As members of Congress debated new laws for Wall Street last week, Rep. Maxine Waters of California offered an amendment. She wanted Congress to reverse a recent Supreme Court decision that removed liability from auditors and accountants who knowingly abetted financial fraud, making it harder for injured shareholders to hold responsible parties accountable.
Rep. Ed Royce, a Republican from California, rose in opposition to the amendment, referring to "bogus cases" brought by "the worst legal fraudsters" that result in "huge payouts by companies that then want to avoid litigation costs." He described how a lawyer who pioneered these lawsuits went to jail in 2008. Though he didn't mention a specific name, there was no mistaking to whom he was referring: William Lerach.
Lerach, a legend of the plaintiff's bar, finished up a two-year sentence in March for his part in an illegal kickback scheme. By June, he was in Washington, D.C., at the America's Future Now conference, lecturing progressives on the dangers white-collar crime on Wall Street poses to our pension system. The irony should have been apparent, to say the least.
It wasn't. Lerach's trial, conviction, and jail time were not mentioned in the program, presentation, or question-and-answer period afterward. Nor were they mentioned by audience members who approached him to shake his hand. A sweet old lady asked for his autograph. The only allusion to his recent troubles occurred when someone asked for a card, and Lerach explained that he didn't have one, because "I gave up my law practice." He was disbarred after his conviction.
Lerach was famous for taking on some of America's largest corporations, most famously Enron, on behalf of their shareholders, including large pension firms. He pulled down enormous settlements for his clients, and himself -- the standard fee for a plaintiff's lawyer is about a third of the take. His firm often served as the lead counsel on behalf of huge groups of plaintiffs, earning the top spot by filing lawsuits as early as possible in response to small drops in stock price and then usually convincing the firms to settle quickly rather than endure a long trial.
This practice was his undoing. His conviction came in 2008 after federal prosecutors uncovered a kickback scheme organized by Lerach and other lawyers at his firm. Lerach and his colleagues arranged secret cash payments to "on call" plaintiffs, who held small amounts of stock in different companies so his firm could quickly sue corporations and gain the crucial lead counsel position -- without finding people actually injured by the companies. In so doing, he and his plaintiffs lied to courts about the payments; the kickbacks also reduced the return for the rest of the class. Lerach did this in more than 150 cases over the course of 30 years, with one plaintiff appearing in 38 different cases. He pleaded guilty and was sentenced to two years in jail, two years of supervised release, and nearly $8 million in penalties.
Lerach's crime -- making false representations in order to obtain money -- is, at its heart, no different than securities fraud. Nonetheless, because of his crusade against corporate interests, he has retained many friends in progressive and Democratic circles. During his sentencing, Ralph Nader and Sen. Carl Levin offered character references, and he was apparently known as a generous man. He was certainly generous to liberal causes, providing nearly $1.5 million in political donations since 1990.
After his presentation at America's Future Now, I asked Lerach if he was a credible spokesperson about the dangers of white-collar crime and financial mismanagement. "Yes, I know a lot about them," he said. People, he added, would judge him by what he said and whether he was right. He said he'd be teaching law at the University of California, Irvine, next winter. I asked the conference's organizers, too, whether the disgraced lawyer should get the progressive seal of approval that comes with a speaker's slot at their event, and a spokesperson told me that Lerach was the most knowledgeable person for the job.
It was astonishing -- and a little infuriating -- that a white-collar criminal would explain to progressives how Wall Street was robbing their retirements; at least Eliot Spitzer, another disgraced public figure on the rehabilitation trail, doesn't spend his time inveighing against prostitution.
"I knew what I was participating in was wrong," Lerach admitted at his sentencing. In an article published in Portfolio four months later, Lerach changed his story, writing that he only pleaded guilty because of the "draconian pressure" of the prosecutors, comparing himself to a Chinese dissident, and defending his kickbacks. Lerach also says that his prosecution was political and driven by the Republican Party, claiming that the Bush administration's corporate ties were the implicit reason he and his firm were targeted. Yet the prosecutor in his case, Richard Robinson, is a self-described "lifelong Democrat" who began his investigation during the Clinton administration. In October Robinson's team received the Attorney General?s Award for Fraud Prevention from Attorney General Eric Holder for their success in the Lerach case. This does not smack of conservative conspiracy.
There's a reason that plaintiff's lawyers are part of the progressive coalition, and it's not just their largesse. They represent the idea that the legal system is capable of rectifying real harm: You can retain a lawyer who can fight injustice all the way to the top and gain redress, a right that's especially valuable when the public-spirited regulators mandated to protect investors often fail, leaving private enforcement as the last resort.
Conservatives and corporations hate plaintiff's lawyers; arguing that they gin up false and abusive suits, target productive entrepreneurs and companies, and force companies to settle rather than be distracted by a years-long courtroom battle. The only counterargument is that plaintiff's lawyers seek justice for people who have suffered -- people who have seen their hard-earned money disappear due to mismanagement, negligence, and fraud. Lerach's fake plaintiffs hadn't suffered. Even when actual injured parties benefited from his efforts as part of class settlements (or the public interest benefited from the behavior he revealed), he and his clients lied to the court.
Lerach's breezy dismissal of the consequences of his actions doesn't match up with reality. His crimes undermine future plaintiff's suits, as the financial-reform legislation shows: Waters' amendment to increase the culpability of fraudsters failed thanks to the specter of frivolous litigation. Even as Lerach held corporations accountable, his unethical methods justified conservative critiques of his profession, giving them leverage to raise the bar for these suits even higher. Ironically, when he sued corporations, they would often settle their cases while claiming innocence. Lerach now finds himself in a similar position, having pleaded guilty but claiming no wrongdoing.
While felons deserve their rights and lives back after they have served their sentences -- and Lerach is still fulfilling the terms of his guilty plea -- progressives can find a better advocate for the millions of Americans who stand to lose if their pensions go down the tubes.
"What happened to me is what happened to me," Lerach told the Prospect. But nothing "happened" to him: He committed a crime.