I Told You So

To controversial securities litigator Bill Lerach, the current wave of corporate fraud scandals was both inevitable and preventable.

To controversial securities litigator Bill Lerach, the current wave of corporate fraud scandals was both inevitable and preventable.

Seven years ago, Congress overrode President Bill Clinton’s veto and passed the Private Securities Litigation Reform Act of 1995 (PSLRA). The legislation was hailed as a victory for corporations over lawyers who filed what CEOs regarded as frivolous shareholder lawsuits, or “strike suits,” as some called them. In particular, the act was viewed by many executives as a big thumb in the eye of one notoriously litigious attorney: William S. Lerach.

But the act only briefly stemmed the tide of shareholder litigation. And it hardly put a dent in the caseload of Lerach, a senior partner at the law firm of Milberg Weiss Bershad Hynes & Lerach and the poster boy for securities fraud actions. (In Silicon Valley, to be “Lerached” is slang for being sued.) Today, the PSLRA is being reviled as a catalyst of the accounting scandals plaguing Corporate America, while shareholder complaints resulting from those scandals are stacking up on Bill Lerach’s cluttered desk.

Talk about irony. Of the 303 non­initial public offering allocation class-action securities suits settled in the United States between 1996 and 2001, more than half were brought by Lerach and his colleagues, according to statistics compiled by Cornerstone Research. And this year, he’s leading the plaintiffs’ charge in the two biggest corporate scandals. Last February, Lerach was named lead attorney in the class-action case against Enron, a case he calls the “professional challenge of a lifetime.” And in March, a shareholder case that he insists documented many of the alleged abuses at WorldCom well before the company admitted to more than $7 billion in accounting irregularities was dismissed by a federal district court judge in Mississippi.

Against both companies, Lerach, who has brought some 600 class-action cases to date, is now casting a wide net of responsibility. Representing the University of California Board of Regents in the $25 billion Enron suit, he has made headlines by suing nine investment banks, including J.P. Morgan Chase & Co. and Citigroup, as well as the company’s legal counsels and what’s left of Arthur Andersen. Lerach is also pursuing many of the same banks in state courts on behalf of three California pension funds, including the California Public Employees’ Retirement System, for the banks’ involvement in a May 2001 bond offering for WorldCom.

All this might have been avoided, he says, if the PSLRA hadn’t been passed. Many of the disgraced executives at WorldCom, Enron, Adelphia, and elsewhere “would have been sued earlier and publicly exposed.” And that, says Lerach, would have had “the prophylactic impact on corporate conduct that private litigation and securities law was always meant to have.” Specifically, Lerach blames the law’s tighter filing standards and its safe-harbor rule, which protects executives who make forward-looking statements, for the surge in executive chicanery.

The slew of executives being sued has put the 56-year-old Lerach back in the spotlight. Recently, he sat down with CFO deputy editor Lori Calabro at his office in San Diego, surrounded by 10-Ks, legal briefs, and other documents, to sort through the mess created by recent financial fraud. Lerach makes no apologies for his tactics, or for the millions he has made from suing companies.


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