Thursday, September 20, 2007

Lerach's Deal

With the impending superseding indictment of Melvyn Weiss and his firm, Milberg Weiss, the prosecution of the firm and its members for paying secret kickbacks to plaintiffs is nearing its denouement.  The plea agreement (available below) of William Lerach, the symbol -- for good or evil, depending on your point of view -- of aggressive class action attorneys has drawn considerable attention and criticism for the sentence and lack of a cooperation requirement.  The deal puts his sentencing range at one to two years along with an $8 million fine, and if the district court does not accept its terms then the agreement can be scuttled by either side.  An additional aspect of the sentence is that no more than half can be served in community confinement, i.e. a halfway house, or home detention, i.e. in the living room.  That means Lerach could serve as little as six months in jail, and it will likely be in a prison camp or similar minimum security federal facility.

Some have criticized the sentence as too light compared to those received by other well-known white collar defendants, such as the 25 years received by Bernie Ebbers or Jeffrey Skilling's 24+ year term, which he is serving even while his appeal is before the Fifth Circuit.  Even Andrew Fastow's comparatively mild sentence for his role in the Enron debacle was six years, far more than Lerach will serve.  The Wall Street Journal, which has never particularly cared for Lerach and his ilk, criticized the $8 million fine he will pay in an editorial (here), asserting that "It's hard to put a number on the money Mr. Lerach took off shareholders over the past three decades or so, but it's safe to say that $8 million isn't close. Even after his fine and minimal jail sentence, he will presumably remain a rich man."

In any discussion of a criminal sentence, it is important to remember that it has to be based on the crime of conviction, in this case conspiracy to obstruct justice and make false statements to the court.  The Milberg Weiss case has never been a fraud prosecution, at least in the sense of depriving victims of money or property.  While the convictions of Ebbers and Skilling/Fastow involved significant accounting fraud, it is not entirely clear whether the Milberg Weiss kickbacks paid to the representative plaintiffs necessarily provided a direct monetary benefit to the firm in excess of what it recovered in the cases.  The plea agreement states that the payments allowed the firm to file its cases earlier, and the degree of oversight exercised by the named plaintiffs was non-existent, in all likelihood, so Milberg Weiss was free to pursue its legal strategy unfettered by any client demands.  An earlier defense filing in the case assailed the government's theory as trying to stretch a violation of the professional responsibility rules into a crime.  While making false statements to the court is certainly criminal, and the kickbacks were not only unethical but likely crimes given the representations the class counsel must make about its representation, what Lerach and others who have entered guilty pleas did was not necessarily a scheme to defraud.  While the WSJ may bemoan Lerach's tactics, due process limits the sentence to conduct related to the criminal offense, and it's hard to see how claims of ripped-off shareholders relates to a conspiracy to mislead judges.

The absence of a cooperation provision in the plea agreement has aroused suspicion because the government usually requires it as part of a deal.  The Ideoblog (here) notes that "it's still possible that the government made an implicit, non-disclosed deal with Lerach."  While there is good reason to be suspicious, I suspect the government does not have much interest in using Lerach in the prosecution of Weiss and the firm, so prosecutors may well have been willing to drop any cooperation demand in the bargaining to get Lerach to plead guilty.  It gives him a small point to argue in the future -- "I'm not a rat" -- at little cost to the government.  Lerach as a witness against Weiss would bring significant baggage, mainly the negative relationship he has with Weiss that led to the breakup of Milberg Weiss in 2004.  Moreover, I doubt prosecutors would trust having Lerach on the stand because he does not strike me as a witness who can be controlled or trusted to maintain his temper on cross-examination.  The key to the case against Weiss is his former partner David Bershad, who was in charge of the firm's finances and paying the representative plaintiffs.  Lerach would be more of a distraction at a trial, so garnering his cooperation would not be worth much while it could be foregone for other benefits during the negotiations.

Whether the sentence (and fine) is "light" or "harsh," the prosecution is a watershed because the government pursued a case against attorneys who sought to take advantage of the system through a long-term pattern of abuse.  That said, not every case in which Milberg Weiss was counsel was tainted, and the firm remains in business.  Lerach certainly should lose his law license, and I doubt many judges will ever welcome him into their courtrooms as a lawyer again.  There's always a danger in asking how a symbol should be punished, and comparing one case with another risks overlooking important differences between them.  (ph)

Download us_v_lerach_plea_agreement_sept_18_2007.pdf

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Mr. Lerach's so-called "crimes" are nonexistent when compared to the massive fraud committed by executives across this country. And look at this so-called "Supreme Court"! Their abuses of the law have been of such magnitude that in the grand scales of things the damages they have caused are incalculable. By any genuine comparison, Mr. Lerach is a hero, serving the interests of the shareholders when the SEC would do nothing, frequently in the back pockets of the corporate criminals, or just incapable of taking any serious action. And Mr. Lerach should by no means lose his license to practice law. A suspension, yes, but it should be immediately reinstated upon his release. The world needs more people like Mr. Lerach.

Posted by: Ralph Adamo | Sep 20, 2007 7:45:39 PM

the shame about this case and his former partenrs is the tort reformers use it to attack the right to trial by jury, to impose arbitration clauses on the american public and other such legal fictions. after 10 plus yrs of arbotration clauses on both sides of the bar i truly believe they are terribly unfair to plts, more expensive than trial and stack the deck for corporations and the ins. industry. I think the govewrment really stretched a criminal case, their should have been some judge ordered sanctions but the goverment, and i have not heard this argued but the goverment in my opinion acted more criminal than the lawyers. no one has stated the paid plts werent actually plts, as informants they made pretty good plts. it looks like the people with a beef are actually other plts lawyers they beat to the punch by having plts ready. not stockholders or co.'s both of these have no complaint other plts were present other firms and they could have defeated the allegations if they did not like them. it is amazing how ofter tort reformers claim that plts are paid off when claims have no value yet defendants hire hte best legal talant they can- are they just not as good as plts lawyers-no they win 90- percent of the time, but facts like that would get in the way of a good argument. I lost one defense case in the worst plts hellholes the tort reformers can find-still in those places only lost one while i poured out some deserving commercial and pi plts.

Posted by: mikcol | Jul 24, 2008 2:41:14 PM

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