Lerach's fall represents a stunning development for one of the nation's most prominent – and wealthiest – plaintiff lawyers. He specialized in class-action lawsuits against corporate America.
Lerach oversaw litigation that recovered more than $7 billion in settlements arising from the Enron fraud. He filed tobacco lawsuits against R.J. Reynolds over its Joe Camel advertising campaign and antitrust lawsuits against Microsoft and the Nasdaq market. His personal income in 1998 was more than $13 million, according to evidence presented in a 1999 civil lawsuit.
The federal investigation that began seven years ago was focused on misconduct at Lerach's previous law firm, now known as Milberg Weiss.
Lerach's single conspiracy count resulted from information that a former Milberg Weiss law partner, David Bershad, provided to prosecutors, according to one source familiar with the terms of Lerach's plea.
The conspiracy count alleges that Lerach knew that a Milberg Weiss client, former Los Angeles eye surgeon Steven Cooperman, lied when he swore under oath that he was not being paid to serve as a plaintiff in a lawsuit. Cooperman has been at the center of news accounts concerning Milberg Weiss since he went to jail in 2001 for art insurance fraud.
The New York law firm was indicted in July by a federal grand jury in Los Angeles, based on allegations that the firm made more than $11 million in unlawful payments to clients.
Prosecutors allege that Milberg Weiss orchestrated a scheme that recruited clients who bought shares or owned stock in companies the firm had targeted for lawsuits. Maintaining a stable of ready plaintiffs enabled Lerach and his team to be the first to file their lawsuits, which was a crucial advantage under the law at that time. Filing first enabled them to win control of the class-action cases and collect bigger slices of settlements and court victories. The clients were then rewarded with the improper payments, which were kept secret from the court and others.
The Milberg Weiss firm has denied any wrongdoing, as has Steven Schulman, a former partner charged in the case. Both are scheduled for trial next year.
Bershad, who oversaw the firm's finances, pleaded guilty in July to conspiracy, admitting that he and others agreed to hide payments the firm had arranged with certain plaintiffs in a variety of class-action lawsuits. As part of his plea, Bershad agreed to forfeit $7.75 million.
Thom Mrozek, a spokesman for the U.S. Attorney's Office in Los Angeles, declined to comment. Lerach's defense attorney, John Keker, did not return a phone call to his office after business hours last night.
Terms of the plea agreement, which required months of negotiations, specify that Lerach is not required to cooperate with the government's continuing investigation.
The agreement also confirms that the Coughlin Stoia law firm will face no criminal charges or liability in the matter, a provision that became a sticking point in talks between the two sides.
Another issue was Lerach's request for a binding deal so that if the court rejects the proposed plea agreement for some reason, either side can withdraw from the agreement.
Prosecutors began scrutinizing Milberg Weiss and Lerach in 2000, examining thousands of lawsuits that spanned a 20-year period.
Ironically, Lerach began his career as a corporate lawyer in Pittsburgh.
He switched sides, though, when he moved to San Diego in 1975 to set up a one-room outpost for Milberg Weiss. As a plaintiff lawyer, he put everything at risk by taking cases on contingency.
In the ensuing decades, Lerach established San Diego as Milberg Weiss' West Coast headquarters, and supervised the firm's operations as co-chair, with Mel Weiss, of the law firm's management committee.
Lerach's ferocious tactics and penchant for invective, however, made him a lightning rod for America's captains of industry – especially among the Silicon Valley technology companies that were his favorite targets.
He often compared Milberg Weiss to a private enforcement arm of the Securities and Exchange Commission – except that it was unburdened by politics and put its own capital at risk.
In 1995, Congress passed legislation to curb many of the abusive practices in shareholder lawsuits that Lerach helped pioneer. The bill was officially known as the Private Securities Litigation Reform Act, but in some congressional circles, it was better known as the "Get Lerach Act."
