With the business of the court finished, the prosecutors and the defendant converged and exchanged handshakes. Lerach, as he had at his arraignment, congratulated each of the men and the woman who had pursued the case against his law firm and him for seven years. As he had done moments earlier, in front of the judge, he praised each for their diligence and professionalism, and the exchange revealed mutual respect.
Then the opposing parties filed out; the prosecutors marched to the elevator and rode it to their offices on the twelfth floor. After gathering several more colleagues, the government’s team strode to a nearby brew restaurant and feted McGahan on his last day. The celebration was subdued, with little gloating at finally putting Bill Lerach out of business. The remaining members of the team were also mindful of the unfinished business at hand—bringing in Mel Weiss.
Bill Lerach collected his wife, daughter, and in-laws and, followed by friends and colleagues, nodded to the press but ignored their questions, even refusing the bait from one television reporter who shouted: “Mr. Lerach, what do you have to say to America?”
He could not avoid the photographers, however, and beginning the following morning, the photo of a low-spirited Lerach leaving the federal courthouse, his blue tie akimbo, papers stuffed under his left arm, with his beautiful but crestfallen wife by his side—a portrait that had by now become a template for perpetrators of white-collar crime—would appear in newspapers and magazines throughout the world. This would be the last time the man Fortune magazine once called “The King of Pain,” and whom others knew as the most feared lawyer in America, would be seen in battle dress leaving behind him an American court of law.
* Judge Matz also presided over the first legal challenge to the U.S. government’s treatment of detainees at Guantánamo Bay.
* “The decision to extend the cause of action is thus for the Congress, not for this Court,” Kennedy wrote, echoing Joe Grundfest’s and Paul Clement’s line of reasoning. Kennedy added: “This restraint is appropriate in light of the PSLRA, in which Congress ratified the implied right of action after the Court moved away from a broad willingness to imply such private rights.”
* Lerach’s words would catch the attention of Senator John Cornyn, a Texas Republican, who would sponsor a bill requiring greater accountability and transparency for securities lawyers.
EPILOGUE
To those who loved William Shannon Lerach, as well as those who detested him, it came as no surprise that he did not go quietly into the dark night known as the U.S. Bureau of Prisons. Certainly Lerach’s remorse, insofar as the example he’d shown his young son, was genuine, and his expressions of contrition to Judge Walter were not feigned. But that was not the whole story.
In late spring 2008 online readers of Portfolio magazine were treated to Lerach’s ruminations about the process he had undergone—musings that infuriated Lerach’s brethren in the bar. “You are about to read the words of a convicted felon,” the magazine’s editors prefaced their piece. “Bill Lerach waged a one-man war on business—he was the most feared class action lawyer in America.”
It was never a “one-man” war, of course, but when the incarcerated Lerach began communicating, it reopened recently stitched wounds. He began his piece by asserting that prior to 1995 it wasn’t illegal to pay plaintiffs, a statement that wasn’t really accurate. (Obviously, plaintiffs were never allowed to commit perjury, as Seymour Lazar and the others had done many times. Nor was it legal to hide the payments from other plaintiffs and the IRS, as Steven Cooperman had done.) Lerach critiqued a legal system that gives such vast discretionary power to federal prosecutors, and called into question the fairness of plea bargaining itself, pointing out that it coerces Americans to waive their right to a trial in the face of “draconian” prison terms that await those who roll the dice and lose. “The prosecutors hold all the cards,” Lerach proclaimed. “The judge holds the gavel, and from the defendant’s perspective, it might as well be a bazooka.” Lerach had seen what happened to Bernie Ebbers, and he did not want to spend the rest of his own life behind bars. This point was well taken by his fellow lawyers, but Lerach didn’t leave it there. He went on to say that whether he really had committed a crime was a gray area, that kickbacks to plaintiffs were “industry practice,” and that what he had done was not only a victimless crime but a necessary component in ferreting out corruption in the nation’s boardrooms. He punctuated this contention by asserting that the strategy used by NAACP lawyers in Brown v. Board of Education would now be illegal.
Finally, Lerach played the partisan card, mentioning that he had been about to move on Dick Cheney when his own case came to fruition, that he was a big Democratic Party supporter, and that the Justice Department was in Republican hands when the investigation against his firm resulted in all those indictments.
Few of Lerach’s fellow plaintiffs’ lawyers took kindly to this salvo. Sean Coffey, along with his senior partner Max Berger, the new “Kings of Class Actions,” according to Business Week—particularly resented Lerach’s assertions. “It is bad enough that this confessed criminal cheated for years to get an unfair advantage over his rival firms,” Coffey told Joe Nocera of the New York Times. “But for this guy, on his way to prison, to say that everyone does it is just beyond the pale.”
Lerach was impervious to this kind of criticism. He was thick-skinned even before his guilty plea, and sitting in Lompoc in his prison jumpsuit, he seemed grateful simply to still be part of the national debate over tort law and corporate governance. Besides, Lerach was just warming up: he had more to say. The February–March 2009 edition of Executive Council magazine carried a two-page bylined piece by Lerach in which he maintained that the financial meltdown wracking the United States had been partially caused by the PSLRA and other acts of government, including insufficient vigilance by the SEC and “hostile” actions by the high court. “The risk-reward ratio shifted and the door for fraud was opened,” he said.
In this assertion, Lerach was on much more solid ground. The “collections of imbeciles” in the banking industry described by California senator William Gibbs McAdoo at the outset of the Great Depression were back in full force seventy years later—with predictable consequences. Even as the case against Milberg Weiss and its top partners worked toward its conclusion, the appalling incompetence and corruption inside the nation’s investment banks and lending institutions led directly to a housing bubble, a Wall Street collapse, and the Great Recession of 2007–9. These events gave Bill Lerach—even from a prison cell—a soapbox to remind the nation that he had forewarned Congress, the courts, the SEC, and the White House what would happen. The chickens that he had cautioned lawmakers and judges about had indeed come home to roost.
Lerach had long maintained that the dot.com crash and the Enron scandal were not anomalies but rather the inevitable result of the Central Bank case, the PSLRA, the repeal of Glass-Stegall, and all the rest. “Simply put, the behavior of man—not just a few corporate executives—has been abominable,” he had written in 2002. “There is no excuse for their greedy and dishonest behavior while so many honest people work so hard for so little.”
Six years later, when it became evident that rampant fraud was complicit in the stalling of the entire economy, Lerach’s worldview started getting a second look. In October 2008 the New York Times published a first draft of revisionist history regarding Lerach and his confederates. “Nothing makes lawyers more popular than bad times,” its page-one story began. “It seems like just a few months ago—because it was—that trial lawyers, those advocates who take on companies on behalf of investors, customers, or even other businesses, had a wretched reputation. Three of the best-known of those lawyers, William S. Lerach, Melvyn I. Weiss, and Richard Scruggs, had all pleaded guilty to crimes … But the pendulum has swung again.”
The Times singled out other factors and culprits, including Phil Gramm, holding up to the light a few of his past quotes—sentiments that didn’t sound so shiny and smart in the wake
of the economic crisis. “Some people look at sub-prime lending and see evil,” Gramm had said in 2001. “I look at sub-prime lending and I see the American Dream in action.” This remark might have been forgotten had not Gramm signed on as economic adviser to the campaign of John McCain, the Republicans’ 2008 presidential nominee. Meanwhile McCain, Lerach’s unlikely partner in fighting tort “reform” a decade earlier, took the unusual step of calling for Chris Cox’s replacement as SEC chairman. That agency had clearly lost its oomph. In the sixty years after the Boston office of the SEC had been the impetus in expanding the commission’s reach under the 1933–34 securities acts, that same regional office professed not to see anything wrong with Bernard Madoff’s transparent, multibillion-dollar Ponzi scheme—even after it was brought to their attention by a Boston-based trader named Harry Markopolos.
As Madoff appeared to be heading to prison, FBI officials told Congress that despite a huge redeployment of its agents to financial fraud, it would never have the resourses to police the financial markets on the threat of criminal prosecution alone. The sheer volume of greed was so vast that the FBI could only bring its forces to bear on companies or individuals “systematically trying to defraud the system,” FBI Deputy Director John Pistole informed the Senate Judiciary Committee in early February. Taking that point to its logical conclusion, a few voices began to question the PSLRA and the wisdom of prosecuting Bill Lerach at all.
Writing for the online version of The Atlantic, former Clinton White House aide Matt Miller proposed—only half tongue-in-cheek—“the perfect answer” to dealing with greedy financial industry execs who want to keep their million-dollar bonuses after running the economy into the ditch was: “The feds need to hire Bill Lerach to bring their cases,” he wrote. “Whatever else you may think of Lerach, the guy scares corporate America, and he knows how to use that fear to get big settlements for his clients … Let Lerach reduce his time by bringing the cases that are tailor-made for his particular brand of hardball.” (After Kathy Lichnovsky relayed Miller’s item to her boss, Lerach fired back a six-hundred-word response to Miller advising him that a way currently exists to go after “these Wall Street pigs”—convincing the pension funds to sue the boards of directors of the mismanaged financial institutions.)
The following month veteran Democratic consultant John Russonello weighed in on his blog, calling for the Obama administration to pardon the jailed lawyer. “Every day Lerach was on the prowl evened the odds a little bit for the rest of us,” wrote Russonello. A pardon, he added, “would send Wall Street a message louder than the day’s opening bell—the junk yard dog may soon be back at the gate, so watch your step.”
TO MEL WEISS AND his lawyer, such sentiments were all in the land of make-believe. The real world was much harsher.
“I’m on my knees begging you …”
So began the plea from Ben Brafman, standing in the well of the federal district court in Los Angeles, his voice quavering, before Judge John Walter on June 2, 2008. Brafman recounted the nearly five decades of championing victims of fraud, working pro bono for Holocaust victims, giving generously to charity. “I’m asking you to give him back just some months for all that he has given,” Weiss’s lawyer intoned.
Two and a half months earlier Weiss, now seventy-three, had appeared in the same courtroom before the same judge and pleaded guilty to a racketeering conspiracy stemming from his stable of plaintiffs who had received kickbacks for so long. Now, on the morning of June 4, even Doug Axel, who along with Richard Robinson had engineered the government’s case and plea bargain, conceded: “Certainly nobody can dispute that there’s a lot of good in this defendant, Mr. Weiss, and that he is deserving of recognition and deserving of being taken into account here today.”
Judge Walter invited the defendant to address the court. Weiss rose and moved slowly to a podium set midway between the prosecution and defense tables and directly in front of the judge. He placed a sheaf of papers before him and began in a soft but firm voice: “Your honor, I stand before you very humbly … As I have written to your honor, my remorse and contrition for my violations of my oath as a lawyer are beyond my ability to adequately express. I promise you that my contrition is profound and genuine. In judging me and the way I have spent my life, I can only ask that you look at me not only as a confessed wrongdoer that brought me here, but also through the eyes of the hundreds of people who have written to you on my behalf. My punishment has already been great. Being unable to practice law again has ended both my life’s passion and my ability to earn a living as a professional. My fall from grace has greatly impaired my ability to work as a public servant and humanitarian, which has always been a part of my life.”
When he finished, Mel Weiss returned to the table and bent his head.
Judge Walter cited the need for deterrence “to those that are considering committing similar crimes, that if they get caught, they will face prison,” then imposed a fine of $250,000 dollars, an additional forfeiture of $9,750,000—and thirty months in prison. After some back-and-forth with Brafman, August 28 was set as the date Weiss would surrender himself to the federal minimum-security prison camp in Morgantown, West Virginia—the same facility where John Torkelsen was serving his sentence.
Two weeks later the U.S. attorney’s office in Los Angeles announced that the government had settled with the law firm of Milberg Weiss. The firm, soon to be known as only Milberg, agreed to pay $75 million dispersed over five years and accept government oversight in return for the removal of charges against it.
In December, four months after Mel Weiss began serving his prison sentence, he learned that his friend Bernie Madoff had fleeced him, along with hundreds of other “exclusive” investors, in the largest private investment fraud in history. Estimates of the amount Madoff bilked ran as high as $50 billion. Mel Weiss alone was believed to have lost upward of $20 million. Weiss was not the only victim in the Milberg Weiss circle. While serving his six-month sentence in the Federal Correctional Institution at Otisville, New York, David Bershad learned that his investments with Mad-off had vanished. Pat Hynes, the former partner who was elected president of the New York City Bar Association in June 2008, also lost money with Madoff. Likewise Howard Vogel, the paid plaintiff who helped make the government’s case, also got word while serving a three-month sentence at a federal facility in Miami that he too was among Madoff’s pigeons.
Spared Madoff’s scheme because he claimed he couldn’t afford to invest was Steve Schulman, who served his six-month sentence in a federal detention center in Minersville, Pennsylvania. Schulman was, however, required to forfeit $2 million to the government. Paul L. Tullman, the onetime Milberg Weiss partner turned stockbroker, who earned more than $8 million from Milberg’s largesse, pleaded guilty to a single count of tax evasion. Because he cooperated and because of his declining health, Tullman was spared prison. Robert Sugarman, known as “Partner E” in the indictments against his former firm, was absolved from prosecution and continued to practice law in New York.
As for the other defendants, John Torkelsen, whom Fortune called “the damages expert of choice for the entire plaintiffs side of the securities bar” and who would not give up his friend Bill Lerach, continued to serve his five-year sentence for perjury in Morgantown. He was scheduled for release on July 20, 2011. His wife, Pam, who testified against her husband as well as the firm of Milberg Weiss, was sentenced to three months and was released from prison on December 12, 2008.
Noting Seymour Lazar’s age of eighty and his declining health, and also considering the stress of undergoing a seven-year investigation, Judge Walter sentenced him to two years’ home confinement and ordered him to pay a $600,000 fine and forfeit $1.5 million more. The judge seemed to take pity on Paul Selzer, sentencing the weeping sixty-eight-year-old attorney to two years’ probation, fining him $250,000, and ordering him to perform one thousand hours of community service, for his role in funneling money to Lazar.
Even though he cooperate
d with prosecutors, Steven Cooperman, who had already served twenty-one months for art theft, was returned to prison following the disclosure that he had committed fraud while in custody. In his role as an illicit plaintiff, Cooperman received some $6 million. For those crimes he was sentenced to four additional months, which he served at a federal prison hospital facility at Devens, Massachusetts, before his release in May 2009. He also paid a $40,000 fine. Richard Purtich was confined for two months and paid $50,000 for his role in funneling money to Cooperman. Purtich also lost his license to practice law. James P. Tierney, the faux cat burglar who sauntered into Cooperman’s house to remove masterpieces of art from the walls, was released from custody in 2002 and, as part of his sentence, resigned his license to practice law.
Eleven individuals fell to the prosecution. Counting the fines paid personally by Lerach and Weiss, along with the $75 million forfeited by the firm of Milberg Weiss itself,* the government collected more than $100 million, which was 42 percent of what the firm earned during the two and a half decades prosecutors could trace its fees to cases involving paid plaintiffs.
Those numbers provided more than a hint to the cosmic question that Lerach himself had posed aloud in court during the Pacific Homes litigation so many years ago. In his statement to the jury, Lerach had made a point of stressing the many good works of the Methodists, even acknowledging their noble intentions when launching the ill-fated retirement homes. One question raised by the case, Lerach told the jurors, was this: “How could something that should have been so good end up so bad?” As America’s most powerful law firm broke apart, and its top partners headed for prison, this was a question asked about Bill Lerach as well.
“We may not be perfect,” Lerach had told William Greider of The Nation in 2002 when discussing trial lawyers, “but we are not corruptible.” Six years later Mother Jones, another liberal magazine, reprised that quote, with a different twist. “It’s no small irony that Lerach will soon be joining some of those corrupt CEOs in federal prison,” Mother Jones said, adding that his “scheme had very little to do with combating corporate fraud and a lot to do with making money.”
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