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.
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.
Also in July, David J. Bershad, a Milberg Weiss partner who handled the firm's financial accounts, pleaded guilty to conspiring to deceive judges about secret kickbacks the firm paid to plaintiffs. With his cooperation, investigators bored in on their mark: Lerach.
In an e-mail to colleagues last month, Lerach acknowledged mistakes. Characteristically, according to acquaintances and competitors, he did not dwell on them. In the past several days, he traveled to London to try to reach a settlement in a case involving oil giant BP and as late as Monday sent an e-mail to his former partners flagging questionable stock sales by corporate executives.
True to form, Lerach continued to point the finger at powerful political interests bent on seeking revenge. "My success," he wrote last month, "has made me a target."
Staff researchers Richard Drezen and Madonna Lebling contributed to this report.
Carrie Johnson - Washington Post Staff Writer
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