

Eric Green,* a Boston University law professor and a mediator who has worked with Lerach on several cases says, “I’m a mountain climber. What we say about some big mountains, they make their own weather. Bill makes his own weather. He has absolute command of his field.”

Bill Lerach meets President Clinton (Official White House photo).

Lerach is ranked as one of the nation’s 100 most influential lawyers by the National Law Journal, which describes him as a “leading strategist and a pioneer in shareholder derivative lawsuits.” Even as the 55-year old attorney relaxes in his older brother’s home, battles loom on the immediate horizon.

The career of Lerach, a 1970 Pitt law school graduate, really took flight in 1976 when he left the corporate Pittsburgh law firm Reed Smith Shaw & McClay to open Milberg Weiss’ San Diego office. In March of that year, he and his mother Evelyn drove cross country to set up the office. It was a one-man shop. Lerach didn’t even have a secretary.

One of his earliest cases was representing a group of senior citizens that had sued Pacific Homes, a chain of retirement homes affiliated with the United Methodist Church. When the company filed for bankruptcy in 1977, it sought higher fees from 2,400 elderly residents who had paid as much as $100,000 for contracts that promised lifetime fixed fees. If they didn’t pay, they were faced with certain eviction.

Lerach had to fight off a claim by the Methodist Church that because it was not incorporated it could not be sued. A Californian appellate court rejected that argument, and the US Supreme Court refused to hear the church’s appeal; in 1980, in the middle of the trial, the two sides settled, and Lerach recovered $44 million, much of which was poured back into the homes so they could continue to provide care for the residents. Lerach still remembers many of their names.

Patrick Daniels, a Lerach protégé at Milberg Weiss, offers his take on that victory: “I think in that case he had a tremendous amount of contact with the elderly women who were directly affected by that fraud and who had lost a dream. I think that must have been a tremendously gratifying case for Bill to prosecute and get a recovery and those are the kinds of moments that drive him.”

A little more than 25 years later, the San Diego branch of Milberg Weiss has more than 100 attorneys, and Lerach’s name has become synonymous with what he does.

“One of the prevalent fears of corporate America is that they will become Lerached,” says Hugh Friedman,* an attorney and law professor at the Univesity of San Diego.

Here’s how a corporation gets Lerached: Corporate officers make optimistic projections about their company’s earnings that subsequently appear suspect when its stock plummets in value, costing shareholders thousands, millions, or even billions of dollars. The shareholders will sue—using someone like Lerach as lead attorney—if they suspect the company deliberately misled investors.

Among Lerach’s high-profile victims are Charles Keating’s failed Lincoln Savings & Loan, which coughed up $250 million to settle an investor lawsuit, and jailed junk bond king Michael Milken and his firm Drexel Burnham Lambert, which paid $800 million. Last year, Lerach and his firm extracted $259 million from computer networking pioneer 3Com.

Lerach now is girding for battle against Union Pacific Railroad, business software giant Oracle, and Enron, the Texas energy-trading company mired in bankruptcy. The dot-com boom and its bust are proving fertile ground for shareholder litigation because many executives received stock options and had a motive for inflating the value of their companies’ stock so they could cash in. In spite of the Get Lerach Act, a record number of shareholder lawsuits were filed in 2001, and Lerach’s share of those suits keeps growing.

Allies and opponents alike say Lerach is a fearsome adversary, a warrior who intimidates through the force of his personality and his seemingly boundless knowledge of the law. Boris Feldman, Lerach’s opponent in about 50 lawsuits, says Lerach is among the most creative and tenacious attorneys he’s ever encountered. Green describes Lerach as ferocious.

Listening to Lerach describe what he does, it’s hard to avoid the impression that he regards it as a calling, a mission, rather than a profession. The US Securities and Exchange Commission, which is supposed to enforce the laws that govern the buying and selling of stocks, has neither the power nor the resources to get back the money lost by shareholders when corporations do wrong, so for better or worse it often falls on private attorneys to police corporate behavior.

Lerach views himself as a guardian of America’s financial system, a protector of the money that all kinds of people have invested in it.

“I just always wanted to represent people, not companies, and I wanted to help people who had been hurt or cheated or defrauded to get a recovery,” Lerach says.

The major laws that govern the trading of stocks and bonds are the Securities Act of 1933 and the Securities Exchange Act of 1934, which were passed by Congress in the wake of the stock market crash of 1929. The crash was propelled in part by fraud, and among the fortunes lost, large and small, was that of Lerach’s father, who had invested his inheritance in the market. Though crushed financially, Richard Emil Lerach picked up the pieces as best he could and worked as a metal parts salesman for a steel supply warehouse company before dying unexpectedly of a heart attack at age 54, just three days before his younger son’s high school graduation.

Some people have seized on the financial woes of the elder Lerach to explain his son’s zeal for punishing corporate wrongdoers, and it does make for a great story: A son dedicates his life to avenging the wrong that ruined his father. It’s not an inaccurate portrayal.

“I think what influenced me more was that the financial catastrophe that befell my father defeated him, and resulted in his becoming a little man,” Lerach says. “And I don’t mean that in a demeaning way. My father was a great guy, and he was very good to us, and I loved him very much, but he was a little man. He was a cog in a wheel.

“He reminded me of the statement that Earl Warren used to make about the men who worked for the railroads, that the railroads used them like they used pencils, and when they ground them down, they threw them away. And I don’t like that. And I think that engendered a certain attitude toward corporations and big business on my part that is reflected in the work I do.”

The Lerach family, circa late 1940s.
From left: Bill Lerach, his father,
Richard E. Lerach, brother Richard F.
Lerach, and mother, Evelyn.

Lerach grew up in a house on Kennedy Avenue on Pittsburgh’s North Side. In 1963, after his father died, he and his mother moved to an apartment on Centre Avenue in Oakland, while his brother attended Pitt law school. Evelyn Lerach got a job at the Western Pennsylvania School for Blind Children, and Bill received several scholarships that helped him attend Pitt.

Lerach started at Reed Smith during his final year of law school, even though he had a full scholarship that forbade him to work, because he needed the money. Much of Reed Smith’s work involves defending corporations, but Lerach carved a niche for himself as one of the firm’s few plaintiffs attorneys. In one of his cases, Lerach represented Mellon Bank, which was suing US National Bank of San Diego over millions of dollars in lost trust funds. While he worked on that case, Lerach got to know Mel Weiss, the founding partner of Milberg Weiss, who asked Lerach to come work for him in New York. But Lerach had spent time in California while working on the US National Bank case, and he smelled opportunity in the growing San Diego area.

“I said, ‘Look Mel, I love the work, I want to be with you, you’re the greatest, and this is terrific. But I’m not going to move to New York. But I’ll go to California, and let’s give it a year or two and let’s see whether the scene takes root.’”

Lerach’s brother—Richard F. Lerach, who graduated from Pitt law school in 1965 and is an attorney for USX Corporation’s US Steel Group—notes many lawyers, having reached a senior position, tend to gravitate toward a less-demanding schedule. But Bill Lerach may never reach that point, his brother says. “Bill literally never stops working. Now theoretically he’s here in Pittsburgh [for a few days] to see his family, but he never stops working. He’s working now.”

He does have some respites. He likes gardening and collecting primitive African art. (He can explain the influence African art had on the work of Picasso.) He also likes tropical fish and snorkeling and scuba diving. He enjoys taking vacations, too, even if for Bill Lerach vacation is merely work without the necktie. Every so often, he and his brother and their families—Bill has three children, Gretchen, 28, Shannon, 21, and Dillon, 6—will vacation together, somewhere near an ocean. As for trips back to Pittsburgh, they have become far less frequent since his mother died in 1998.

Lerach laughs at someone so silly as to ask why he works so much, so hard; then he explains, in a tone that suggests he thinks we should all be as lucky as he.

Bill Lerach in a more relaxed pose,
during a family vacation.

“Why? I do know why. It’s because I’ve found something to do with my life that I love doing. It’s not work to me. It’s a way of life, and that’s why it consumes my life. It’s like a painter or a sculptor. They’re not working. They’re doing art.”

But Lerach admits such a life comes with a price. He’s been married three times, and he’s separated from his current wife. And it’s not hard to guess that Lerach’s success as a corporate dragon slayer has earned him some enemies in executive boardrooms and in the halls of Congress. In 1995, Congress passed the “Get Lerach Act,” more formally known as the Private Securities Litigation Reform Act. The bill passed with enough Democratic votes to override the veto of Lerach’s friend, President Clinton.

The law required attorneys like Lerach to present more detailed allegations of wrongdoing, and it required that the attorney representing the investors with the greatest loss, not merely the first attorneys to file suit, would be lead plaintiff in class action lawsuits.

The law has not reduced the volume of lawsuits, but it has increased the number of cases that are dismissed by judges, says Edward Infante, a US magistrate judge in the Northern District of California. But if it was meant to cripple Lerach’s firm, it’s been a spectacular failure. Plaintiffs’ attorneys usually work on a contingency, meaning they only get money if their clients do. By raising the standards of evidence of fraud, the reform act has guaranteed that only large firms like Milberg Weiss can afford to bring big cases forward.

Critics of Lerach say shareholder lawsuits merely transfer money from current shareholders to past ones. Lerach himself acknowledges that corporate officers rarely face any consequences for their behavior, in part because punitive damages are not allowed under US securities laws. Besides, insurance companies pay most of the settlements. (However, Lerach is undertaking a serious effort to change that, moving to freeze more than $1 billion of allegedly insider trading profits in the Enron matter.)

“A lot of honest companies have had to spend a lot of money and management attention fighting off shareholder lawsuits that should never have been brought,” says Feldman, a corporate defense attorney who has faced off against Lerach.

One company even turned the tables on Lerach’s firm. In 1992, Lexicon, Inc., which had been named in a lawsuit brought by Milberg Weiss, sued the firm for $209 million, alleging the Milberg Weiss suit damaged its business. Seven years later, the jury returned a $45 million verdict for Lexicon with punitive damages pending. Before those damages were assessed, Milberg Weiss settled for $50 million.

Clearly, the defeat hasn’t deterred Lerach. He realizes the stakes are high. Typically, one-third of any class-action securities settlement goes to pay the attorneys, while on average shareholders recover only about 14 cents of every dollar they say they lost. But Lerach says his clients are looking for more than just money:

“You send out the $75 check, and you get back a letter from someone who says, ‘I can’t tell you how much I appreciate the $75. We were short of money lately and this enabled me to go get a new TV. It enabled me to get my wife a new coat.’ It makes a difference to them.

“You send a $275,000 check to a big pension fund, nobody even says thank you. But that’s OK. It’s their money, and they’re entitled to it. I think [shareholder lawsuits] give the ordinary person a feeling that however imperfect the system may be, at least the system works somewhat. ‘Somebody cares about me. I got something back from the legal system.’”

Jonathan Potts is a staff writer for the Pittsburgh Tribune-Review.

Follow the leader

About seven years ago, Bill Lerach walked into a University of San Diego law school classroom and changed Patrick Daniels’ life. Lerach was supposed to talk for about 30 minutes to a securities and corporations law class, in which Daniels was enrolled. Instead, the veteran attorney spoke for three hours.

“From that day on, that was the person I was going to work for,” says Daniels, who has worked for Lerach for five years now.

“If you want to learn this business, there is no better way to do this than follow Bill around. If all you did was follow Bill around, you would learn more than you would at any law school.”

Lerach hasn’t forgotten about Pitt. Every summer he hires Pitt law students to work at his firm, Milberg Weiss Bershad Hynes & Lerach. Also, over the years he has returned to the Oakland campus to speak to the law students. According to Doug Branson—the W. Edward Sell Business Professor of Law—students are enraptured by Lerach at those lectures: “I get a dozen or 15 students after each class asking. ‘How do I do this? How do I do what he does?’”


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