Lerach could certainly interpret what a sentence reduced by two-thirds most likely meant. What Lerach didn’t know was how extensively Cooperman had been cooperating with assistant U.S. attorneys Robinson and Emmick.
During one of these meetings Cooperman elaborated on the sham art option that he and Mel Weiss had concocted as a means for repaying Cooperman in the Newhall case. On January 29, 1989, Mel Weiss had given him a check drawn on his personal account for $175,000. Not long after the transaction Weiss apparently got cold feet, but by that time Cooperman had already cashed the check. A new arrangement was struck. The firm would send separate checks to Cooperman’s brother-in-law, Bruce Bjork, an attorney whom Cooperman had helped land a job as counsel at Milberg Weiss in New York. The money was then forwarded to a company controlled by Cooperman. In turn, Cooperman began repaying Weiss. Cooperman also furnished a cover letter to Weiss, saying: “I think we’re almost there.” Robinson and Emmick were impressed with Cooperman’s recall and even more so with the canceled checks and copies of this correspondence to the law firm. Still, they needed more evidence independent of Cooperman.
On January 2, 2002, just weeks before Bill Lerach and Paul Howes made their dramatic entrance into the courthouse in Houston, a federal grand jury met in Los Angeles. Robinson requested a subpoena to be served on Milberg Weiss specifically calling for production of a November 15, 1990, fax to Bershad. The subpoena arrived at the New York offices of Milberg Weiss on January 8. Upon receiving it, Bershad searched through files secured in his desk and credenza and found the letter detailing the phony art option, plus faxes Cooperman had sent outlining the arrangement to funnel the money back to Weiss. Legally, he was required to turn the documents over to Milberg Weiss’s records custodian or to an outside lawyer. Instead, he called Mel Weiss and asked him to stop by. Weiss appeared ashen as he reviewed the documents Bershad handed him.
“David, you had nothing to do with the art option,” he said gravely. Then he turned around and, holding the documents, walked out. Returning to his own office, Weiss put the documents in his safe.
Officially, the firm informed the U.S. attorney’s office that it was unable to locate the material requested—and that it deemed any other documents to be the personal property of Melvyn Weiss and David Bershad. Although the prosecutors believed Cooperman’s criminal record made him a thin reed on which to indict Milberg Weiss, their witnesses’ obsessive record-keeping had provided the blueprint for a fraud case. And the brazenly defiant response to the subpoena on the part of Milberg Weiss made it clear to prosecutors that the firm’s partners feared as much.
Methodically, Robinson extracted the names of Milberg Weiss’s serial plaintiffs and cross-checked them against the referral fees paid to the attorneys in those cases. He even checked the congressional hearing transcripts looking for lawyers testifying in opposition to the PSLRA, seeking to link them to Milberg Weiss and their plaintiffs. He issued ever more subpoenas. The results began to take shape in case-building taxonomies taped together along the wall in the kind of accessible timelines Lerach used when assembling his own cases. One was headed “Seymour Lazar.” Soon Lazar’s attorney Paul Selzer would be added. Within months the name Howard Vogel would generate its own timeline, with flags tethered to it signifying plaintiff-for-hire transactions. Other names and separate timelines would follow. Eventually these chronologies would travel on parallel paths around nearly the circumference of the prosecutors’ war room.
AS CRIMINAL AUTHORITIES TURNED up the heat on Enron, speculation intensified over who would steer the massive class action lawsuit. From his Houston war room, Lerach employed colorful press conferences to level charges of document destruction and conspiracy against the bankers and accountants who had helped to scheme Enron and its investors’ money into oblivion.
“Mr. Lerach is getting desperate,” sniffed James M. Finberg, a partner in the San Francisco office of Lieff, Cabraser, Heimann & Bernstein, representing the combined pensions of New York and Florida state employees. “We’re not out for a frolic, posing for TV cameras.” At the time Finberg’s plaintiffs’ losses outmatched the Milberg Weiss plaintiffs by $440 million to $150 million. Like Milberg Weiss, Lieff Cabraser carried an impressive pedigree into the competition, having racked up numerous wins in big cases, including a record $3 billion settlement for accounting irregularities with the Cendant Corporation in 2000, and it had helped secure settlements—working alongside Milberg Weiss—from European banks for the families of Holocaust victims.
Lerach was unfazed, announcing at still another news conference: “The only way this story gets out is if there is publicity. If we didn’t [go public], they would still be shredding documents over at Enron today, and the FBI wouldn’t be on the nineteenth and twentieth floors [of the Enron Tower].”
The choice of plaintiffs would come down to the preference of trial judge Melinda Harmon, who presided in room 9C on the ninth floor of Houston’s federal district courthouse. In her mid-fifties, she had served on the federal bench for a dozen years, having been appointed by President George H.W. Bush in 1989. Judge Harmon was born in Port Arthur, Texas, the Gulf Coast oil refining town that had spawned rock legend Janis Joplin and Dallas Cowboys coach Jimmy Johnson. She attended Radcliffe College, graduating in 1969, before heading to the University of Texas Law School in Austin. After clerking for a Houston judge, she worked from 1975 to 1987 as an attorney for Exxon, leaving a year before the Exxon Valdez ran aground in Alaska, dumping ten million gallons of crude oil into Prince William Sound.
After the initial judge recused herself as the Enron trial attorney because she had once owned Enron stock, the case had fallen into Harmon’s lap. She was aware of the leaks regarding the Los Angeles investigation of Milberg Weiss and was determined, for the time being, to set them aside in order to focus on determining the best organized, most coherent representative for the plaintiffs. Her challenge became less complicated when it was disclosed that one of the class plaintiffs for Lieff Cabraser had obtained its Enron stock with questionable financial transactions of its own. This undermined the only other powerhouse law firm in the competition. Lieff Cabraser’s loss proved to be Milberg Weiss’s gain. Flexing his firm’s muscles, Lerach confidently argued to Harmon that his was the only legal team with the experience and might to carry on such a complex and important case on behalf of such heavyweight plaintiffs led by the University of California. His arguments carried the day. On February 15 Judge Harmon released an eighty-four-page opinion naming the UC Regents as the lead plaintiff.
“Regents presents itself as a single, organized, coordinated organization represented by a competent and resourceful law firm,” Harmon declared. “The court has found that the submissions of [Milberg Weiss] stand out in breadth and depth of its research and insight.” Then she provided Lerach with a veritable valentine. “Mr. Lerach has justifiably ‘beat his own drum’ in demonstrating the role his firm has played thus far in zealously prosecuting this litigation on plaintiffs’ behalf.”
Word reached Lerach while he was skiing at Steamboat Springs, Colorado. Nevertheless he ordered up a celebration in San Diego and also directed Kathy Lichnovsky to book rooms at a resort for an “all hands retreat.” Within the week virtually the entire firm moved temporarily into the luxurious Ritz Carlton Hotel on the bluffs overlooking the Pacific Ocean in Laguna Niguel, about halfway between Los Angeles and San Diego. Looking at his colleagues and staff, Lerach began gleefully deputizing them on the spot. Ultimately thirty partners, led by Paul Howes and supported by Helen Hodges, a former accountant, along with thirty-nine associates and seven attorneys of counsel, plus clerks and paralegals, would play a role in the litigation.
“All right. Let’s go,” Lerach commanded. “Get ready to say goodbye to your wives, husbands, girlfriends, boyfriends, family. This is going to be a long and wild ride.” Adding to the sense of a forced march was this: they had only thirty days in which to file the complaint.
“Enron could not have happen
ed without the direct participation of the banks in these crazy deals—deals that were totally meaningless,” Lerach would intone while Alexandra Berney, a new associate, scrambled at his command to find evidence and points of law to back his assertion. This was more than a rallying cry. It was the basic underpinning of a legal theory that, if proven by Lerach’s team, would mean untold billions to their clients and millions more to the firm: the banks and accountants were equal partners in the fraud that was Enron. It could not have happened without the banks. It was a mantra that Berney would hear ringing in her ears. “I’d get home late at night and still hear Bill saying this over and over,” she recalled later. “It was like a war chant.”
Days and nights merged into a blur as Lerach would sit, a maestro in the middle of the war room. “Get me Citibank’s 10K!” he would holler without looking up. The young associates at his beck and call observed no seniority protocol—whoever was closest to the document would grab it. If it was down the hall in the firm’s document center, whoever was closest to the door would jump up and run down the hallway. “Get me that public statement, that one in September ’99 with Skilling saying they expected a breakout quarter!” Lerach would order almost as soon as he’d completed his previous demand. In the midst of this seeming chaos, something highly organized began taking shape. Armed with his yellow legal pads, Sharpie pens, scissors, and Scotch tape, Bill Lerach began assembling what would become a 653-page legal complaint.
Bankrupt, not to mention facing possible prosecution, Enron executives would not go quietly. The firm hired Washington über-lawyer Robert Bennett, who had defended the Keating Five before the Senate, former defense secretary Caspar Weinberger in the Iran-Contra hearings, and President Clinton in the Paula Jones scandal. Bennett came to Houston full of advice. Among his first was for the defendants in Lerach’s emerging civil suit to prepare motions to petition Judge Harmon for summary judgment, dismissing them from trial. This well-worn strategy would slow down the plaintiffs’ efforts to gather evidence and force them to counter the motion—meaning they would have to defend their own complaint and do it for every single defendant as parties to the motion. In addition, Judge Harmon’s decision on the motions would help the lawyers on both sides gauge the judge’s respect for the plaintiffs’ arguments.
One of the attorneys keen on securing a summary judgment was Alan Salpeter, the Chicago lawyer who had helped embarrass Bill Lerach while winning a $50 million award in the Lexecon trial. Salpeter was now representing the Canadian Imperial Bank of Commerce, a defendant, in the UC Regents’ lawsuit against Enron. If there was a question of whether Lerach was girding for a rematch against Salpeter, he would eventually answer: “I’m a human being, and human beings can never possibly forget all of what’s happened to them in the past.” If it was vindication, as well as victory, that he wanted, he would ultimately get it. When the case was over, an image of Lerach, dressed in a toga looking like Julius Caesar, would appear in an article about the Enron case in American Lawyer magazine. The image would depict him holding Salpeter’s head on a platter. The headline would say: “A Dish Best Served Cold.”
IN THE LOS ANGELES war room, Richard Robinson and Michael Emmick had full plates of their own. A flurry of subpoenas had gone forth to various plaintiffs in Milberg Weiss lawsuits as well as to attorneys at firms listed as cocounsel. Among the first to receive notices was Richard Purtich, Cooperman’s attorney, whom Cooperman had identified as receiving more than $1 million from Milberg Weiss in referral fees, some of which were then passed along to Cooperman. Seymour Lazar would receive a subpoena at home in Palm Springs. Paul Selzer would receive his at his Palm Springs office. The subpoenas would demand tax records and other documents pertaining to their separate transactions with Milberg Weiss. Selzer’s former colleagues at Best, Best & Krieger, the law firm that had represented Lazar and where Selzer had been a partner, also received subpoenas. While no one at Best, Best & Krieger would have thought to link Selzer, its decorous onetime managing partner, to any money-laundering scheme, more than one attorney in the firm recalled being puzzled by the imbalance between the referral fees the firm had received from Milberg Weiss checks and the legal bills Lazar owed. “It made us nervous,” one partner later recalled. The prosecutors would ultimately learn why, but nothing was yet coming easy for the government in this investigation.
Moreover, there was a top leadership void in the prosecutor’s office, and a morale problem left over from the pardons (including one to a politically connected drug dealer prosecuted by the Los Angeles office) that Bill Clinton had issued on his way out of the White House. Rumors were circulating that a former assistant U.S. attorney, Debra Yang, now a Superior Court judge in Los Angeles, was a contender for U.S. attorney. The daughter of Chinese immigrants, she had been a respected prosecutor during her seven years in the U.S. attorney’s office before Pete Wilson appointed her to the municipal bench in 1997. In 2000 Wilson’s successor, Governer Gray Davis, a Democrat, elevated her to Superior Court. If President Bush were to appoint her, she would be the first Asian-American to serve as U.S. attorney. Her strongest advocate was Gerald Parsky, the Republican powerhouse who had chaired the Bush-Cheney California campaign in 2000.
Another Parsky-Bush-Enron connection had not been made public. In 2002 Parsky was still chairman of the University of California Board of Regents. In 1999 and 2000, in a series of secret meetings, he spearheaded a reorganizing of the university’s investment office, transferring control of the funds to a Los Angeles investment firm, Wilshire Associates. Records showed that Wilshire contributed tens of thousands of dollars to George Bush’s California presidential campaign. Records also showed that the rate of return on UC investments dropped dramatically after the shift. Adding to the plunge, of course, was a securities sinkhole named Enron.
Parsky had not been present when the board approved Milberg Weiss to represent it in the lawsuit against Enron. But he’d gone along with the decision—to a point. Not long after Lerach and his law firm and UC were named lead attorneys and plaintiffs, Parsky and Lerach crossed paths at a social gathering. According to Lerach, Parsky pulled him aside and said: “I still have the power to put up a red light and stop your representation. If you take this lawsuit into the White House, I will see to it that you are removed from the case. Do I have your assurances that you will not?”
Lerach was accustomed to being threatened and had done his share of it himself. But he had to consider this warning seriously. He knew the Enron case was supercharged politically as well as economically. He weighed the consequences soberly. And then Lerach assured Parsky that he would not turn Enron into a referendum against Ken Lay’s friend, George W. Bush.
EVENTS WERE BREAKING Lerach’s way. In front of a congressional committee, Arthur Andersen all but admitted its part in the Enron scheme. Two weeks later, on March 14, assistant attorney general Michael Chertoff charged Arthur Andersen with obstruction of justice. A criminal trial date was set for May. Within a month, David Duncan, Andersen’s lead partner for Enron, pleaded guilty to obstructing justice and agreed to cooperate with the government. On May 6, at the beginning of the criminal trial against Arthur Andersen, defense lawyer Rusty Hardin laid out the stakes for the jury. The venerable firm’s “very existence is in jeopardy,” Hardin said. No matter: on June 15, a Houston jury convicted Andersen of obstructing justice.
The spectacular failings of Enron, WorldCom, and Arthur Andersen, all companies Lerach was now suing, had exposed huge conflicts of interest between auditors and companies that retained them. Other conflicts came to light as information was traded between congressional investigators and Lerach’s team. Half a decade later the litany would be repeated in the biggest financial meltdown since 1929.
The revelations, borrowed verbatim from the Lerach hymnal were incorporated into legislation sponsored by Senator Paul Sarbanes, a Maryland Democrat, and Representative Michael Oxley, an Ohio Republican. Known as the Sarbanes-Oxley Act, the legislation called for stricter stan
dards of behavior—on penalty of criminal sanctions—for managers, directors, and accountants. It also called for greater transparency, including auditor independence, by prohibiting auditors from engaging in consulting agreements while verifying the books of companies they audited, and for beefing up the SEC to better carry out its enforcement responsibilities. Pointing directly at CEOs and CFOs, the legislation required that they take full responsibility for each and every financial statement issued to the public. President Bush signaled that he would support the measure, and on June 18, 2002, it passed the Senate Banking Committee on a 17–4 vote.
One week later Bernard Ebbers stunned analysts by informing them that WorldCom had overstated its earnings by more than $3.8 billion during the past five quarters. Just five years earlier Ebbers had been hailed as the “Telecom Cowboy” on the cover of Business Week after his company, WorldCom, which began as a small chain of eight local Mississippi motels, swallowed MCI, a communications giant two-and-a-half times the size of WorldCom, for $36.5 billion in cash and stock in the largest merger in U.S. history. Now, as that comapny began evaporating, Mel Weiss and his legal team rejoiced over the news, since Milberg Weiss had already joined with other firms in a consolidated class action lawsuit against WorldCom in Manhattan. In San Diego, Bill Lerach reacted differently. “There’s billions in this case,” he told his colleagues. “Mel’s being too timid. There is no reason for us to stand by while someone else tries it and divides the spoils.” Seeing the huge potential payoff, Lerach was already mapping a strategy to opt out of the very lawsuit his partner Mel Weiss had committed the firm to help litigate. Milberg Weiss West, Lerach told his San Diego colleagues, would represent a huge pension fund and fight the bankers and executives in a labor-friendly state court on his own.
Circle of Greed Page 38
