CORPORATE CRIME REPORTER
William
Lerach on Corporate Power, Corporate Crime and the Failure of the Democrats
to Confront Wall Street
24 Corporate Crime Reporter 40(12), October 18, 2010
He was the lawyer corporate America feared most.
He was the Wall Street Journal’s whipping boy.
He litigated the biggest corporate fraud cases in America.
Against Disney, Citibank, Apple Computer, Disney, WorldCom and Enron.
He and his partners returned more than $45 billion in fraud judgments or settlements to defrauded shareholders.
Then, it all came crashing down.
A 2007 felony guilty plea. Break up of his law firm. Disbarment. Imprisonment for 17 months.
But now, William Lerach is out of prison.
And ready again to challenge corporate power.
“I’m very lucky,” Lerach said in an interview with Corporate Crime Reporter last week. “I have a tremendous family. My family held together, stuck with me in every way. I was not rendered bankrupt or impoverished by what happened. I have a lot to be thankful for and a lot to be upbeat about.”
“I’m relatively young. I’m healthy. I’m financially secure. And I’m finding ways to again be active in matters that I think are important.”
Not that he will go back and begin litigating again against the corporate criminals.
He says he has no desire to do it.
Could he get his law license back?
“I could, if I wanted to spend five or seven years and jump through 25 hoops,” Lerach said. “But I’m not going to do that.”
“Are you talking about a Presidential pardon?”
“No. To get my license back, you can go back and petition and do a lot of things to get your license back. I don’t have any desire to do that. I lived that life. I’m very satisfied with the work that we did. I achieved a great deal and I’m happy with it. And I’m now ready to do different things.”
Like what?
“I intend to be active in a number of different ways, including teaching,” Lerach says. “I intend to teach. I’m rather surprised by the number of requests that I get to lecture. And I’ll continue to do that. I’m also writing.”
Lerach says that corporations have become much more powerful since he began his law practice three decades ago.
“Corporations are much more powerful today,” Lerach says. “The financial interests are much more powerful than they were back in 1976 when I started out on my work in this field.”
“They have proven it by their consistent ability to influence, if not dictate and control, legislative outcomes. They absolutely and positively have almost a controlling influence on the federal judiciary.”
“The amount of money being spent on lobbying, their effectiveness in lobbying, their capturing of the regulatory process – in almost every aspect that I can think of, their power is much, much greater than it was 25 or 30 years ago.”
Corporations have strangled regulation and virtually crushed the plaintiffs’ bar, Lerach says.
“I’m old enough now to get a bit of a historical perspective on it,” Lerach says. “It’s the accumulated weight of one additional burden and barrier stacked on top of each other that is killing this litigation.”
“I’m so concerned that not only are the halcyon days of private litigation over, but this field of private litigation may be fatally compromised,” Lerach says.
He points to enhanced pleading requirements, cases being knocked out at summary judgment, and interlocutory appeals of class certification.
“All of this stacked up not only means that substantively the plaintiff in the big corporate challenge case faces a much greater likelihood of an adverse outcome,”
Lerach
says. “But what he faces for sure is an elongated litigation schedule
where a case is going to last for four, five or six years. That’s a matter
that only favors the defendants, because of the company’s resources, because
the corporation is holding on to the money it owes others. And this greatly
disadvantages the plaintiff and the lawyer who has the capital carrying costs.”
“Big corporate challenge litigation has become much riskier for the plaintiffs
and much more problematic in their outcomes.”
“And they know it on the other side. They know that they have the system under their control. If these guys are worried about anything, they are worried that the system is tilted too far in favor of their clients. And there are not going to be enough cases for them to continue to defend and make the large fees that they make.
That’s what they are worried about.”
Lerach is also ringing alarm bells about the pension system, which he says is anywhere from $2 trillion to $3 trillion in the hole.
“It all starts out with the common sense notion that the easiest promise in the world to make is a promise that someone else will have to perform,” Lerach says. “That was clearly done with public and private pension promises made in this country. And now, as the baby boomers are about to retire and demand that the promises made to them be kept, the fact of the matter is that the pension systems, public and private, depending on how you count, are somewhere between $2 trillion and $3 trillion short of the amount needed to meet the promises.”
“And within all of this are the seeds for political and generational warfare.”
“You can step back from this and an argument could be made that the so-called great bull market that lasted from the 1970s until about the year 2000 was largely fueled by baby boomers coming into their salad days, having excess disposable income. And that income found its way into the stock market, the equity markets, through mutual funds, direct investments, pension funds.”
“This created much more buying demand than selling demand, and since the stock market is a mechanism of supply and demand, you saw a major advancement over those years in the stock market.”
“The danger now, as the baby boomers now move to retirement age, they become consumers of capital, but certainly not providers of additional capital going forward. This will reduce the buying pressure in the market.”
“If the big funds then have to begin to sell their equities to meet the retirement promises that have been made, you could get an avalanche, and a secular generational bear market.”
“There are some who think this could happen. And there is some reason to think that it could.”
But Lerach has a fix.
“Let’s create a federal non-taxable bond to be made available to qualified retirement plans,” Lerach says. “And require that over the next six or seven years, all public and private pension plans migrate their investment portfolios to the point where 70 percent of the assets of the fund will be in these government issued bonds.”
“These government bonds can pay 7 percent interest – which is certainly more than the market rate – but also is a rate that would help these funds get the kind of stable ongoing return that is needed for them to meet their promises.”
“This kind of approach has the benefit of making the pension funds stop speculating with people’s life savings in an effort to take greater risks to make greater returns to make up for their prior losses.”
“If they keep speculating with these retirement funds, I’ll tell you what is going to happen. They will lose more money. Speculators always lose their money. Taking greater risks to make up for past mistakes can’t be the answer.”
“I suggest this is one part of a solution. It will help finance the federal deficit. The taxpayer is going to help pay for this problem anyway, so let them help pay for it this way.”
Lerach was critical of the Democrats for not confronting Wall Street head on.
“President Obama is an accomodationist by his nature,” Lerach said. “By selecting the financial advisers that he did, he made it clear that he was not going to take on Wall Street in any sense – like Franklin Roosevelt did and like many people thought needed to be done here.”
“The Democratic Party, while it uses an anti-Wall Street rhetoric to periodically fire up its political base as required for election time politics, does not follow through on any of that. Senators like Chris Dodd and Charles Schumer – they are corporate Democrats, they are Wall Street Democrats.”
“Wall Street and corporate money has completely come to dominate American politics. On the issues that economic progressives care about, there is no left in the policy world. It’s just not there.”
Why then was Lerach so supportive of the Democratic Party?
“We had legitimate economic interests at stake in the system,” Lerach said. “We wanted to try to have a voice to influence policy. And the only way you can have a voice in American politics today is to contribute money so that at least you get the opportunity for you and your voice to be heard.”
“We did get our views heard from time to time. And our views were kept in mind while the corporate Democrats went along with Wall Street and the big corporations.
And they out contributed us by a million to one. I’m very disappointed with the Democrats on matters economic.”
[For a complete transcript of the Interview with William Lerach, see 24 Corporate Crime Reporter 40(12), October 18, 2010, print edition only.]
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