Circle of Greed

by Patrick Dillon

  What’s more, he delighted in rubbing himself in Corporate America’s face. Once when he was appearing before a hostile but morbidly curious crowd of business executives, Lerach swaggered to the podium and declared: “What enforcement do you really want at work regulating your marketplace? You want government bureaucrats, not subject to the economic discipline of the marketplace? Or do you want guys like me? I may be rancid butter, but you know I’m on your side of the bread.”

  Naturally, he had made enemies—in competing law firms, on Capitol Hill, and especially in boardrooms from Silicon Valley to Wall Street, where he existed in a parallel corporate subconscious as a modern Vandal or Visigoth. Buttoned-down and otherwise sober executives would vehemently denounce Lerach as a “bloodsucking scumbag,” or an “economic pirate.” (One Silicon Valley executive went so far as to publicly wish him out of human existence.) A verb had even been given his name. In boardrooms, to be “Lerached” meant being threatened with having to surrender more than a million documents and risk testimony from CEOs on down to the lowliest document clerks in order to fend off a $100 million lawsuit. More often than not, CEOs and the boards they served would decide against fighting these Lerachian wars of attrition and would enter out-of-court settlements. They were expensive but not as costly as litigation—especially a lost trial. The circumspect executives would chalk it up to the cost of doing business and turn to their insurance carriers to bail them out, but they came to believe that what Lerach was doing was nothing less than legalized extortion. They weren’t alone in this assessment. When Lerach came to Washington, D.C., in 1995 to lobby unsuccessfully against a Newt Gingrich–driven tort reform intended to put him out of business, California congressman Christopher Cox likened him to Al Capone. Silicon Valley venture capitalist L. John Doerr, who helped raise more than $40 million in a 1996 statewide “Get Lerach Initiative” aimed at clipping his wings in California courts, referred to him as “a cunning economic terrorist.” When George W. Bush talked in two presidential campaigns about “frivolous lawsuits,” he was referring in large part to the class-action securities litigation that Lerach and his colleagues brought against businesses Bush had championed, including those of his longtime friends.

  Among them was Enron chairman Kenneth Lay, who oversaw the nation’s seventh-largest company, with 22,000 employees and vast, complex holdings ranging from broadband trading to energy and commodities to risk management. Fortune had called it “America’s most innovative company” for six straight years until, in 2001, its tangled financial web collapsed and it was forced to declare itself bankrupt. When it did, Lerach pounced. Before orchestrating a $7.3 billion settlement, the largest in history with the banks that suppported it, Lerach had successfully portrayed Enron as the very symbol of the corporate scandals that had rocked Wall Street throughout the decade. With thespian-worthy performances that began, prior to the beginning of the trial, by displaying boxes of shredded Enron documents before the press outside the Houston federal courthouse, Lerach not only skillfully picked over the bleaching bones of Ken Lay’s company; he shook down Wall Street and embarrassed the president of the United States. After declaring victory, Lerach issued a public warning that would have repercussions.

  “With this judgment we got Kenny boy and his friends,” he announced. Later, he added, “Now we’re going after Dick Cheney.” Lerach had turned his sights on Halliburton and its former CEO, the vice president of the United States. In Lerach’s lawsuit against Halliburton, his thinly veiled assertion was that Cheney had fled the company just ahead of the stock collapse, finding refuge in the White House. The attorney had maneuvered himself into a position to subpoena and demand public testimony from the vice president, and he doubted that Cheney would be able to successfully hide behind a claim of executive privilege. Lerach was itching for the confrontation.

  Instead, on this late October day, William S. Lerach was traveling down Wilshire Boulevard, through Los Angeles’s corporate canyon, flanked by tall, glass-encased office towers—“Fraud Lane,” he called it—recalling lawsuits he had filed against its inhabitants and neighbors. There were so many, he had almost lost track. Each had contributed, though, through its own missteps, to Lerach’s means to own vacation homes in Steamboat Springs, Colorado, and in Hawaii, as well as a 10,000-square-foot villa in Rancho Santa Fe, just outside San Diego, a manse complete with a 2,970-gallon saltwater aquarium—not quite large enough for a shark, as he liked to joke but large enough to host a menacing moray eel that was fond of him, especially at feeding time. His latest residence was a 16,000-square-foot Tuscan-style mansion filled like a museum with catalogued African art and other precious statues and relics on five and a half acres overlooking the Pacific Ocean on San Diego County’s “Gold Coast.” When he bought the place, Lerach had planned to entertain governors, senators, and presidents there. And he would have, too, except for this legal business that was taking him to the federal courthouse in Los Angeles this morning.

  As the ride progressed toward downtown, past venerable and leafy Hancock Park (once an oilfield, now home to the elite families of Los Angeles), Lerach seemed oblivious that his ride-along Chihuahua, Tommy, was climbing his chest to lick his face; he did not even bother to flick the dog hairs from his $3,000 Brioni suit, its muted gray blue nearly matching the sky over Los Angeles, which had been clouded by smoke from the property-destroying wildfires that had been burning more than half a million acres in the hills for days.

  Lerach’s attention was turned to three newspaper articles. The first was a New York Times piece speculating on what the Federal Reserve would do when it met the next day to set interest rates. The article suggested that the Fed would note that, except for the housing market, the economy appeared to be showing surprising strength. And yet, it cautioned, a serious downturn could still be imminent, especially when the housing slump interacted with possible problems in the credit markets. “Act sooner than later,” Lerach said derisively under his breath, as if speaking directly to Fed chairman Ben Bernanke, who had succeeded Alan Greenspan, the person who had given Charles Keating and Ken Lay his benediction even when their giant scams were imploding.

  The second article drew greater focus. Another Times piece, this one signaled that E. Stanley O’Neal was expected to end his six-year reign at Merrill Lynch as early as that day. The article retraced O’Neal’s rise and ignominious fall after an $8.4 billion write-down, noting that the chairman and chief executive of the world’s biggest brokerage firm could receive as much as $159 million as a termination package. Lerach swore loudly, startling his tiny dog: “Goddamn loser CEOs, raking it in!” Those words, minus the expletive, would be the headline in an op-ed piece that Lerach would pen and that the Washington Post would publish on a Sunday, less than two weeks later. As an aftermath to the collapse of Enron and the huge recovery already obtained, Lerach’s firm still represented investors seeking more than $30 billion from Merrill Lynch, along with Credit Suisse First Boston and Barclays Bank PLC. His firm was arguing that the financial firms had colluded with the energy giant to hide its losses. This so-called “scheming case” was headed to the Supreme Court. At stake for Lerach personally were fees of more than $100 million before taxes.

  Bill Lerach gazed out the window, his mind suddenly distant, as the limousine passed slowly by MacArthur Park, the patch-worn subject of a rhapsodic 1968 song; its amphitheater shell once hosted jazz, big band, and folk music concerts. Cucinotta pointed through the windshield at the downtown skyline approaching. Lerach seemed not to notice, musing aloud about an event four years in the past, when he had stood at a podium at the 2003 commencement at the University of Pittsburgh Law School, from which he had graduated thirty-three years earlier. He said softly that of all his public appearances—before judges, business executives, television commentators, legal and congressional panels—that moment had meant the most to him.

  He had recited landmark cases—Brown v. Board of Education, Gideon v. Wainwright, Griswold v. Connecticut—in wh
ich individuals, aided by crusading lawyers, had obtained access to the courts, which overturned repressive state laws and vindicated individual rights. He traced the ascending arc of consumer protection laws and suits against tobacco companies, which he had called “the oligopoly of death.” He cited more legal high-water marks. Then he turned somber, recounting the assault on trial lawyers such as himself, during the current decade, by corporate and Wall Street interests, various would-be populists, and politicians of various stripes, particularly conservatives in and out of the Bush administration who, in the name of “tort reform,” were making it more and more difficult for attorneys to seek redress in the name of shareholders. “But remember, no good deed goes unpunished,” he had warned the future lawyers in Pittsburgh, not aware that his speech contained an element foreshadowing his own life.

  Cucinotta turned the limo off Wilshire toward the stodgy-looking federal district courthouse, a Depression-era Works Progress Administration project finished in 1940. Lerach had appeared in its courtrooms hundreds of times. Finally, a right turn to their destination, 255 East Temple Street, the address of the twenty-one-story modern office tower sheathed in red granite named the Edward R. Roybal Federal Building.

  Because of the size and scope of the Los Angeles federal court jurisdiction—it services nearly eighteen million residents and processes nearly 12,000 criminal and civil cases yearly—two buildings, the old courthouse and the Roybal Building, handle the load. Lerach had an appointment in each. First he would appear before a U.S. magistrate, who would administer Lerach’s criminal arraignment, following a hard-earned agreement he made with government prosecutors a month earlier. According to the agreement, he would plead guilty to a single federal conspiracy charge of obstructing justice—a felony that could mean one to two years in prison and the almost certain forfeiture of his license to practice law. The government had been investigating him and several colleagues in his San Diego office and in New York, headquarters of the founder of his firm Melvyn Weiss, for more than seven years.

  The investigation had been hanging over Lerach even as he tried and negotiated the Enron settlement the same year. Every time he and his legal team ratcheted up the pressure against the officers and managers of the energy giant and its banks, word that a government investigation was progressing would reach him.

  “We’d fire a shot, they’d fire a shot,” he would later say.

  In his mind, he had been involved in a war of attrition with the federal government, the same kind of war he had so successfully waged against Corporate America. Reflecting on his own guilt and feeling his own fear, he had called John Keker.

  At sixty-six, John W. Keker was to the defense bar as Bill Lerach was to tort law. After Princeton and Yale Law, he had clerked for Chief Justice Earl Warren, then became assistant federal public defender for the Northern District of California. Specializing in criminal defense and business litigation, he had twice defended investment banker Frank Quattrone, had represented George Lucas, defended Google in a trade secret case against Microsoft, acted as an independent chief prosecutor in the federal case against Oliver North, and managed to get a reduced sentence for Andrew Fastow, who had been Enron’s CFO and at the center of the very scheme Bill Lerach had unraveled to the tune of $7.3 billion and counting.

  For all Keker’s bona fides, the one that stood out was his crippled left arm. His elbow had been shattered by an enemy gunner while Keker was leading a Marine platoon in Vietnam in 1965. The arm, hanging limp in his suit coat, as he held his glasses in his right hand or struggled to move an exhibit with his good arm and twisting body, served his reputation for toughness and determination.

  Standing erect, his jaw set and his crew cut still trimmed at Marine Corps length, clad in a double-vented blue suit, Keker was waiting when Lerach cleared security in the lobby of the federal building. The two men mounted the wide marble stairs to the airy indoor atrium in order to take another stairway to the third-floor arraignment room. As they strode across the wide, sunlit, well-appointed space, Lerach noticed a large portrait hanging on an opposite wall. He changed stride, leading Keker and their team of attorneys to the portrait and stood before it, appraising it, letting the irony of the encounter sink in. Looking down on them from ten feet above was Vice President Cheney.

  Lerach muttered something unintelligible and shook his head. Then he turned toward the elevators to keep the appointment for his arraignment—a short but arresting formality, because greeting him behind a Plexiglas window sat more than a dozen hardcore federal inmates who were also being arraigned that morning, on charges ranging from interstate drug trafficking to gang violence, federal bank robbery, and worse. They wore jail jumpsuits with shortened sleeves that revealed arms stenciled in tattoos. Most were shorn, the overhead lights accentuating their hardened, menacing faces. The theatrical contrast between those kept behind glass awaiting their hearings and those on the other side clad in business suits awaiting theirs gave defendants standing outside the glass window their first glimpse of the social inferno they might soon enter.

  With Keker at his side, Lerach stood stoically, listening to the magistrate read the particulars that government lawyers had filed against him. His posture was attentive and deferential. This was something he knew he would have to endure, to get behind him, to earn relief, if just for the moment. Half an hour later he and his legal entourage crossed the great plaza separating the two federal buildings. Lerach and Keker, the two towering figures in their own fields of law, mounted a single stairwell and entered the courtroom of U.S. District Judge John F. Walter. There they were greeted by four assistant U.S. attorneys who had worked for the better part of six years to achieve this moment for the government. The opposing attorneys bantered solicitously, obliging the courtroom protocol informed by their experience, awaiting the judge.

  Judge Walter entered and immediately got down to business. He read the charge, asked if the defendant understood it, and then asked if he understood its magnitude, reading each implication, one by one.

  “Do you understand that by pleading guilty to this charge you face a serious prison sentence?”

  Lerach had been steeling himself to answer firmly: “I do.”

  “Do you understand that by pleading guilty to this charge you will no longer be able to vote?”

  “I do,” said Lerach.

  “Do you understand that by pleading to this charge you will no longer be able to run for public office?”

  Again, “I do, your honor.”

  And finally, “Do you understand that by pleading to this charge you will no longer have the right to bear firearms?”

  Lerach reacted with a mild shrug noticed only by a few family members, including his daughter Shannon and wife, Michelle, seated in the benches behind him. “I do, your honor.”

  Having accepted the plea, the judge set the date for sentencing two months hence—January 2008—allowing each side to prepare arguments that would help guide him in determining the length of the sentence. The process lasted less than thirty minutes, and in its aftermath Lerach looked and sounded fatigued; so did his wife. But he was still not without fight.

  As he and his family and attorneys plodded back down the stairs and started for the exit, Lerach again noticed two portraits hanging on the wall near the stairwell. On the left was President George W. Bush. On the right was Vice President Richard Cheney, the man he had been looking forward to suing. Now he wouldn’t even have a law license. Lerach strode to the portraits, standing below Cheney’s. Looking up, he pumped his fist and said, “I can’t vote. I can’t run for office. I can’t bear firearms. It should have been you up there in that courtroom, not me.”

  1

  DRAGON SLAYER

  William S. Lerach first heralded himself to the elite circles in America’s legal community in 1977, from the sterile downtown county courthouse on Front Street, a few blocks from the old waterfront in San Diego. The setting was Superior Court Judge James L. Focht’s nondescript courtroom; th
e case, Barr v. United Methodist Church. By the time it ended, class action litigation (a single legal action on behalf of many plaintiffs against common defendants) would never be the same in California. And ultimately the victorious lawyer would see to it that no corporate entity within the United States would be invulnerable to outside scrutiny.

  No U.S. church denomination had ever been the subject of a successful class action lawsuit. The unfolding case owed its drama not only to the legal precedents at stake, or to the conflicted feelings among the litigants themselves (pious Methodists and retired ministers who found themselves suing their own denomination) but also to the intensely personal competition between the rival attorneys.

  The Methodists’ lead lawyer was Samuel W. Witwer, Sr., a barrel-chested eminence whose regal presence and mane of silver hair all but announced his wealth of experience. The son of a steelworker, Witwer was born in 1908, the year William Jennings Bryan ran for president the third and last time. Like Bryan, Witwer came out of the Midwest, his reputation proceeding him like a billowy cloud: Harvard Law, class of 1933; lay leader in the Methodist Church; and then lawyer, who after five decades of futile efforts by others succeeded in reforming Illinois’s antiquated constitution. The “Father of the Illinois Constitution,” they called him. Adlai Stevenson remarked that Witwer was “a man who never quits.” In 1960 the Illinois Republican Party chose Witwer to be its standard-bearer for a U.S. Senate seat. Dwight D. Eisenhower approved of this nomination and, in a memo to Richard Nixon, referred to Sam Witwer as “a very smart man.”