Circle of Greed

by Patrick Dillon

  As he began constructing the complaint, Lerach encountered something unusual in Cooperman: he would call at least once a day asking for progress reports. That was understandable, given the man’s obvious taste for financial intrigue. But Cooperman also began pointing Lerach to other potential cases he’d been scouting out. During one daily telephone conversation Cooperman asked Lerach when he would next be in Los Angeles and invited him to dinner. When they agreed on a date, Cooperman gave Lerach an address on Santa Monica Boulevard close to Cooperman’s Brentwood home, saying it was one of his favorite West L.A. steakhouses. Lerach couldn’t have missed it when he arrived at the appointed hour. Even among the eclectic shops and restaurants along the 3100 block of Santa Monica Boulevard, Marquis West singled itself out with its long, low rococo exterior, framed by light granite stones and a white balustrade running the length of the roofline. It was a place Steve Cooperman adored because it matched his flamboyance. A short, pudgy, fast-talking man, wearing overly large tortoiseshell glasses, a well-groomed mustache, and plenty of gold adorning his wrists and exposed chest, Cooperman projected a celebrity presence. Danny DeVito could have played him in a movie—except that Cooperman saw himself as a classic leading man. Arriving by town car, Lerach entered the restaurant and found himself instantly pleased with its interior, a cross between a retro New York chop house and a gentlemen’s club.

  Cooperman, already at the bar, greeted Lerach warmly and introduced Dr. Ronald Fischman, his friend and business colleague. Lerach ordered a Scotch, drank it quickly, ordered another. Fischman signaled the maître d’, who escorted them into their booth against a wall in the middle of the dining room. Cooperman dispensed with the menu when the waiter arrived, suggesting they order chopped salads and New York strip steaks. From the wine list he selected a first-growth Bordeaux. Cooperman then reaffirmed his regard for Lerach, his firm, and the firm’s track record and reminded him of his own financial escapades and the “scoundrels” he found himself bumping into. Something about the word “scoundrel” struck Lerach as particularly fitting.

  “I want to do business,” Cooperman said, lowering his voice conspiratorially and leaning across the table toward Lerach.

  “We already are,” Lerach rejoined.

  “No. I want to be your plaintiff. You know … there are plenty of cases out there, and there can be plenty more.”

  Lerach sat back as if surveying his poker cards. He chose to hear not danger but opportunity. “Okay, it could be a good fit,” he replied. “You be the plaintiff, and I’ll bring the cases.”

  Cooperman leaned in even closer. “What’s in it for me?” he asked. “Listen, I’ve checked this plaintiff thing out. I want twenty percent of the fee.”

  Lerach recoiled, obviously taken aback, not only by the boldness of the proposal but by the self-certainty with which Cooperman offered it. He countered quickly.

  “You will be working with one of the most successful, if not the most successful plaintiffs’ advocates in America. If you are going to do business with us it will be on our terms … We pay ten percent.” He said it quickly and with equal self-assurance. Later, he would wish he hadn’t said it at all.

  Even then he hedged. “Look, nobody’s paying you any money,” Lerach said, glancing at Fischman for approbation. “Do you have a relative who’s a lawyer, or even better, a lawyer to whom we can pay referral fees? We must have an intermediary. So get yourself a lawyer.”

  Sitting back, Cooperman looked pleased. “That won’t be a problem,” he said.

  From that moment a relationship was forged that Lerach would come to liken to holding a wolf by the ears. “You don’t want to hang on,” he later noted ruefully, “and you certainly can’t afford to let go.” At the time, however, the association with Cooperman presented just the opportunity he’d been looking for. With his own stable of plaintiffs he could operate even more independently from New York.

  Within weeks Cooperman made good on his offer, pointing Lerach toward a case involving the giant Newhall Land and Farming Company. By snatching up Mexican land grants, Newhall had once owned California land stretching from Monterey to Los Angeles. Over time and generations the company had morphed into an agricultural behemoth, oil extractor, and real estate developer. Cooperman owned shares in the conglomerate before meeting Lerach, and from time to time he exercised his ownership rights to disrupt Newhall deals by filing lawsuits seeking injunctive relief and then negotiating settlements in order to cease the litigation. Now Cooperman had stumbled onto another injunctive opportunity and urged Lerach to file on behalf of him and other shareholders in Los Angeles Superior Court.

  The case would require nimble litigation work, Lerach quickly determined. He also knew that in this type of case, if he worked fast, the rewards could be reaped quickly. It certainly happened that way now. The company capitulated, settling for about $5 million. Milberg Weiss’s fee came to $1.75 million. According to their agreement, Cooperman was due $175,000.

  The scheme hatched by Cooperman and acquiesced to by Lerach at the Marquis West paid off instantly. Lerach saw only one disconcerting wrinkle: in the aftermath Cooperman asserted that he had an immediate need for cash, explaining that some market bets had not paid off. He also had not yet been able to nail down his attorney, who was out of town. So Cooperman suggested a solution: could he arrange for a bridge payment? Lerach was astonished. This did not coincide with Lerach’s image of Cooperman. Maybe his capital was tied up, Lerach thought. After all, the man was a gambler. Despite his misgivings, Lerach called Mel Weiss to relay Cooperman’s conundrum, reminding his mentor that Cooperman had helped them bank a quick $1.75 million. He added, not quite as an afterthought, that like Weiss, Cooperman was an art collector. That addendum shed light on an alternative.

  Weiss flew to Los Angeles, where Cooperman met him and drove him to his Brentwood home, a relatively unimposing, two-story Cape Cod style, with a large porch, white picket fence, and tidy garden. Inside Cooperman showed off his collection of Monets and Picassos. The notoriously poker-faced Weiss could barely restrain himself as he admired what he saw on Cooperman’s walls, especially Picasso’s Nude Before a Mirror. “Henry Ford once owned this piece,” Cooperman boasted. Weiss, who fancied himself the Henry Ford of the plaintiffs’ bar and owned a sizable collection of his own Picassos, was duly impressed.

  To fulfill the terms of their agreement, Weiss took an option to purchase a Cooperman art piece, to be exercised within nine months. The option price they agreed on was $175,000, not coincidentally the exact amount of Cooperman’s claim on the Newhall settlement. Although Weiss went through the motions of calling an art appraiser in San Francisco to determine a legitimate market price for the selected piece, no actual art purchase transpired. What did change hands was $175,000, in the form of a check, along with the paperwork noting the option. Cooperman would cash the check and store the paperwork, the first of a flurry of Milberg Weiss documents that would fill up boxes that he would store like a pack rat. Cooperman’s obsession with hanging on to all documents would eventually prove to be a bonanza to prosecutors while contributing to his own partial salvation.

  Although he stayed out of the art deal between Cooperman and Weiss, Lerach did contribute his own quid pro quo. At Lerach’s urging, on January 30, 1989, Cooperman purchased one thousand shares of Charles Keating’s ACC stock for $4.50 a share, two months before the company declared the bankruptcy Lerach had seen coming.*

  AS THEY PUT THE finishing touches on their case against Lincoln Savings and Keating and the fifty individuals or entities accused of contributing to their giant fraud, one last name was added as a defendant. It was Lerach’s old nemesis, the Chicago-based economic consulting and expert witness litigation support firm called Lexecon.

  In the run-up to the ACC/Lincoln lawsuit Len Simon, John Stoia, Kevin Roddy, and the team of young Milberg West lawyers sifting evidence believed they had found a prize among the hundreds of thousands of pages of documents they had reviewed. In a memo dated
March 21, 1990, Simon laid out the case against Lexecon. The Milberg Weiss lawyers discovered numerous billing logs showing that Lexecon had done extensive work for Lincoln while collecting more than a million dollars in fees from the now-bankrupt thrift. Adding substance to the discovery were two Lexecon reports, commissioned by Keating, vouching for Lincoln’s solvency, that were used by Keating to help stave off federal banking regulators. Lerach’s lawsuit cited the fact that more than 23,000 members of the plaintiffs’ class had lost their savings during the government delay in shutting down Lincoln Savings, meaning that anyone who helped delay the day of reckoning for Keating’s companies was culpable for their losses. Lerach couldn’t sue the U.S. Senate, or the Office of Thrift Supervision, but he figured he certainly could sue Daniel Fischel.

  Fischel, of course, was one of Lexecon’s founders and chief executives. The professional expert witness, Milberg Weiss attorneys had learned, was already scheduled to appear on behalf of auditors Arthur Young, named as defendants in the Lincoln case. Fischel was also scheduled to testify as an expert witness on behalf of defendants in two other big cases Milberg Weiss was trying—one against E. F. Hutton, the other against Apple Computer. As in the Nucorp case, Fischel could be standing in the way of hundreds of millions of dollars in plaintiffs’ recovery and lawyers’ fees. By landing on the list of defendants in this landmark lawsuit, Fischel could instead be linked with Keating as a coconspirator under the civil arm of RICO, the federal Racketeer Influenced and Corrupt Organizations Act, the same legislation that had allowed federal law enforcement to pursue criminal cases against the Hell’s Angels, organized crime figures, and international drug rings.

  That was Lerach’s hope, anyway. In addition, a judgment in a RICO case carried the possibility of tripling the award asked for by the plaintiffs. Fischel and Lexecon were now on notice: they were not only on the hook for $400 million, but Fischel himself might be permanently tainted as a prospective expert witness in future cases. This little legal addendum wasn’t strictly about liability; it was also about payback.

  * For a mere $4,500 investment and adding his name as a plaintiff to the lawsuit, Cooperman would ultimately collect $1,013,000 from Milberg Weiss over and above what other plaintiffs were awarded by the court. Another plaintiff was Cooperman’s friend Fischman, who had joined the eye doctor and Lerach at dinner a few months earlier. He bought one hundred shares on January 23, a week before Cooperman.

  12

  A GIFT HORSE NAMED KEATING

  On Tuesday morning, April 3, 1990, two men exited the elevator on the twentieth floor of the Central Savings Building in downtown San Diego. One was tall and handsomely angular and exuded a confident, civil bearing. The other was shorter and appeared diffident. The former was Stephen C. Neal, a partner in the Chicago office of Kirkland & Ellis, a global firm that boasted a thousand lawyers. Neal was a trial attorney specializing in complex litigation usually involving white-collar defendants. He had graduated from Stanford Law School in 1973, after earning an undergraduate degree from Harvard in 1970. His colleague—and his client—was Daniel Fischel.

  Bill Lerach made no attempt at politeness as Fischel and his lawyer were ushered into a large glass conference room. Accompanying Lerach was Len Simon, who had authored the memo essentially accusing Lexecon, the Chicago-based consulting firm, and Fischel, its principal partner, of conspiring to prop up Charles Keating and Lincoln Savings. Fischel and Neal had arrived with a singular mission: to persuade Lerach and his team to undo their filing of civil racketeering charges against Lexecon and Fischel in Los Angeles federal district court.

  Fischel opened by disclosing what Lerach already knew, that another defendant, Arthur Young, had hired him as an expert witness in the auditors’ defense. Before Fischel could state the obvious, he heard Lerach declare: “Well, you’re not going to be able to testify as an expert witness because you’re tainted by the complaint we’re filing against you.”

  Neal reacted by issuing a soft challenge, suggesting that the plaintiffs had little compelling evidence against his client. The words had barely left Neal’s mouth when Lerach interrupted, discharging his words as bullets, one shot at a time: “This trial is going to be a circus,” he said. “As for the merits? Your client is going to be trampled in the stampede.”

  Lerach turned on a wincing Fischel, ready to deliver another fusillade. Neal counterattacked, reaching into his briefcase and pulling out a document from which he read: “Conservative sixty-year-old Republicans are probably so devoted to the system and so wedded to the idea that each person is responsible for what happens to him in his own life that this bias cannot be overcome …” He was quoting the toxic memo Lerach had authored post-Nucorp. Although Neal’s maneuver caught Lerach off guard, it did nothing to diminish his abiding fury toward Fischel.

  “We will not be blackmailed,” Lerach hissed.

  The meeting was over.

  BEFORE THE YEAR WAS OUT, Keating would be charged by state prosecutors with forty-two felony counts; a federal indictment would follow, as would convictions in both state and federal court. These were fortuitous developments for Bill Lerach and his firm. The federal government particularly was becoming a de facto partner in the plaintiffs’ litigation. With each revelation, the government passed along the results of its own discovery. And with each admission of guilt that the government extracted from one of the Lincoln/ACC principals and perpetrators, the securities case that Milberg Weiss lawyers were assembling drew ever tighter.

  Now the Milberg Weiss lawyers could concentrate on the accountants, underwriters, and even lawyers whom Keating had engaged to help him commit his massive fraud. Even with the government’s help, litigating against close to one hundred defendants was a tricky endeavor. Milberg Weiss would need assistance. Private law firms throughout the nation were jockeying for their share of the spoils. Still, by virtue of filing first, Lerach had put his firm in position to be lead counsel, making him the grand patron of the case. In this capacity he could reward his confederates: Alfred G. Yates, his friend from Pittsburgh; Leonard Barrack and Richard D. Greenfield in Philadelphia; Max Berger of New York; Leonard M. Ring of Chicago; David B. Gold of San Francisco; Steve Toll of Washington; and Ronald Russ from up the road in Orange County, California.

  All had furnished plaintiffs for Lerach lawsuits over the years, assisted on cases, and shared in what Lerach liked to call the “whack-up”—the divvying-up of the legal fees. Judging from the legal complaint and from what each attorney had been learning through the press, the potential whack-up in this case would be astronomical.

  The potential bonanza was not limited to the plaintiffs’ bar. Having glimpsed preliminary complaints filed in federal district court in Los Angeles on behalf of the plaintiffs, prominent defense lawyers, envisioning their own multimillion-dollar fees, began aligning with the deep-pocket clients popping up among the growing list of defendants. Those joining the fray included Stuart Kadison and James Goldman, Lerach’s opponents in the Nucorp case, once again representing auditors Arthur Andersen; James J. Brosnahan, one of the most respected attorneys in California; Arthur Liman, who had headed up the Rockefeller Commission investigation of the Attica Prison riot, defended fugitive financier Robert Vesco, and most recently served as chief counsel to the Senate Select Committee investigating Iran-contra; Griffin Bell, former U.S. Attorney General; and Abbe D. Lowell, one of the best-known criminal defense lawyers in Washington, D.C., who would later serve as the Senate minority counsel opposing the impeachment of Bill Clinton.

  The final roster of defendants was listed in a 230-page complaint that had grown from Lerach’s forty-five-page first draft. Kevin Roddy was assigned to polish the latest version. He worked feverishly throughout the day and night on Friday, April 6. It was three days after Neal and Fischel had met with the Milberg attorneys in their gambit to have Fischel’s name deleted from the list of defendants. Although new to the Milberg firm, Roddy knew the request by Fischel and his lawyer for mercy was a nonstart
er. “We had them right in our gunsights,” he recalled years later. Roddy circulated the draft to Milberg Weiss lawyers and to the federal court clerk for further circulation. Within days no fewer than one hundred lawyers received the complaint.

  In his high-rise office overlooking Lake Michigan, Daniel Fischel took a phone call from M. Laurence Popofsky, a senior partner at Heller Ehrman, one of San Francisco’s oldest, most distinguished law firms. Among its clients was accounting giant Ernst & Young, newly merged with Arthur Young, which had been one of Charles Keating’s mainstays. Ernst & Young found itself pulled into the undertow of the Lincoln litigation, but that wasn’t why Popofsky was calling. He had just read the Milberg Weiss complaint being circulated by the federal court clerk. What he told Fischel was fulfilling Lerach’s prophecy: “They’re trying to taint you as a witness.” After hanging up, Fischel dialed Neal, his attorney, who was sitting in his office in an eighty-six-story Chicago tower a few blocks away. In this phone call Fischel learned something even more alarming.

  “I just received a call from Charlie Keating,” Neal told Fischel. “He wants me to represent him.”