Bill Lerach on Litigating Corporate Wrongdoing: “The System Is Set Up to Defeat Deterrence”

We hope we aren’t stepping on any toes in posting a very informative interview with the one-time scourge of Corporate America, Bill Lerach. As you’ll see from the short bio below, Lerach was an enormously effective attorney until he was successfully prosecuted for sharing legal fees with some of the plaintiffs on his suits and disbarred after serving two years in prison1 As the Financial Times recounted in 2018, Lerach has returned to pursuing financial fraud by setting up a consulting firm that regularly works with his wife, the formidable Michelle Ciccarelli Lerach and the team of lawyers at her firm. We’ve followed Lerach and her partner’s tenacious efforts to recover on behalf of the Kentucky Retirement System for misrepresented low risk/high return hedge funds products sold by the likes of KKR, Blackstone, and PAAMCO. We’ve also discussed a series of suits out of Lerach’s and her partners’ firms seeking to recover for horrific corporate conduct of European behemoths like Bayer, Volkswagen, Credit Suisse and Deutsche Bank, (grossly oversimplifying the legal theories) using New York requirements they agreed to as a condition of listing their shares here to force them to live up to shareholder commitments in their home countries…which are very investor-favorable but effectively not enforceable there because reasons.

UC San Diego gives a bit more detail about his career:

For over 30 years William S. Lerach was one of the nation’s leading securities lawyers, heading up the prosecution of hundreds of class actions which resulted in billions of dollars of recoveries for defrauded shareholders. He was involved in many of the largest and highest profile suits in recent years, including Enron, Dynegy, Qwest, WorldCom and AOLTW. He also pursued numerous high-profile human rights litigations, including suits for laborers in Saipan’s garment factories, American WWII POWs forced to work in Japanese weapons factories, and victims of the European Holocaust. The $7 billion recovery he obtained for the Enron stockholders is the largest stockholder recovery in U.S. history.

A major theme of this exchange is why corporate malfeasance is so deeply entrenched and why lawsuits at best provide a measure of recompense but don’t represent enough of a threat to serve as a deterrent. It explains how not just corporate practices but also the posture of judges and the need for plaintiffs to get on with them also constrain private enforcement. One big constraint is the degree to which judges defer to corporate requests to keep records sealed, when exposing them could do enough deserved reputational damage to shake things up, and the willingness to protect CEOs from going on the stand.

I hope you read this informative talk in full.

00 Corporate Crime Reporter - William Lerach Interview - Monday, January 29, 2024
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  1. David in Friday Harbor

    The “tort reform” attack on Qui Tam and Whistle-blower plaintiffs and their lawyers was the nail in the coffin of the New Deal that sealed the transformation of our government into one of Inverted Totalitarianism run by Our Billionaire Overlords, envisioned by the Powell Memorandum.

    The interview fails to mention that Bill Lerach was in the process of suiting-up to sue Vice President Dick Cheney, who had skittered-out of Haliburton and liquidated the bulk of his shares just before a massive stock price collapse, when the Bush 43 justice department decided to go after him for fee sharing. Lerach is fearless, and he gave-up his law license and went to federal prison rather than rat-out clients and their lawyers — who many still believe deserved to be compensated with a portion of the legal fees generated by their whistle-blowing against corporate greed and insider training.

    Bill Lerach remains a force of nature to this day. In his own way, he is the Julian Assange of securities litigation.

    1. dommage

      Certainly part of the process, if not the nail in the coffin. And, yes, Bill Lerach is truly admirable, and thanks to Yves for this. Nonetheless, the notion that corporate finance capital in the U.S. could be regulated by the plaintiffs bar representing outraged small investors was never part of any sensible account of U.S. reality in the last half century. I was a partner in a plaintiffs security firm (a few dozen lawyers) in the heyday of Milberg Weiss. We also represented some significant really existing socialist countries, and while I was on that side of the practice, as a young litigator was also called on for plaintiffs’ cases. I met many of the top plaintiffs securities bar – the level immediately below Milberg Weiss – in NYC and Philadelphia. Everyone knew that the “uncompensated” representative plaintiff was an Achilles heel. In our firm only one partner, elderly, a kind, wise and lovely man, knew anything of arrangements with plaintiffs. It was agreed when I came on board that I would not be asked to defend plaintiffs depositions. He asked me, despite our agreement, to take one on, promising I’d have a good time. I did. The defense securities bar followed a script aimed at maximum ridicule of the representative plaintiff’s claim to bona fides in having no expectation in the event of victory of gaining anything other than a few bucks per share on their small holding, and of course the satisfaction of seeing justice done. Our client was Bella Abzug. When the young white shoe guy got to the part of the script where he sneeringly asked what made her think she was called upon to represent the common good, justice etc she exploded on him. It was the most enjoyable deposition I ever defended. Our top partners were all wise survivors of the worst of the McCarthy times. I thank them for many things, not least for the opportunity to watch close up the moment of triumph of monopoly finance capitalism over the last remnants of the ’30s gesture at regulation. Myself I resigned from the firm at the start of the’90s when my primary client “went out of business” – a few years before the successful onslaught on the plaintiffs securities bar. I do not believe any of the surviving fragments (Bill Lerach’s snake segments) of the plaintiffs securities and mass tort bar today are leftist in any real sense.

      1. Yves Smith Post author

        Thanks for your good work and this note.

        One thing that can be said about the plaintiffs’ bar, even though this is the sort of case that could be easily demonized as “too many fees, not enough to the plaintiffs” is that IMHO they were pretty effective in attacking all sorts of nickel and dime grifting, like undisclosed FX fees on bank and credit card transactions, the sort that takes a few or say at most a few hundred bucks a year out of customers but reaps the perps tens, even hundreds of millions because no one can afford to fight it.

  2. JEHR

    And deferred prosecution is also being used in Canada. Below is a copy of a letter I sent to the Prime Minister of Canada who used deferred prosecution to justify his actions with a Canadian company:

    “The Honourable Prime Minister Justin Trudeau


    “I deeply regret that you have treated two of the members of your caucus in such a shabby manner by relieving them of their ministries and kicking them out of government. These two women, Jane Philpott and Jody Wilson-Raybould, are hard working and trustworthy and wanted to continue working for the people of Canada. I want them too.

    “From all I have read, you, as leader, could have made a speech to the country telling us just why you wanted to interfere with the criminal prosecution of SNC-Lavelin and also admitting to the pressure put on the AG (Jody Wilson-Raybould) to act on your behalf.

    “Trust goes two ways and how can I, as a Canadian citizen, trust that you won’t pressure a new AG to give the deferred prosecution to SNC-Lavalin at some future time?

    “You are a big disappointment for our country. The black blinds are now pulled down over your ‘sunny ways.’ ”


    (Signed by JEHR and sent by e-mail on April 3, 2019)

  3. schmoe

    Unfortunately, class action litigation is basically a racket where high fee awards can net plaintiff’s lawyers $5,000+ per hour (and yes, some cases are dismissed at the motion to dismiss) and Wall Street firms now have partners billing at over $1,800/hour. I recall a recent article that stated the Davis, Polk partners can make more than $5,000,000/year.

    At the end of the day, civil litigation cases virtually always settle with no admission of guilt. The only circumstance I have found that civil private plaintiff litigation is in the 401((k) space where Plan committees were quite derelict in terms of negotiating recordkeeping fees and use of low-cost fund options for a Plan’s menu. I recall reading that annual 401(k) fees are down more than $10b annually since class action litigation lawyers aggressively targeted them. Granted, there probably is an unquantifiable deterrent effect on other business practices.

    It would be nice if we had regulators did their jobs such as attacking dubious practices in the derivatives market instead of pursuing penny-ante insider trading cases.

    1. Yves Smith Post author

      With all due respect, you have bad facts.

      Davis Polk lawyers are not part of the class action/mass tort bar. Their clients are big corps and Wall Street. They would never never take cases that would have them suing their meal tickets.

      They are a garden variety high end white shoe firm. When Eric Holder left the DoJ to join Covington & Burling in 2015, he got a $4 million a year deal. Covington’s partner rates are a bit lower than the NYC white shoe firms because they do a ton less of the lucrative transaction work, particularly M&A. White collar defense, which is what Holder would be doing, is not a tippy top payout speciality, although they would presumably also like to have him for maquee value.

      Litigation is better paid, at least for top litigators. I met a sole practitioner tax litigator in the 1980s (no typo) who billed at $1,000 an hour.

      You also forget that plaintiffs’ firms pay all of the expenses, particularly expert witnesses. Those can run as high as tens of millions., on top of the risk of not being paid for all the time they put in. They gets squat if they lose. So they need big paydays for the risk//return equation to make any sense.

  4. ChrisFromGA

    Thanks for this insightful and fascinating article. Unfortunately, it reinforces everything I have suspected about the court system and how there is a thumb on the scale of Lady Justice, when it comes to corporate malfeasance.

  5. Neutrino

    William Lerach, that is a name I haven’t heard in a long time.
    Prior mentions in the business press were typically filled with epithets, express or implied. One famous business magazine seemed to have its own regular Get Lerach articles decrying the Plaintiff’s Bar.
    That was in the era of a few other notable, even notorious stories. Some of those like Enron, Arthur Andersen et al helped being in subsequent legislation and introduced the non-legal world to Andrew Weissmann.
    The American legal business is another in need of transparency, with the interview pointing out how some in the private firm personnel seem to migrate or devolve to go to the public side.
    The legal pendulum swings in restricted arcs, where the shakedown aspect is kind of muted but the profiteering and self-dealing or conspiring continue with little oversight.

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