Circle of Greed

by Patrick Dillon

  THE CRIMINAL CASE AGAINST Milberg Weiss and its two named partners acquired an indelible face on the morning of July 19, 2006. In federal court in Los Angeles, U.S. District Court Judge John F. Walter, a sixty-one-year-old George W. Bush appointee, was cleared to preside over the trial. Douglas Axel, who represented the U.S. attorney’s office, addressed him: “There’s certainly a significant possibility of new indictments, but we’re not in position to know what the contours are.” This was a clear signal that a grand jury was still hearing evidence. Axel requested a trial date in July 2007. The judge demurred but did issue an order authorizing prosecutors to seek defense documents and depose witnesses outside the grand jury—a more efficient process for the prosecution. The case was now seven years old, the judge noted pointedly, urging the government lawyers to pick up the pace.

  Before the status conference, attorneys for the firm and for Bershad and Schulman appeared with their clients in front of a federal magistrate. David Bershad, looking wan, was flanked by his attorneys Robert Luskin (who had defended presidential adviser Karl Rove in the Valerie Plame mess) and San Francisco Bay Area criminal defense attorney Cristina Arguedas (who had been part of O. J. Simpson’s murder defense team). Steve Schulman had added two additional lawyers to his defense—Gordon A. Greenberg, a former federal prosecutor from Los Angeles, and Herbert J. Stern, a sixty-year-old former federal judge from New Jersey. The obligatory bombast emanated from the several defense lawyers, who told the judge they were looking forward to the fight before a jury. Perhaps they were simply doing the equivalent of painting their faces before a battle, but with full-on discovery about to begin and with each of the defendants knowing what was about to be disclosed, the tough talk would soon devolve into discussing how to exchange information for reduced prison time.

  ON AUGUST 1 a Fifth Circuit panel dealt an indirect blow to the plaintiffs. In a unanimous decision that encouraged Merrill Lynch attorney Stuart Baskin, the court tossed out the government’s criminal convictions of four ex–Merrill Lynch executives on conspiracy and wire fraud. This was the case Bill Lerach had considered an early break for his clients in the class action against the Enron defendants. It focused on the 1999 transaction between Enron and Merrill for the electricity-generating Nigerian barges, which Enron allegedly had sold to Merrill, with the understanding that Enron would buy the barges back. The government had insisted it was a sham, no more than an attempt to veil a loan from Merrill to Enron.

  The appellate court ruled that the government had failed to prove the Merrill executives had acted solely for personal gain. The decision was written by Judge E. Grady Jolly, a sixty-nine-year-old Mississippian and Reagan appointee, who’d been on the bench since 1982 and was considered one of its staunchest constructionists. “The only personal benefit or incentive originated with Enron itself—not from a third party as in the case of bribery or kickbacks,” Jolly wrote.

  Not only did the decision potentially remove Merrill from the Enron scheme in the civil case by designating the underwriters as secondary actors, it cleaved closely to the detested 1994 Central Bank decision that Lerach had been attempting to steer around. “Let’s hope we don’t draw Judge Jolly or the other two,” Lerach told his colleagues. Actually, the chances of drawing Judge Jolly in December were better than anyone could have foreseen.

  A few weeks later, and for a few taut moments, the plaintiffs’ attorneys experienced another reason to rein in their optimism. On Monday, October 23, in federal court in Houston a few doors down from Melinda Harmon’s chambers, Jeffrey Skilling, arguably the most vilified of the Enron criminal defendants, was sentenced to twenty-four years and four months in prison. The duty to inform Andy Fastow, the plaintiffs’ newfound cooperating witness, fell to Paul Howes.

  Following an agreement struck by Bill Lerach and John Keker, Fastow’s lawyer, Howes and Fastow had met every day for three weeks, with Fastow reciting everything he knew about the Byzantine scheme between Enron and the banks and auditors. The U.S. marshals had complied, delivering Fastow from the federal detention center to the Lerach Coughlin war room in Houston every day. There the attorney and his witness spoke for up to eight hours a day, as Fastow filled in the gaps in Lerach’s lawsuit against the remaining banks.

  On schedule Fastow was escorted to the plaintiffs’ attorneys’ offices the day of Skilling’s sentencing to resume their depositions. While it was true that Skilling, then forty-two years old, had first faced more than a hundred years of confinement, Howes was nervous about informing Fastow of the sentence, fearing its severity might unsettle their potential star witness or perhaps cause him to break off his cooperation. Fastow was famous for flying off the handle and was growing edgy as his own sentencing approached. Howes felt tight in the stomach. Fastow greeted him cordially. Howes tried not to project his own anxiety as he delivered the news. The two sat, facing each other. “Jeff got twenty-four years,” Howes said evenly.

  Fastow looked at Howes as if Howes himself had rendered the judgment. Then he exploded. “Every moment I spend with you is a moment I spend away from my family,” he railed. “Look at me—I could still get ten years!” He turned away, trying to right himself. Then, as if mentioning his family had provided a source of inner strength, he turned back to Howes. “All right. I gave you my word,” Fastow said softly. “I’ll keep my word to you.”

  IN THE MONTHS LEADING up to the decision by the Fifth Circuit on whether to hear the Enron banks’ appeal to be discharged from the civil lawsuits, Lerach’s powers of concentration were put to the test by a litany of distractions that would have filled a decade with angst for most people.

  In August, John Torkelsen, his friend and expert witness, entered federal prison in Morgantown, West Virginia. Flat broke but still proud, he had asked for no help from his friends in finding a private defense attorney, relying on a court-appointed public defender instead. Now that he was doing five years in prison, the prosecutors were letting him know that as their investigation continued and as they turned over more evidence from his billing records, he could stay longer if they decided to bring perjury charges against him for lying about his fees as an expert witness for Bill Lerach. Lerach soon learned through the grapevine that Torkelsen was being transferred intermittently to Los Angeles, where investigators were reviewing his handwriting and financial records.

  The calls with Mel Weiss were now only occasional, but both men made a point of staying cordial. Much as they wanted to, they also tried not to talk openly about the criminal investigation, in case someone was eavesdropping. Knowing also that they were now competitors, Lerach was also circumspect about discussing new or potential civil cases. Sometimes he would inquire about Dave Bershad or Steve Schulman. Adding to Lerach’s worries, Weiss was now reporting only sporadic conversations with his two former partners fighting federal charges. Both Lerach and Weiss fretted about the possibility of the two turning on them.

  Finally, of mutual concern were the messy matters of Alan Schulman, Lerach’s onetime nemesis in San Diego, and Robert Sugarman, the so-called “Partner E” in the indictments. Both men had been obviously cooperating with the federal prosecutors. Even more disquieting, having heard of Pat Hynes’s generous severance, they were claiming in court that both firms, Milberg Weiss and Lerach Coughlin, owed them money from legal fees earned while the two partners were at the firm but not received until after they had left. Millions of dollars were at stake. So was principle. In Lerach’s mind, not only had the two partners left on their own before the split, but they were now betraying Weiss and Lerach. How greedy was that?

  Even so, Enron in all its permutations still occupied the forefront of Lerach’s attention. Several members of the University of California Board of Regents had become jittery. Chris Patti, the University of California lawyer, remained a Lerach ally. He assured any doubters that he had spoken to their now-tainted litigator and reported back that Lerach was “saddened, determined to move forward with respect to his own situation and do his work.” It was a
s much a message to the remaining Enron defendants as it was to the UC Regents, who found themselves in a quandary. Lerach had fashioned settlements that would return more than $7 billion to them. As much as $10 billion or more was still out there. Should they jettison Lerach and risk losing a bigger prize? Patti and Judge Irving steadfastly reminded queasy members of the UC board that Lerach had not been charged with any crime. So far at least, after numerous phone conversations with board members, including an agitated Gerald Parsky, they seemed to be prevailing. So far, serious money trumped serious misgivings.

  But on November 1, 2006, something happened that Irving and the Regents of the University of California were powerless to prevent. The announcement from the Fifth U.S. Circuit Court of Appeals had the effect of sounding an air raid siren in the Houston and San Diego war rooms of the law firm of Lerach, Coughlin, Stoia & Robbins. The panel determined that the remaining Enron defendants could appeal. A thirty-day window was also allowed for those defendants, Credit Suisse, Barclays, Merrill Lynch, and the law firm of Vinson & Elkins, to file their briefs buttressing their appeals, while plaintiffs’ attorneys Lerach Coughlin were given the same opportunity to rebut the defense. Oral arguments were now scheduled for February 7, 2007.

  STILL ANOTHER MATTER was now competing for Bill Lerach’s attention, and in this he took solace and great joy.

  By three o’clock on the afternoon of November 11, 2006, Armistice Day, more than three hundred guests, many of the same people who’d feted him on his sixtieth birthday nine months before, passed through the tall, wide security gates and descended one hundred yards upon gray cobblestones worn by age and imported from Brooklyn. The stone walkway curved through lush camellias and citrus trees and ferns in sloping gardens adorned with eight-foot-tall, two-ton terracotta Spanish and Italian olive oil casks as well as anthropomorphic African stone sculptures, some twice the size of humans, standing sentry to the 16,000-square-foot, caramel-colored Italianate villa below. This was the house on the hill that Bill Lerach had espied curiously from the La Jolla beach nearly thirty years earlier. In September, the year before, this estate, perched on a six-acre, arrowhead-shaped peninsula above the Pacific Ocean, with unblocked views seventy-five miles north to Orange County, south to the promontory town of La Jolla, west to near eternity, and occupying top-tier status on Forbes’s list of most expensive houses in America, became his.

  He had sued two of the previous owners, and another had lost a bundle in the savings and loan meltdown. The three-story house was constructed from French limestone and featured six bedrooms and eleven bathrooms. From the circular driveway steps led downward to a large courtyard featuring an ancient Italian fountain and more African statuary. Visitors entered a great hall filled with enough art treasures—oils, tapestries, African and Polynesian masks and figures, oriental rugs, antique European furniture, and sculptures—to outfit a medium-sized museum. A wide stairway led to the living quarters above. A hallway led to another room of nearly equal size also filled with art treasures and antique rugs that the six dogs of the house—an aging greyhound, a Papillon, two boxers, a whippet, and a Chihuahua—used as runways for gaining traction when launching themselves into play or to answer an alarm. In front, a two-tiered, partly covered and colonnaded portico big enough to accommodate at least a hundred guests, overlooked a swimming pool, and beyond that and a few steps down lay a great lawn flanked by immaculate, cantilevered, microclimate-appropriate botanical gardens, and fruit orchards and palms. Beyond, a fenced walkway skirted the far edge of the sea cliff with a wrought-iron gazebo at the apex of the overlook.

  These grounds provided Lerach’s favorite paths for patrolling with his garden shears, timing his sojourn so he could attend the day’s climactic event when the descending sun combined with marine air to leave behind a parfait-laminated sky. Often, as he had made his rounds at dusk, he thought of his deceased mother who had not beheld this glorious estate. She had been the strong one, the deserving one—not his father—his mother. She could have run a corporation, and no one would have sued her, not because they didn’t have the guts but because she was tough-minded and scrupulous and thus would have been lawsuit-proof. He liked to tell people that he hoped some of his mother might have rubbed off on her two sons.

  Flanking the villa on its north side was a tennis court, now tented in an extravagant Arabian-nights flair that only someone sporty—Jay Gatsby in that time, or Malcolm Forbes in his day, and now Bill Lerach in his—would have insisted on. On this day of their marriage, her first and his fourth, with an aplomb that would have made Mel Weiss’s target Martha Stewart envious, Michelle Ciccarelli had arranged and would oversee the entire pageant, marshaling the caterers, florists, valets, musicians—three bands would play—and of course, the wedding party itself.

  While her greatest achievement as a Milberg Weiss attorney had been as part of the team that had caused American clothing manufacturers to settle with garment workers in the Marianas, her added contributions in Enron and WorldCom had allayed most of the tongue-wagging about her relationship with Lerach; many of the wedding guests had come as much out of respect for Michelle as they had for the name partner of the law firm where they both worked—but where, because of nepotism rules, she was soon to be of counsel. Sara Walter Combs, the widow of Kentucky governor Bert Combs, would officiate at the ceremony staged on the lawn overlooking the ocean. A former schoolteacher, she was the first woman elected to Kentucky’s Supreme Court. After narrowly losing reelection, she was appointed to the Kentucky appellate court, where she became its chief. One of her star clerks had been Michelle.

  Among the guests were a Pittsburgh contingent, colleagues inside and outside the firm, judges he’d tried cases before, politicians he’d supported—and foundation and museum administrators he’d also supported. The ring bearer looked Fred Astaire suave in his hand-sewn black tuxedo and pulled off his obligation without a hitch, registering a performance that impressed all who witnessed it—especially considering that it was executed by Tommy, Bill’s beloved Chihuahua. At one point in the ceremony a small squall, not uncommon this time of the year, formed far out at sea. Through the marine mist a perfect rainbow formed, and someone in the awestruck crowd was heard to say: “Wonder how much they paid for that?”

  All praised the day as being close to perfect, and only some remarked sotto voce that conspicuously absent were Mel Weiss, Bill’s longtime partner and mentor, and Mel’s wife, Bobbi. Even so, the guests, especially the attorneys and staff who had been toiling on Enron and Halliburton, and those lawyers trying other cases or developing new ones, and nearly all those who knew that Bill Lerach was now under a darkening cloud, appreciated the moment for what it was: a respite before the storm.

  BILL LERACH HAD SEEDED the clouds, and just weeks after the wedding, legal thunderclaps could be heard. Nearly a year earlier, impatient with the pace and management of the Halliburton litigation, he had added three plaintiffs to join the Archdiocese of Milwaukee Supporting Fund: the Plumbers and Pipefitters National Pension Fund, the city of Dearborn Heights (Michigan) Police and Fire Retirement System Fund, and the Laborers National Pension Fund. Taken together, the new plaintiffs surpassed the original plaintiff in membership, wealth, and investments. By showing new muscle, which he hoped to elevate to lead status over the Milwaukee diocese fund, Lerach intended to gain control of the lawsuit—and provide impetus for Halliburton to settle.

  This plan seemed workable, at least until the Chicago Tribune reported on June 22 that William K. Cavanagh, a legal adviser for Plumbers and Pipe fitters and other union pension funds, had received $750,000 in referral fees and legal work from Milberg Weiss. An unidentified attorney at Lerach Coughlin nuanced the revelation, telling the Tribune reporter that the payments mirrored long-standing practices throughout the legal profession. The unidentified attorney also accused the Tribune of retaliating because Lerach Coughlin was suing its parent company in a class action lawsuit.

  The story not only caught the eyes of prose
cutors in Los Angeles, it alarmed the original plaintiff. When an already-wary Paula John, president of the Archdiocese of Milwaukee Supporting Fund, read two weeks later in The Nation magazine that Lerach was looking forward to grilling Vice President Cheney under oath, she got a sinking feeling that Lerach was pursuing a personal agenda on the back of her fund—his client.

  The last straw was provided by Peter Elkind, the reputable editor-at-large for Fortune magazine. In a 9,200-word cover story entitled “Fall of America’s Meanest Law Firm,” Elkind reprised nearly the government’s entire case against Milberg Weiss and its partners and pointed a well-informed finger at Mel Weiss and Bill Lerach.* Paula John called Neil Rothstein, who had started a think tank focusing on legal ethics. When she asked Rothstein what to do about Lerach, he suggested removing him from the case. The most delicate way, he advised her, might be to persuade Lerach’s cocounsel, and Rothstein’s former firm, Scott & Scott, to discreetly wield the knife.

  “Due to the strong manner, tone, and factual information stated in Elkind’s article, I feel that I am left with no choice but to direct you to remove Lerach and his firm from the Halliburton case,” John promptly wrote to David Scott, a name partner at his firm. Scott, the forty-two-year-old son of the founder of his law firm, had worked with Lerach on cases prior to Halliburton, and he had agreed with Lerach’s strategy of bringing big-foot plaintiffs into Halliburton. But the directive was unmistakable. If he wanted to keep his firm on the case, he would have to dissociate Lerach.

  Scott called Lerach, predicting his cocounsel’s response before he heard his voice on the phone. He knew there would be profanity, uttered at high volume. Sure enough, as he gingerly broached the subject of his ally stepping away from the case, Lerach’s voice rose to battle-stations decibels. When his friend’s tirade was finished, Scott assured Lerach he would remain steadfast with him.