Circle of Greed

by Patrick Dillon

  On April 25 the House of Representatives voted 334 to 90 to pass Ox-ley’s bill. Less than three months later the Senate passed its own version, sponsored by Senator Sarbanes. The vote was 97–0. Members of both houses cited Enron and WorldCom for hastening their votes. In a July 30 White House ceremony, President Bush, declaring the legislation “the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt,” signed into law the Sarbanes-Oxley Act of 2002.

  The SEC’s Harvey Pitt was quoted in the New York Times as saying: “We are determined to give real teeth and meaning to the protections of the new law.” This was hard for Lerach to stomach. Lerach remembered Pitt as the SEC lawyer who had lobbied hard for the passage of the 1995 “Get Lerach Act.” The same corporate leaders and their lawyers who had proclaimed victory for American business by aligning against Lerach with the passage of the PSLRA in 1995 were now crowing that they had clamped down on potential fraud, never mentioning their own long war of attrition against the attorneys who had already been fighting it. As Lerach saw it, there were many other culprits, including the sainted Alan Greenspan—and a Democratic president to whom Lerach had contributed so generously.

  Beginning in the late 1990s, when Republicans controlled Congress and Bill Clinton was in the White House, the government began dismantling the oversight functions that had been performed by the federal agencies and departments since the Great Depression. One key milestone was Clinton’s signing of the Financial Modernization Act of 1999, known as Gramm-Leach-Bliley after its sponsors. This deregulating measure essentially repealed Glass-Steagall, allowing investment banks and commercial banks to perform the same functions.

  “Glass-Steagall law is no longer appropriate to the economy in which we live,” President Clinton had said at the November 12, 1999, signing ceremony. “It worked pretty well for the industrial economy, which was highly organized, much more centralized, and much more nationalized than the one in which we operate today. But the world is very different.”

  That theory would be sorely tested in the decade to come. Even at the time, despite his staunch support of Clinton, Lerach was more simpatico with the most liberal wing of the Democratic Party than with the probusiness centrists. The liberal view was ably expressed by North Dakota Dem ocrat Byron Dorgan, one of only eight senators to vote against the final version of the Glass-Steagall repeal. “I think we will look back in ten years’ time and say we should not have done this,” Dorgan proclaimed.

  In 2002, as the evidence of financial misdeeds and malfeasances began to pile up, Lerach—despite his massive caseload—managed to appear more frequently at forums and before the media, casting himself and his firm as, essentially, an extra arm of the SEC.

  “Even in those halcyon days, there were a few of us—viewed as cranks at the time—who warned that underneath this veneer of prosperity and profit actually lay widespread accounting rot, falsified profits, inflated asset values, and executive chicanery which would collapse the system,” he said in an address at Stanford Law School. “What happened did not happen by accident, and a full accounting is owed to the people who were fleeced.”

  If Lerach was declaring himself to be the champion of ordinary investors, he wasn’t alone. “Is This America’s Top Corporate Crime Fighter?” an article in The Nation asked. Other laudatory stories appeared about him in California Lawyer and The New Yorker. Lerach also found time to pen his own version of an I-told-you-so, a twenty-eight-page screed called “The Chickens Have Come Home to Roost: How Wall Street, the Big Accounting Firms and Corporate Interests Chloroformed Congress and Cost America’s Investors Trillions.”

  In this paper Lerach denounced the barricades that government had helped business erect to protect itself from regulation, oversight, and class action lawsuits. “It wasn’t as if Congress wasn’t warned,” he wrote. “After these powerful interests achieved their longed-for goal of curtailing the ability of investors to sue and hold them accountable for securities fraud, there has been a massive upsurge in securities fraud.”

  Those who knew Lerach personally could read his populist stream-of-consciousness prose and hear his gravelly Pittsburgh-accented voice in their ears. It read just as he talked, an array of damning facts, laced with high-octane adjectives, delivered staccato-style. To those who disagreed, Lerach could come across as a bit unhinged, a cross between William Jennings Bryan and Karl Marx, a man whose real complaint was against human nature—or capitalism itself—although Lerach would counter by saying that, no, capitalism wasn’t the problem, the problem was unchecked avarice.

  “Let’s learn this,” he wrote. “Wall Street is dishonest, and … it took only a few years after Glass-Steagall was repealed for commercial and investment banks to morph into the huge financial colossi they are today—and to do what they did with Enron. Is Enron an isolated incident resulting from the misconduct of a few bad apples? Or is it evidence of rot across the system? Watch for others that are coming.”

  IN NEW YORK, Mel Weiss grew increasingly uncomfortable with his California partner’s constant self-promotion, particularly while the winds of scandal were blowing from the U.S. attorney’s office in Los Angeles. At home in Rancho Santa Fe, Star Lerach had grown uneasy too. Her husband had buried himself in Enron—and was building another giant case, this one against WorldCom. She recognized the obsessive rhythms he fell into while litigating big cases, but there was more going on now, and she knew it. For one thing, Milberg Weiss was under the cloud of a criminal investigation, and she was smart enough to know that her husband, with his name on the door, must be part of it. Star Lerach had come reluctantly to another revelation: she no longer wanted to play a supporting role in Bill Lerach’s movie.

  Newly arrived attorney Michelle Ciccarelli had captured Lerach’s attention nearly as much as the Enron lawsuit he had assigned her to research. She was in her midthirties, ash blond, self-assured, and possessed of a singing voice worthy of a Nashville recording studio—she worked her way through a small college in Texas belting out country music and torch songs at local venues. Lerach might have appointed his new associate as his personal factotum—he was unabashed about signaling his attraction to her. But almost immediately after she joined Lerach’s firm, her credentials—law clerk for the chief judge of the Kentucky Court of Appeals, representing immigrants housed at the federal penitentiary in Kentucky and training other lawyers in the intricacies of deportation hearings, while also assisting Haitian refugees seeking asylum status—earned her a substantive assignment overseas. “Someone said loud and clear, ‘we need a labor lawyer … anyone here a labor lawyer?’ I had done some labor work, so I raised my hand,” she recalled. “The next thing, I’m on a plane to the Marianas.”

  She spent months on Saipan, part of the U.S. commonwealth in the South Pacific, along with partners Al Meyerhoff and Patrick Daniels, investigating claims by garment workers that they were being abused as “indentured servants” by U.S. companies—including Liz Claiborne, Ann Taylor, The Gap, and Ralph Lauren—that subcontracted production to Chinese-owned factories. The workers, most of them women imported from rural China and the Philippines, worked twenty-hour days at sewing machines to earn back their “recruitment fees” and pay for food and housing. Their products were technically “made in America,” and yet the Marianas were removed from U.S. labor laws. They were, in the eyes of many, home to some of the worst sweatshops in the world. But not in the eyes of then House majority whip Tom DeLay, who praised the Marianas as “a Petri dish of capitalism.” DeLay, with help from his Capitol Hill crony, lobbyist Jack Abramoff, had succeeded time and again in keeping labor reform bills aimed at the Marianas from reaching the House floor.

  Ciccarelli and her colleagues had major litigation hurdles to overcome. Most notably, none of the potential plaintiffs would allow themselves to be identified, fearing reprisals from their employers. A motion was filed in federal court to allow anonymous plaintiffs. After strong opposition, the Ninth Circuit Court of Appea
ls sided with the plaintiffs, citing Roe v. Wade, with its anonymous plaintiff, as a precedent. The plaintiffs’ team could proceed, but to ensure the safety of their clients, the team would clandestinely rendezvous with their plaintiffs and transport them in the trunks of their cars to a hotel for depositions and return them exhausted for work the next morning.

  Through dogged litigation, Ciccarelli and her teammates helped secure a $20 million settlement and a precedent-setting monitoring program to oversee labor and human rights practices in the garment factories in the Marianas. That DeLay and Abramoff would both experience their own legal comeuppances only added to her stature in the Lerach firm.

  She soon found herself assisting Lerach closely, logging more than one thousand hours as she helped him, often working well into the night amending the Enron complaint, drafting motions and countermotions and otherwise turning the screws on the suit itself. Meanwhile Paul Howes, Helen Hodges, and their team fanned out across America and Europe taking depositions that would number more than 420 before they were finished.* In professional parlance, the Milberg Weiss lawyers on the Enron case were living with one another. In the case of Lerach, soon to be divorced for the third time, by the spring of 2002, the expression was no longer a colloquialism. He and Michelle Ciccarelli were sharing a home on a golf course near Rancho Santa Fe.

  In the meantime Lerach kept alert for relevant news from Los Angeles. He had seen the press release from the U.S. attorney’s office dated May 17: “In a private ceremony this afternoon, Debra W. Yang was sworn in as the United States Attorney for the Central District of California.” The release quoted the new U.S. attorney as being grateful to President Bush for her appointment, which Lerach took as an omen against his law firm. As if he needed any more on his agenda, Lerach couldn’t help but notice that another giant well-connected Houston corporation had run into trouble. Months earlier, on January 4, the stock of Halliburton, a multinational oilfield services corporation, had tanked at $8.60 a share—a fifteen-year low—and down from $55 a share only four months earlier. Tracing the stock history, Lerach saw that the company had experienced an indelible pattern of jagged peaks and valleys going back to 1998. The patterns were vivid and recurring. Words such as “strong restructuring” sent the stock up. Insider selling usually followed quickly, not at the very peaks but heavily on the intermediate increases, perhaps so as not to attract attention. When the stock hit lows around the thirties, the company’s public relations department and investor relations offices would fire a volley of positive announcements. The stock would shoot past fifty. Inside sell-offs would follow. The SEC had issued a couple of warnings about accounting irregularities.

  The pattern of rising and falling stock prices was neither as compact nor as sharp as he had seen with the abrupt rise and fall of WorldCom. In fact, it more resembled that of Enron’s longer, slower corporate agony. But what Lerach saw in his analysis was something far more dramatic.

  It appeared that during the four-year period under review, from January 1998 to January 2002, as company stock fell from near $60 a share to just over $8 a share, Halliburton insiders had unloaded nearly two million shares and collected about $66 million. It was not much compared to the looting of Enron, Lerach pointed out, but one fact intrigued him: the largest beneficiary of the insider selling was Dick Cheney, Halliburton’s CEO until he resigned in 2000 to become George Bush’s running mate.

  Perhaps there was nothing more to Cheney’s windfall than fortuitous timing: required by federal ethics laws to divest his stock to reenter politics, he had simply been lucky. That was one possibility. Lerach suspected something more sinister. What about all the other Halliburton insiders who had unloaded their stock—how was that a coincidence? These were the questions Lerach intended to probe. “I think it will be fair for us to ask: If Cheney didn’t know about this, why didn’t he know?” Lerach exclaimed as he set the documents into order. “What was his salary for?”

  Milberg Weiss had filed class action securities claims on a lot less evidence than the circumstantial case against Halliburton’s officers. And Lerach certainly wasn’t deterred by the prospect of tangling with Dick Cheney. Quite the contrary. On June 3, 2002, Milberg Weiss announced that it had filed suit against Halliburton on behalf of shareholders who had purchased stock in the company between July 22, 1999, and May 28, 2002. The thirty-page initial complaint accused Halliburton of numerous violations of the Securities Exchange Act by “issuing a series of false and misleading statements to the market.” The Milberg Weiss partner listed on the press release was Steven G. Schulman. Lerach’s name was not mentioned. Even more conspicuously absent from the complaint was the name Richard Cheney.

  “We’ll get him in time,” Lerach told curious colleagues as reams of Halliburton documents now joined the Enron documents littering his desk and the floor of his San Diego office. “For now, let’s do our due diligence. Depose the obvious suspects. Once we get our feet in the door, then we’ll depose him—the goddamn vice president of the United States.”

  Irrespective of what he had told Gerald Parsky, Lerach also admonished those attorneys in San Diego working on Enron to keep their eyes on the immediate prize. “After we get Kenny Boy, we’ll go after Cheney.”

  * Those were the figures as of 2002. A tenth campus, in Merced, was added in 2005. As of this writing, the UC family included 220,000 students, 170,000 faculty and staff, and some 37,000 retirees.

  * Howes would perform the equivalent of 14,000 billable hours; Hodges, more than 11,000. Years later, when the totals were added, the firm’s attorneys would have accumulated 248,803 hours on the Enron case. In billable hours, that would be the equivalent of $113.2 million—on contingency.

  23

  “NOBODY CAN STOP ME”

  Ritually, William Lerach rose before seven A.M. to catch the morning financial news on television, keeping abreast of the market’s gyrations as any day trader would. Then he scanned the headlines of the national and local newspapers: the New York Times, The Wall Street Journal, the Financial Times, the Los Angeles Times, and the Los Angeles Daily Journal, the Southern California legal newspaper, to follow the cases of his competitors and colleagues in the plaintiffs’ bar—and look for early signs of corporate misdeeds. Occasionally, he came across articles signaling what he feared was taking place in the federal building in Los Angeles. First came the headline in the January 24, 2002, issue of the Los Angeles Daily Journal, “Milberg Weiss Faces Probe Into Conduct,” just a month after the firm announced its lawsuit against Enron.

  “It’s about Milberg Weiss buying plaintiffs,” one source was quoted as saying.

  Follow-up stories appeared the next day in the Los Angeles Times, the San Diego Union-Tribune, and The Wall Street Journal. It was a minor bombshell in the legal community, surprising even some of Lerach’s most venerable foes. “It doesn’t jibe with the Milberg Weiss I know,” Lerach’s Nucorp nemesis Chuck Dick told the Union-Tribune. On February 13 the San Francisco Chronicle picked up the story, reporting: “Milberg Weiss Bershad Hynes & Lerach, the nation’s top law firm specializing in shareholder lawsuits, is under a federal grand jury investigation to determine whether it employed improper tactics to recruit plaintiffs, including whether it paid kickbacks to lawyers and brokers for referrals, informed sources say.”

  Other stories appeared throughout the winter and into early spring, invariably quoting anonymous sources. Lerach complained privately that the Bush administration was using the press to try to blunt his assault on Enron. He was also assuring Mel Weiss and the other top partners about the same thing that the prosecutors in Los Angeles were telling each other: that Steven Cooperman would eventually self-destruct as a government witness. Seymour Lazar? He was a tough old bird and well insulated by a respectable intermediary attorney. Besides, ever since he received the government subpoena in January, Lazar had voluntarily backed off his plaintiff relationship with the firm. Lerach assumed (incorrectly) that Howard Vogel had done the same. Even so, Lerach knew t
hat his counterpunching about government interference in the Enron case was beginning to ring hollow among a growing chorus of doubters, including some of his own clients.

  Gerald Parsky’s apprehensions were so acute that he was developing buyer’s remorse. He began questioning the wisdom of the University of California’s decision to hire Lerach’s firm in the first place. James E. Holst, the chief counsel, got the message. After conferring with Chris Patti, they decided to hire a consultant, someone who could act both as an overseer and as a go-between for the university and Lerach. This mediator could assist in facilitating settlements they were seeking with the numerous defendants and, if need be, help vet and hire a new firm should Milberg Weiss’s legal issues make further litigation on behalf of the university untenable.

  In mid-April 2002 they sought out the very man Bill Lerach himself had turned to for help in mediating settlements in the Lincoln Savings case. “We’re looking for an independent consultant in our litigation against Enron,” retired federal district Judge J. Lawrence Irving heard Holst say when he answered the phone call in his San Diego office. Irving had previously conducted important mediations with the University of California’s legal team, and of course he knew Lerach well from the Nucorp case. After hearing Holst explain his predicament, Irving said: “If you are looking for a Bill Lerach detractor, you won’t find one in me. I know Bill professionally, and I have nothing but the highest regard for him.”