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San Diego’s Bill Lerach was a man who inspired fear and loathing in corporate boardrooms across America. Lerach ran the West Coast operations of Milberg Weiss and was for many years the foremost class-action securities lawyer in America.
He extracted settlements in the millions, even tens of millions of dollars. That earned him powerful enemies. Congress tried to rein him in by overriding a presidential veto in 1995 to pass what became known as the “Get Lerach Act.” But he went on to lead the biggest class-action lawsuit in history, the University of California’s $7.2 billion judgment against Enron Corp.
In 2008, Lerach was sentenced to two years in federal prison after pleading guilty to conspiring to conceal kickbacks paid to plaintiffs. The 64-year-old Lerach spoke with us not long after he finished serving his prison sentence, part of which was spent in home confinement at his La Jolla mansion.
You cooperated with the authors of Circle of Greed, the book that chronicles your rise and fall. How fairly did the book portray you?
The book is tough on me. It’s hard to write a book as long as that book is and not have some mistakes in it. I know and respect the authors very much and thought it was a very legitimate effort. Overall, I’m satisfied with it. Everyone wishes every book written about them portrayed them uniformly but I guess in my case that’s not possible.
The book should have pointed out the work we did without expectation of compensation. We represented victims of the Holocaust in major, difficult lawsuits against major companies that cooperated with the Nazis. The book didn’t talk about the work we did on behalf of workers, young women, brought to the Mariana Islands by Hong Kong businessmen and were exploited and had their civil rights and personal rights destroyed.
California’s biggest law firms are in San Francisco or LA. What were the advantages or disadvantages of practicing in San Diego?
Other than getting out of bed a little early to fly to San Francisco and LA, I don’t think there were any disadvantages and there were even some advantages. It’s a great city, you’re able to attract talent because people wanted to live here, and I found the defense bar, with a few exceptions, to be excellent. The local newspaper was horrid. So that was a disadvantage. It’s the worst big city newspaper in America.
You’ve said that payments to plaintiffs that landed you in prison were standard practice among firms specializing in securities lawsuits. Why don’t we see more prosecutions of securities lawyers?
I don’t think we should have been prosecuted. I am only pointing out that as often the case, practices in an industry, whether they are good practices or bad practices, are industry practices. We would not have voluntarily shared our legal fees unless it was an absolute necessity to do so. We were in a competitive industry. Adam Smith’s invisible hand is still at work. You don’t give away money unless you have to.
You were a big Democratic supporter and you went after politically connected firms like Enron and Halliburton. Did politics play a role in your prosecution?
How can I say that? I wasn’t the prosecutor and I wasn’t sitting with Karl Rove. The facts are what the facts are and you’ve listed some of those facts. We were a terrible big sharp thorn in the accounting firms and investment banks that worship in the Republican temple. You make your own decision.
What’s your take on what caused the financial crisis?
Don’t focus on 2008. Go back and focus on 2000 where you had not as much of a systemically threatening crisis but you had a gigantic fraud by the dot-com companies. Trillions of dollars were lost by investors in financial markets. Then you had the most recent financial crisis.
These meltdowns are due to insufficient regulation of free-market capitalism. There is a lack of civil and criminal legal accountability on the part of powerful corporate and Wall Street actors who take the risks and engage in conduct that cause these ultimate meltdowns to occur. As night follows day, when the consequences for fraudulent behavior were reduced you got — guess what — more fraud.
Mel Weiss once said that greed was good for your practice, so as the scale of these frauds grew, your practice grew along with it.
Greed is a pejorative term. Let’s call it pursuit of gain or pursuit of profit in the free market that is excessive. We made a judgment a long time ago in the United States that that is good. I happen to agree. I built a large business that employed many people.
The trick is to erect and sustain a regulatory framework that protects I call them “ordinary people” from these interests who will do anything to line their pockets if there are no adverse consequences to them. I’m not against the capitalist system, but I strongly believe there needs to be a framework of regulation.
Why in the world should the United States and its taxpayers and shareholders go through what they went through so someone like (former Merrill Lynch Chairman and Chief Executive) Stan O’Neal can walk away with $150 million?
If you were still practicing securities class-action law today, what would you be litigating right now?
Had I stayed active I think rather than bringing class actions, I would have continued to bring what I had started to call mass actions where you gather perhaps 100 institutional investors who have been rolled over in one of these frauds. I think I would have been in all of these large cases Bank of America, Lehman Brothers but would have been representing a large group of institutional investors on a private basis. I also think I would have been bringing a number of compensation cases against bank executives who received excessive compensation on behalf of Taft-Hartley (labor union pension) funds.
What do you consider to be your legacy?
I think your legacy is for others to define. I loved my work. I worked hard for my clients. I tried to get good results. I made mistakes and I paid for those mistakes. I hope we can continue to have a few lawyers who will fight for ordinary people against powerful interests. That’s what we tried to do.
What’s next for Bill Lerach?
I’m going to be teaching at a prestigious law school (I can’t say which one) beginning in early 2011. I’m going to be teaching a new law school course called, not surprisingly, “Regulation of Free Market Capitalism: Why have we failed?” It’s a blend of history, politics and law. I’ll be teaching at USC and Berkeley as a guest lecturer. I’m going to be active with Campaign for America’s Future, an organization that fights for progressive legislation to benefit ordinary people, especially in the economic area. I’ll help them write position papers and I might even blog for them.
I’ll also be on a panel discussion on the financial crisis April 12 at the University of San Diego.
I also intend to enjoy my family, play with my dogs, garden and fish.
COMING THURSDAY: A review of the book on Bill Lerach by two former San Diego newspaper journalists, Circle of Greed.
— Interview conducted and edited by SETH HETTENA