Circle of Greed

by Patrick Dillon

  THE FOURTEENTH-FLOOR SUITE of the Beverly Wilshire Hotel presented a sweeping, westerly overlook of a vast urban carpet coming aglow in the fading light on the evening of February 10, 2008. Taking in the vista, an informed viewer might appreciate the allure this urban American landscape held for the aircraft makers and the movie makers and the deal makers who had gravitated to it. Had the city fathers named their metropolis for the spirit that actually animated Los Angeles, they might have named it Los Aspiraciónes, instead of the City of Angels. On this evening Bill Lerach stood silently, his arms outstretched and his hands on the rail of the balcony, taking in the panorama, searching for landmarks and following the flight of jetliners ascending northward and skyward from LAX, unseen and over the hill to the southwest. At that moment he brought to mind a modern Icarus. His aspirations had taken wing, had flown him higher than he could have imagined as a boy in Pittsburgh. Friends joined him on the balcony, and invariably the conversation turned to the outrageous Stoneridge decision and then to Justice Kennedy; the reverie of the moment morphed into the equivalent of locker room banter. It was easier to discuss than tomorrow’s reckoning.

  Inside the suite other friends, colleagues, and family—his daughter Shannon, his wife, Michelle, and her parents—occupied the sofas and chairs. Some clustered around the buffet table, others stood visiting. The talk was subdued, befitting the occasion; it was a far cry from the surprise party held in the basement ballroom of a downtown San Diego hotel a month before. A clever video had been shown then with Lerach making Forrest Gump–like cameos alongside Spencer Tracy and Fredric March in scenes from Inherit the Wind, Al Pacino in And Justice for All, and Julia Roberts in Erin Brockovich, among a dozen “lawyerly” movies. The tribute ended with a banging chorus of Tom Petty’s defiant rock ’n’ roll hymn “I Won’t Back Down.”

  Lerach’s good-bye speech after the video ended had been upbeat, gracious, and filled with gratitude for his colleagues and the opportunities they’d shared as he recounted the victories, beginning with Pacific Homes, moving to Lincoln Savings and Loan, the sweatshop litigation his wife had worked on in the Marianas, Stringfellow, Big Tobacco, Exxon Valdez, and WorldCom, climaxing in Enron, and almost bagging Dick Cheney’s Halliburton. There was resilience in his voice, and a recognizable defiance as well. Tears were shed, and the guests recalled his generosity in times of need and his championing of victims he had never met in person.

  That party had run late. This one would not. As the hour approached nine P.M., guests began taking their leave, and an awkward spell visited others. No one wanted to tarry. Finally, as if aware of an unwritten protocol, Lerach’s oldest friends and longest-acquainted colleagues thanked their hosts and headed for the door. Within half an hour the guests were gone. Lerach was not inclined to linger either. He had a breakfast meeting at seven thirty the next morning, when he and John Keker would go over final details of their appearance at nine before Judge Walter, who would pronounce the sentence.

  Lerach and his wife arose at five thirty A.M. on Monday, February 11, 2008, even as limos were returning guests who had attended and appeared in the fiftieth Grammy Awards ceremony and parties the previous night.

  Lerach, wearing a dark gray suit, white shirt, and blue tie, and Michelle, clad in a dark pinstripe business suit, appeared shortly before seven. The couple traveled mostly in silence during the thirty-minute trip down Wilshire Boulevard to meet Keker and two of his partners, Elliot R. Peters and Wendy J. Thurm, at the Omni Los Angeles Hotel, a few blocks from the federal courthouse. Over coffee and a light breakfast Keker previewed how he thought the judge would conduct the hearing. “You should probably be ready for a puritanical lecture,” Peters interjected.

  “What are you going to say, Bill?” Keker asked.

  Lerach shuffled in his seat and summoned a mischievous grin. “I hadn’t thought about it. I guess I’ll make it up as I go?”

  Keker was not amused, and he braced his client. “The judge will take this deal. Do not snatch defeat from victory,” he admonished. “We had good-faith negotiations. Do not get on a high horse.”

  Then Keker told Lerach what to say. He told him to acknowledge the professionalism and courtesy the prosecutors had shown. He instructed him to reprise his telephone conversation with Dillon, his son, confirming his errors. He even urged Lerach to recount his horror upon learning that David Bershad and Mel Weiss had continued to pay Howard Vogel.

  “Also remember, you’re going to be seen as sticking it to Mel Weiss,” Keker added. “Just make certain you stick to the facts as you know them. Do not step into a trap. If things seem to be going poorly, do not open the door to … perjury.”

  Gravely, Lerach mounted the steps from the hallway to Judge Walter’s second-floor courtroom, acknowledging the clutch of reporters but not answering their questions. Carrying their files, Richard Robinson, Doug Axel, Robert McGahan, the prosecutors, and Catherine Budig and Jim Harbin, the postal inspectors, filed into court and took their seats at the prosecutors’ table below and to the right of the judge. In the gallery, seats were filled mostly by those who’d attended the buffet at the Beverly Wilshire the previous night, along with a few others. One was Judge Irving, who’d worked so closely with Lerach on so many big cases. Another was Patrick Frega, Lerach’s longtime friend, whom he called “Assassin,” noticeably disabled from a war wound and from a recent bicycle accident that had nearly cost him a leg, wincing in pain despite medication.

  Judge Walter took the bench at 9:10 A.M. and reviewed aloud the probation officer’s report with regard to various sentencing guidelines. Addressing Keker first, the judge noted that Lerach had been the beneficiary to the tune of 13 percent of the $40 million the firm had received in the Oxford Health case in June 2003, in which Howard Vogel had been a paid plaintiff, even while stories about a government investigation of Milberg Weiss were flowing in newspapers.

  Keker was quick to respond: “Whatever ridiculous moves people in New York made after that were not pursuant to any conspiracy that Mr. Lerach joined in.”

  Judge Walter rebuked him: “Well, it depends how you define the conspiracy.” Walter detailed his own understanding of the arrangements the firm had made with its paid plaintiffs—Cooperman, recruited by Lerach; Lazar, first brought in by Mel Weiss; Vogel, who was handled by at least two Milberg Weiss attorneys. “Everybody had the same goal in this conspiracy, and that was to secure the paid plaintiffs to act on behalf of Milberg Weiss.”

  If Lerach had wanted to withdraw from the conspiracy, Walter reasoned, “it would seem to me the prudent thing to do would be to go to the accounting department and say ‘We’ve got these cases, and let’s separate or isolate the income that’s being derived or generated from these cases, because now that the government’s onto this investigation, I don’t want any part of this money.’”

  To some in the courtroom, the judge’s demeanor suggested he was trying a case against Lerach in the absence of a jury that had been preempted by the plea agreement. Lerach himself had another thought, an ironic one: the judge’s reasoning mirrored his own explanation of scheme liability against secondary players in securities frauds. In any event, before pronouncing sentence, Judge Walter was handing out bitter medicine. And it was not reserved for Lerach alone.

  Because he had announced his intention to move into private practice following Lerach’s sentencing, Bob McGahan was given the honor of voicing the government’s position. He stood, ready to address the bench, when Judge Walter took the cue to begin a barrage—against the government for its apparent lenience: “Why should I accept this plea?”

  McGahan started to explain that it was a compromise reached between the respective parties. “But what are the facts of this case that—indicate that I should accept a plea agreement?” the judge insisted.

  “Mr. Lerach caused his counsel, at a time before the government had advised Lerach that he was going to be indicted—before, in fact, the government had decided whether or not to even bring charges against
Mr. Lerach, and there was a timely initiation of disposition discussions by his counsel which, from the outset, conceded that Mr. Lerach would plead guilty to a felony,” McGahan stammered.

  “Mr. Lerach would serve a period of incarceration, that Mr. Lerach would pay a substantial penalty that would consume a substantial part of his liquid net worth,” McGahan added. “I’m not aware in the years of my practice where a defendant has caused his attorney to call the government, prior to the time of being told that charges were forthcoming, and offered to plead guilty and go to jail. In several respects, Mr. Lerach was a volunteer.”

  “The government has been investigating this case for seven years,” Judge Walter reminded everyone present, recalling that in the original indictment Lerach was referred to as Partner B. “So it’s not like Mr. Lerach just one day knocked on the government’s door and said: ‘By the way, you probably don’t have everybody who’s responsible in this case, I want to tell you that I have some responsibility, so I want to own up to that responsibility and let’s work out a disposition’… Being a former prosecutor, I know that didn’t happen.”

  McGahan shifted his stance, signaling his frustration. “Your Honor, all I can say is that at the time that Mr. Keker called the government and initiated plea discussions, we had not yet made a decision to bring charges against Mr. Lerach,” the prosecutor said. “I agree, Mr. Lerach was not on the road to Damascus when he had a sudden conversion and decided, ‘Come to think of it, why don’t I plead guilty?’ He saw the writing on the wall. But what the government is conceding here is essentially what we’re asking the court to do, is to sentence the defendant to twenty-four months which, from the applicable guidelines range, that the government thinks is appropriate, we believe is a modest concession.”

  “Wait a minute,” Walter snapped. “Let’s assume that Mr. Lerach is included in the second superseding indictment, which includes all of the substantive charges that are in the indictment (with Mel Weiss named as a defendant). What’s Mr. Lerach’s exposure in terms of a maximum sentence in that case?”

  Referring to a cheat sheet, McGahan told the judge: “I think anywhere between eight to ten years, your honor, or it could be higher.”

  Walter kept boring in. “On the RICO charge? What’s the maximum sentence under the RICO statute?”

  “The maximum statutory sentence is twenty years,” McGahan said. At the defense table Lerach flushed.

  Doing his own calculation, the judge then said: “If Mr. Lerach had been indicted in the second superseding indictment, the government would have gone to trial and presumably prevailed, and Mr. Lerach then would have been subject to—totaling up all the sentences—probably somewhere in excess of fifty years if the court ran the sentences consecutive; but even under the advisory guideline range, you’re talking about a ten-year sentence … So, what it boils down to is that Mr. Lerach, because he knocked on the government’s door before the government had any inclination or inkling that they were going to indict him, he gets the benefit of a two-year cap.”

  The ominous implications of Judge Walter’s sermon reached beyond McGahan and the prosecutors, and its impact was twofold. First, it was now obvious to everyone that John Keker had earned his fee—and then some. Second, the message was clearly aimed also at Mel Weiss, who at this point was defiantly challenging the charges outlined against him in the September indictment. Weiss would now realize just how much his intransigence could cost him if and when he found himself standing before this judge at his sentencing.

  McGahan conceded the forum to Keker, who recited the other mitigating facts of the plea deal, including the size of the fine Lerach was willing to pay, the humiliation of being disbarred at the height of his career, his stipulation of his own guilt (which removed all element of risk for the government), the testimonials from 150 letter writers on his behalf, his long crusade against fraud on behalf of shareholders.

  Judge Walter said he could not dispute Keker’s assertions but made a few of his own. “There were lies to the federal district judges. If any of these judges knew what I know now about the misrepresentations, the lies that were told to them, there wouldn’t be any of those fees, and they wouldn’t have been in their lead counsel status. The whole conspiracy corrupted the law firm, and it corrupted it in the most evil way; and this is, coming into court and having these paid plaintiffs, who were getting kickbacks, make misrepresentations to the court.”

  Finally, the judge called upon Lerach to speak in his own defense. The sullied lawyer stood erect, repeating the words protocol required: “May it please your honor … however much we may have disagreed with the prosecutors as to their view of what went on and how they exercised their discretion, I want to say that we were treated with courtesy and civility throughout. And, I especially want to thank the court for extending us the courtesies it did.”

  He thanked government employees who assisted in the pretrial paperwork and probation report, then continued:

  “I pled guilty in this case because I was guilty,” he said firmly. “I knew what I was doing when I did it was wrong. It was, as they say, ‘felony stupid.’ I just did not have the strength of character or the strength of will not to join in what was going on in our bar.* And so I joined in and I did it. I thought it stopped long ago, as you’ve heard from the argument. But I did what I did, and it was wrong; I accept that it was wrong, and I know that I’m going to be punished for doing it. The conduct is completely and absolutely unacceptable from anyone, let alone a lawyer, and I know that. I guess all I can hope is that you won’t find it completely unforgivable.”

  Lerach concluded by saying: “I feel very, very sorry to my family, who I’ve embarrassed, to my partners in my firm I’ve very much let down, and to the legal system I abused.”

  Head down, he returned to the defense table.

  Judge Walter ordered a ten-minute recess, after which he would pronounce sentence. Few left the room. At 11:06 A.M. he returned to the bench.

  “In the court’s view, Mr. Lerach’s criminal conduct is by far one of the most serious crimes that comes before this court,” Walter said. “The scope and duration of this conspiracy was breathtaking. It was a nationwide conspiracy that began in the early seventies and continued for decades … The scheme to conceal these secret payments also extended to the many judges who presided over these class actions and the fraud perpetrated on those judges is, in my view, what makes this crime so very serious and deserving of a substantial prison sentence.

  “What Mr. Lerach and others did goes to the core of our judicial system. The most egregious wrong that a lawyer can commit is to first commit a fraud on his clients; the second is to commit a fraud on the court.”

  The judge also made a point of refuting an earlier argument by Keker that few were actually harmed and that many benefited from the suits Lerach led. “First, it fails to take into consideration that this scheme effectively deprived many qualified law firms who played by the rules from becoming involved in earning fees in these cases,” the judge said. “Secondly, given the fraudulent and corrupt nature of this scheme and the steps the parties took to conceal this scheme from the courts, it’s painfully evident that the paid plaintiffs were motivated to abandon their fiduciary duties to the absent class members and take actions or make decisions in these cases in order to maximize the award of attorneys’ fees, all at the expense of the absent class.”

  Next, the judge acknowledged the letters he had received on Lerach’s behalf.

  “I’ve also learned a lot about Mr. Lerach from his colleagues, adversaries, and friends, and they all agree that Mr. Lerach’s word or handshake is far better than any promise on a written contract. They uniformly describe him as one of the most honest individuals that they have ever met,” he said. “However, with all of his intelligence, this perceived honesty and sense of justice and fairness, I cannot imagine how Mr. Lerach could have lost his moral compass and totally abandoned those qualities, as well as his oath of office as an attorney an
d become a member, a key player in this conspiracy.

  “Without the plea agreement, I would have been considering a sentence substantially in excess of the agreed-upon two-year maximum sentence,” the judge said, glancing at the prosecution table and acknowledging that the agreement was “negotiated by three very experienced prosecutors … and by Mr. Keker, who is a very experienced and skillful attorney.

  “However, there’s simply no way that I can fashion a sentence that reflects the seriousness of the offense and which would promote respect for the law and provide just punishment without imposing the maximum sentence agreed in the plea agreement. Accordingly, the court imposes the following sentence.”

  On cue, Lerach and Keker rose, as did the prosecutors across the well of the court.

  First came the fines—$250,000 paid in full within ten days. The forfeiture of $7.5 million. And finally: “It’s the judgment of the court that the defendant is hereby committed on the single count information to the custody of the Bureau of Prisons to be imprisoned for a term of twenty-four months.” Following prison, Lerach would be supervised by probation officers for two years and perform one thousand hours of community service.

  The judge and Keker conferred openly about when and where Lerach would surrender, and the date April 21 was tentatively arrived at, as was the low-security facility in the federal correctional complex at Lompoc, about 175 miles northwest of Los Angeles.