Not much new to report on the Seymour Lazar indictment and how his fate will effect that of super-star shareholder advocate firms Milberg Weiss and Lerach Coughlin. There are, however, many articles that have appeared since the story broke at the end of June that are worth picking through for notable details.

For those not keeping score, Milberg Weiss has been subpoeaned in relation to the indictment of retired California attorney Seymour Lazar. It is alleged that Lazar recieved kickbacks from the lawfirm in exchange for acting as a named plaintiff in a more than 50 cases between 1976 and 2004. And Lazar isn't the only individual in the government's crosshairs. Another California lawyer, Paul Selzer, was also named in the same indictment. You can read a bit about his background here.

The controversies at play in the Lazar matter are not new. The Economist provides some history on these issues as well as some color on the significace of the role of lead plaintiff:

...[T]he motivation of these lead plaintiffs has always raised questions. In other forms of class-action lawsuits, notably those concerning civil rights, each member of the class stands to gain a similar, common benefit—for example, access to something that had previously been denied. In securities class-action suits, however, the gains are proportional to share ownership. Why, then, would small investors take on the burden of championing a suit?

...Conjecture centred on law firms because until the class-action rules were changed in 1995, they clearly had most to gain. Lead plaintiffs, regardless of the size of their investment, were allowed to play a central role in the selection of counsel and their compensation (which could be as much as 40% of any settlement). This is not true now, because one of the largest shareholders is typically the lead litigant...

...For many years it was suspected, but always denied, that a number of law firms maintained a network of individuals who would buy token amounts of stock in many companies. These people would then be able to sue at the first sign of trouble. Named plaintiffs were barred from sharing their lawyers' fees, because they would have an incentive to maximise rather than minimise them, says James Copland, director of the Centre for Legal Policy at the Manhattan Institute. That would subvert a primary aim of tort cases—making victims whole—because a plaintiff sharing in the lawyers' cut would, in effect, be gaining at the expense of his fellows in the class action. It would also provide incentives for spurious litigation that companies might feel forced to settle.

This is certainly not the first time that there has been a move regin in plaintiff firms generally and Bill Lerach in particular. A recent Business Week article describes some past controversy:

Silicon Valley execs who have grappled with Lerach are already feeling more than a little vindicated. Although government reforms stopped the practice in the early 90s, the ability of Milberg Weiss to find a willing plaintiff to sue within hours of an unexpected stock drop raised suspicions with companies for years.

Faced with Lerach's aggressive tactics and the skill of his staff of lawyers, companies often would settle, rather than incur years of legal fees fighting a Milberg Weiss suit. They complained bitterly that Lerach was preying on legitimate companies which happened to have volatile stocks -- often tech-related outfits.

Indeed, a judge removed the lead plaintiff from a Milberg suit against a tech firm called Terayon in 2004, questioning whether the plaintiff had helped drive down Terayon's stock by selling its stock short.

Milberg, against whom no formal charges have yet been made has called the matter "baseless" and issued a statement supporting Lazar:

“We are saddened by the indictment today of Seymour Lazar, who has been a client of this firm. Many of [Mr] Lazar’s cases championed consumer rights, and resulted in many of the protections consumers enjoy today, including safeguards against discrimination by restaurant chains, prohibitions on unfair charges by rent-a-car companies, and penalties for misconduct by big corporations and their accountants."

Lerach's camp, on the other hand, has characterized the Lazar matter as politically motivated. According to the New York Times:

Lerach won't comment on his current troubles, but people in his camp have been quick to cast the investigation as politically motivated, an example of a pro-business Republican administration going after a scourge of corporate wrongdoing - and a big contributor to the Democrats to boot. Besides, doesn't Lerach currently have a shareholder suit against Halliburton, one that even points the finger at its former chief executive, the vice president, Dick Cheney? Hasn't he extracted $4.7 billion so far for the beleaguered shareholders of Enron, the company once run by President George W. Bush's old friend, "Kenny Boy"? Lerach's lawyer, John Keker, said in a statement that "Bill Lerach has done more to protect shareholders than this SEC and the Department of Justice combined"- and made ominous references to Lerach's "powerful enemies."

Where will it end? Tune in tomorrow....

And, just to make this over-long post a little bit longer...a personal anecdote...several years back The Daily Caveat and wife were vacationing on Oahu in Hawaii. In search of dinner we were walking through the parking garage of the Ala Moana shopping center in Honolulu and who happened to walk right by us? Why it was Bill Lerach, sporting blue board-shorts, flip-flops and one of those I Am Milberg t-shirts. It was all I could do not to stop him and say hello.

He wouldn't have known me, but he certainly would have known my work.

-- MDT

Labels: Enron