Those wondering why circulation at the Washington Post has dropped over 15% in the past 2-1/2 years will get a large part of their answer at Sunday's Page B01 column by William Lerach ("Loser CEOs, Raking It In"; HT Rory Miller).
That's Bill Lerach. Yes, THAT Bill Lerach. The self-styled, one-time "King of Torts," and former partner at the once-untouchable Milberg Weiss law firm. The now criminally convicted Bill Lerach.
For those who are unfamiliar with the story of Bill Lerach and Milberg Weiss, here's a relatively quick synopsis, courtesy of a subscription-only editorial at the Wall Street Journal excerpted by yours truly in May 2006, when Milberg Weiss and two of its partners were indicted:
The 102-page indictment out of the Los Angeles U.S. Attorney’s office is a remarkable account of mass-tort corruption that has long been suspected by anyone paying attention. It accuses Milberg Weiss, as well as partners David Bershad and Steven Schulman, of paying off their class-action plaintiffs. The accused say they’ll fight the charges. But this exercise has already done a public service by turning over a rock to expose the dirty world of securities “strike” suits that Milberg Weiss helped pioneer.
At best these are acts of legal extortion, with law firms jumping on a company with a falling share price to allege fraud on behalf of shareholders — whether or not there has been any bad behavior. The law firms claim to represent so many investors that most companies settle rather than keep paying legal fees to fight in court. Shareholders typically receive only token payments, while the likes of Bill Lerach and Melvyn Weiss have become rich as Croesus. Even Congress has recognized this as a racket, passing a 1995 reform over Bill Clinton’s veto that has moderated some abuses but failed to stop the shakedowns.
This indictment breaks new ground, however, in alleging that many of these suits aren’t just unethical but have been illegally manufactured. In order to file a securities suit, tort firms require a “lead plaintiff” who was actually harmed and seeks to represent thousands of other unnamed shareholders. According to prosecutors, Milberg Weiss was paying millions of dollars in kickbacks to its lead plaintiffs.
For some of these “investors,” filing lawsuits seemed to be a full-time job. Howard Vogel, a New Jersey businessman who turned state’s evidence in April, served, or had his relatives serve, in 40 suits. Retired Palm Springs lawyer Seymour Lazar is accused of taking part, or having his family take part, in 70 suits. All told, the indictment claims Milberg Weiss raked in some $216.1 million from lawsuits in which they kicked back cash to plaintiffs.
The indictment also asserts that the accused didn’t just happen to be invested in these stocks. Rather, “the Paid Plaintiffs purchased the securities at issue anticipating that the securities would decline in value, in order to position themselves to be named plaintiffs in securities fraud actions and to obtain kickback payments. . . .”
To make it perfectly clear to those who are new to all of this: It is illegal for named plaintiffs in class-action cases to have a special interest or concealed inducements beyond others in the class -- hence the need to conceal the kickbacks.
Note that the investigation into Milberg Weiss began during the Clinton Administration and continued into the Bush Administration. This is important to know, because Milberg Weiss and its defenders, including four Democratic congresspersons in 2006, have occasionally trotted out claims of persecution by the Bush Administration. Also note that Milberg Weiss and its partners have made very sizable political contributions going overwhelmingly to Democrats. They have continued to do so, even after the firm's indictment.
The Wall Street Journal was virtually alone in covering developments in the government's prosecution of these cases until shortly before the law firm was indicted.
The late-October wrap-up of the case is at the Journal's Law Blog:
It’s official: After agreeing to plead guilty last month to a felony, Bill Lerach entered his plea in federal court this morning in Los Angeles. He pleaded to a conspiracy charge for agreeing to conceal from judges kickback payments made by his old firm, Milberg Weiss.
..... Lerach’s plea deal calls for him to serve a one to two year sentence, but we’ll have to wait to see if judge John Walter accepts that sentencing range. Lerach is due to be sentenced January 14, 2008.
In light of this history, the Post somehow believes that Lerach is entitled to 1,500 words in which to spout off about "the American principles of responsibility, accountability and justice." Really.
It only took until the fourth paragraph for Mr. Lerach to ask for a pity party:
Now I'm being held accountable for overzealously pursuing these corporate scam artists.
Two weeks ago, I pleaded guilty to a conspiracy charge involving payments made to plaintiffs in lawsuits against major corporations. Under the terms of the plea, which requires court approval, I agreed to pay the government $8 million in fines and penalties and to serve at least one year in federal prison.
Just after he incoherently brings up a "Justice Department (that) is busy defending waterboarding and targeting Democratic activists," Lerach wraps up his column with characteristic self-aggrandizement:
I'm on my way to prison because, in my zeal to stand up against this kind of corporate greed over the years, I stepped over the line. It turns out that the legal system is a lot tougher on shareholder lawyers than it appears to be on Wall Street executives.
In between, Lerach makes some valid points about management accountability to shareholders and employees. What he doesn't say is that his firm's strike suits accomplished almost nothing to substantively improve that situation. Government criminal prosecutions of people like Bernie Ebbers, Dennis Kozlowski, and top management at Enron did.
The strike suits did improve one bottom line -- that of Bill Lerach and his partners. A chart in this 2004 Forbes article show that Milberg Weiss collected legal fees of about $850 million in just 16 of the cases it handled from 1998-2003. Many more followed. Note that the legal fees collected were typically 20% - 33% of the related settlement amounts. That same Forbes article puts the firm's total settlement winnings at a mind-boggling $30 billion. Do the math; it's quite likely that the firm has raked in $6 billion, and possibly much more, in legal fees.
As described above, Milberg Weiss, Lerach, and their imitators care very little about what actually causes sudden share price drops; they only want to identify them, to sue based on them, and, ideally, to extract an out-of-court shakedown settlement without the dirty work of proving anything at a trial. If the situation of CEO non-accountability for poor performance is reverting to the old form, as Lerach claims, the answers are criminal prosecutions in cases where true criminality has occurred, aggressive shareholder action to replace pliant boards of directors and non-criminal but greedy managers, and adamant shareholder/board refusal to sign on to golden parachutes and other too-generous executive compensation arrangements.
The decision by the Post to give Lerach an open microphone is a disgrace, and an outrage. Am I supposed to believe there was no one else without a criminal record available to make his arguments?
Meanwhile, Post managers are probably still trying to explain the paper's circulation bleed.
Cross-posted at BizzyBlog.com.