Wall Street watchdog in jail
When the U.S. Government sent Eugene V. Debs to prison in 1918 for distributing antiwar pamphlets in violation of the Espionage and Sedition Act of 1917, the industrial barons breathed a sigh of relief. In the first two decades of the 20th century, big business detested Debs, the five-time Presidential candidate of the Socialist Party, champion of workers’ rights, and general trouble-maker for industry. He was sentenced to a ten-year prison term, but President Harding let him out in 1920. His arrest was clearly political.
Today, sitting in an Arizona jail cell is a man who during the 80’s and 90’s was detested by the new industrial barons of the 21st century – the CEOs of high tech corporations and financial security firms and giant accounting and insurance companies, especially the ones accused of securities fraud. They hated and feared his resourcefulness, his tenacity, and his gift for seeing through the veneer of false quarterly statements. As a lawyer, he was not intimidated by their power, and he amassed a personal fortune by winning settlements against large corporations engaged in securities fraud.
During the Clinton Administration, he warned Congress and the President of a rising tide of financial fraud and pleaded with Congress not to shut the court house doors to average investors, not to loosen regulations on derivatives and other shaky instruments, and not to reduce the funds for the Security and Exchange Commission. Republicans and some high level Democrats with ties to the financial industry, like Senators Chris Dodd and Harry Reid, and then Congressman Charles Schumer, ignored and even ridiculed his admonishments.
The louder he spoke, and the more lawsuits he filed against companies, the more enemies he made in high places. He had a target on his back, drawn by the business elite, who were pressuring the government to investigate their tormentor. Shortly after George Bush became President, word leaked out that the federal government was indeed pursuing a case against him.
Six years later, in the fall of 2007, the United States government charged San Diego lawyer Bill Lerach and other members of his firm with deceiving the courts about whether they paid people to be their plaintiffs. Lerach pled guilty.
Lerach was wrong to break the rules on paying plaintiffs and even more wrong not to admit it right away. Lerach was a victim of his enormous ego and an insatiable appetite for all that life can offer. He was not going to let something he perceived as trivial, such as the prohibition on paying plaintiffs, limit his ability to make money or cause mayhem in corporate boardrooms. He felt he could not wait for plaintiffs to come to him. When he saw fraud, he wanted to file a case.
From 1991 to 1997, I conducted opinion research, helped prepare Congressional testimony and handled some public relations for the National Association of Securities Lawyers, which included Lerach. I worked directly with him a number of times, and each time I came away impressed by his brain and his ability to focus but worried about his total lack of self-doubt and his constant hunger for more, more , more, of whatever interested him at the time. It is not hard to believe he would have gone too far.
I believe it is important, however, to separate the person from the product of his labors. While Lerach’s motives may have been monetary, his impact was immensely salutary for society. You cannot say that about the people who wanted him to go away.
In an era of government deregulation and non-enforcement, he became practically the only entity that made swindlers think twice. The records show he won over $10 billion in claims for millions of investors who believed they were defrauded by financial swindlers. In nearly every case, the fraud defendants insisted on sealing the records, closed to public scrutiny. Then they would stand on the courthouse steps and intone how they have paid ransom money to Bill Lerach in a frivolous lawsuit, just to make the suit go away. The way it works when you are at the top is: hide the facts, pay huge settlements, which corporate insurance covers, and then denounce the suits as meritless.
Lerach was a leading watchdog in hundreds of cases, helping to uncover the Savings & Loan scandals of the ’80s, as well as the Enron and Worldcom debacles. Corporate wrong-doers everywhere celebrated when he was convicted in February 2008 and sentenced to two years in prison.
There is no excuse for Lerach breaking the law. But we should also recognize that the laws, the regulations, the court procedures, even the press coverage are all stacked in favor of the powerful. Every day Lerach was on the prowl evened the odds a little bit for the rest of us.
I realize Lerach is no martyr, like Eugene v. Debs. He is an aggressive lawyer who sought fortune and fame. You will not see his name on Amnesty International’s list of political prisoners. But when you consider the wide discretion prosecutors have in terms of whom to spend their resources investigating, you might conclude that Lerach’s imprisonment is a political act by our government.
President Obama could make a political statement of his own if he pardoned Lerach. It would send Wall Street a message louder than the day’s opening bell – the junk yard dog may soon be back at the gate, so watch your step.