For almost four decades, San Diego attorney William Lerach made CEOs quake in their tasseled loafers. His last name even became a verb: to be lerached was to be sued by shareholders miffed about a company’s tanking stock.
Lerach was “the kneecapper of corporate America,” as the authors of a new book put it, a hard-driving genius who bullied executives and forced companies to cough up more than $45 billion in class-action suits. Among his targets: Enron, Apple Computer, Hewlett-Packard and Intel.
As the book puts it, Lerach and his firm investigated companies whose stock declined, looking for “footprints in the snow” — signs that executives engaged in insider trading by dumping their stocks as things went south.
And what style he had: “I’ll own your fucking house in Maui and the diamonds on your wife’s fingers,” he’d tell a CEO. He built up his own fortune estimated at some $700 million.
Then it all fell apart amid charges that Lerach and his firm paid millions of dollars in kickbacks to potential plaintiffs in class-action suits in order to get to court first and reap the advantages of controlling the litigation.
In 2008, Lerach (pronounced LEER-ack) pleaded guilty to conspiracy and acknowledged two things — that he made secret payments to a client and that other partners in his firm made kickbacks to clients. Prosecutors alleged that the lawyers promised 10 percent of their attorneys’ fees to the plaintiffs.
He spent time in prison and was released from house arrest yesterday, forbidden from practicing law or voting.
Last week, a new book by journalists Patrick Dillon and Carl M. Cannon — “Circle of Greed” — was published about the 63-year-old Lerach’s rise and fall. I talked to Dillon about Lerach’s high-pressure tactics, his link to one of San Diego’s top swindlers and his future outside the courtroom.
How did Lerach become so interested in class-action lawsuits?
He was influenced by Brown vs. Board of Education, which was really a class-action lawsuit to desegregate schools. Those lawyers who took to the South and endured great potential harm to themselves, those fearless people who fought for civil rights — he was inspired by those guys.
The one thing that drove him was his sense of really believing that he had an opportunity to level the playing field for people who didn’t have the wherewithal to take on large corporations.
It evolves from there into brass-knuckle business practices when you basically say to someone you sue: It will cost you $100 million minimum, and if you go to trial, we’ll use the word fraud and attach a racketeering complaint, and that means this: The damages will triple, and the directors-and-officers insurance will not cover you.
That’s a terrifying thing for a company to hear. Bill was quite eloquent and not reluctant to use that threat when he came to the bargaining table.
How else did he put pressure on companies?
He had an ability to kind of see around corners, and almost just a savant’s ability to detect when his adversary — meaning the CEO or director — felt a little bit guilty. He had a feel for their vulnerability — everyone felt a bit like they were being born into original sin — and he exploited that. In a very primordial way, that allowed him to get these huge settlements and avoid going to trial.
He would basically say, “What’s your price point? We’ll negotiate a settlement and you can go back to work tomorrow, or do you want to keep fighting this war of attrition? We’re not going to go away.”
You write in the book that Lerach arrived in San Diego just as infamous millionaire C. Arnholt “Mr. San Diego” Smith was under indictment. (Forbes magazine described Smith, whose bank’s failure was the largest in U.S. history to that time, as “perhaps the swindler of the century.” Lerach represented plaintiffs in a related case, but didn’t go after Smith’s bank because it was bankrupt.)
The irony is that Bill probably would have sued Smith if he hadn’t been bankrupt. He said, “we couldn’t sue the biggest crook in the history of San Diego because he didn’t have any money.”
What do you think he’ll do now?
His life will return to normal with three exceptions: he’s a convicted felon, so he can’t practice law, he can’t vote and he can’t carry firearms.
I think he’s going to spend a lot of time thinking about what he’ll do. Maybe he’ll put his brain to work as an advocate for helping companies stay out of lawsuits. I know that he’s been contacted by the directors-and-officers insurance companies.
He’s also got great value in terms of aiding and counseling investors. There were even calls for him to advise the SEC.
How serious do you think his crimes were?
We are a nation of laws. Bill broke the law, and he needed to make amends. But I don’t see Bill Lerach as a counterpart to, say, Conrad Black, who literally defrauded thousands of investors out of their life savings. Bill defrauded no one except judges and the rule of law.
— RANDY DOTINGA