According to news reports (here), on September 18, 2007, Bill Lerach has agreed to plead guilty to a federal conspiracy charge. The plea agreement can be found here, the criminal information can be found here, and the governement’s press release can be found here. Hat tip to the WSJ.com Law Blog (here) for the links to the plea documents. The plea agreement has some interesting additional information. For example, the agreement states that Lerach is not required to cooperate with prosecutors, which probably comes as some relief to his former colleagues who are facing actual or potential criminal charges. In addition, by its entry into the agreement, the government has agreed that it will not prosecute Lerach in connection with a number of other matters, some of which are identified with a tantalizingly brief description. For example, the agreement states that the prosecutors will not continue to pursue criminal charges against Lerach in connection with “requests to courts for reimbursement of fees and costs of a damages expert witness,” referred to in the plea agreement as the “Princeton Expert” – presumably John Torkelson, the plaintiffs’s style damages expert who has had legal troubles of his own (refer here).
The agreement also says that the prosecutors will not further pursue charges against Lerach in connection with “election, campaign, or other politicial contributions made using only funds generated by conduct described” in the plea agreement. The agreement also says that prosecutors will not pursue criminal charges concerning “defendant’s investment in, or relationship with, the Acorn Technology Fund.” The agreement says just enough about these non-prosecution items to attract curiosity, but reveals little else about these items.
The plea agreement also contains the prosecutors agreement that they will not prosecute either “the Lerach firm” or current Lerach firm partners Patrick J. Coughlin or Keith F. Park for any of the conduct described in the agreement or in the list of non-prosecution items. (The inclusion of these particular provisions in the agreement make me wonder whether by his entry into this agreement, Lerach sought to protect his former firm and former law partners–and to wonder how big of a factor that was in his willingness to enter the agreement.) The agreement does not state what basis if any the prosecutors might have had to proceed against the former Lerach law firm or the two law firm partners.
For his part Lerach agrees to pay a fine of $250,000, to pay a forfeiture of $7,500,000 (in two installments), to appear at all required times, and so on. In addition, although the crime for which Lerach is pleading guilty is punishable by up to five years in prison, Lerach and the U.S. Attorney’s office agree that “an appropriate disposition of this case is…a sentence of imprisonment within the range of 12-24 months, with the court retaining discretion to substitute community confinement or home detention for no more than one-half of the term of imprisonment imposed,” with the prison term to be followed by “a three-year period of supervised release.” The defendant may withdraw from the agreement if the Court refuses to be bound by the agreement.
The factual basis for the plea agreement is set out in Exhibit A to the plea agreement. The exhibit states, among other things, that “certain senior Milberg Weiss partners agreed with various individuals that Milberg Weiss would secretly pay those individuals a portion of the attorneys’ fees that Milberg Weiss obtained in the Class Actions.” The exhibit describes the partners who agreed to this arrangement as including Lerach, David Bershad (refer here), and others. The exhibit states that the paid plaintiffs were “promised that they would be paid approximately 10% of the net attorneys’ fees that Milberg Weiss obtained in their respective Class Actions.” The exhibit states that by entering into these arrangments, the firm was able to secure a “reliable source of individuals who were ready, willing, and able to serve as named plaintiffs.”
The exhibit states that Lerach and other conspiring partners and the paid plaintiffs understood that “to the extent necessary, they would make or cause to be make false or misleading statements in documents filed in federal Class Actions,” including in documents under oath and in under oath testimony. The exhibit further states that Lerach believed that if these secret payment arrangements were discovered, the law firm and the named plaintiff would be disqualified from in the particular action as well as other actions. The exhibit also states that Lerach and other conspiring partners concealed the payments, though the use of intermediary law firms, with the understanding and intent that the funds would be distributed to the paid plaintiffs. The exhibit specifically details payments that were made to one of the named plaintiffs, Steven Cooperman (about whom, and about whose escapades with stolen paintings, refer here).
According to the government’s press release, Lerach will appear for arraignment at a later date.
The most interesting question in the wake of Lerach’s guilty pleas is whether prosecutors will now attempt to proceed against Mel Weiss, who thus far has not been indicted. (A September 19, 2007 New York Times article commenting on the possible implications of the Lerach plea for Weiss can be found here.) In addition, it remains to be seen how the pending criminal charges against Steve Schulman, another former Milberg Weiss partner, will be resolved. Finally, the indictment also included the Milberg Weiss law firm itself. Theoretically, the criminal case, which would also include at least two of the paid plaintiffs, is scheduled to go to trial in January 2008. I have previously commented extensively (for example here) about the possible impact that the Milberg Weiss firm’s and the former Milberg partners’ legal woes on the number of securities class action filings. It hardly seems a stretch to conclude that the involvement of the leading figures at the two industry leading law firms has has some impact on the filing of new lawsuits. More generally, it also seems like a stretch to suppose that these activities were limited exclusively to one law firm and took place no where else. The fact that the downturn in the number of lawsuit filings coincided with the first indictment handed up from the grand jury investigation these allegations does suggest some relation between these criminal prosecution and the number of lawsuit filings. At this point, the more important question is what the impact will be going forward. There are certainly no shortage of other law firms willing to occupy the space previously occupied by the leading lawyers, and other firms have from outside the traditional plaintiff securities bar have been coming into the sector. But it remains to be seen whether any of these other firms have the carrying capacity of the former leaders, or whether they have the willingness or ability to finance the kind of massive litigation that the leading firms have been supporting in recent years. A September 19, 2007 Wall Street Journal article regarding the plea agreement can be found here. The Point of Law blog has an interesting post here, with some pointed comments abou the plea deal (the post also has some links to some of the interesting literature from the Lerach-related archive). A September 19, 2007 Wall Street Journal editorial critical of the plea agreement can be found here. Another Lawsuit Arising From the Disruption in the Credit Market?: Speaking of Lerach’s former law firm, now known as Coughlin, Stoia, Geller, Rudman & Robbins, on September 18, 2007, the firm initiated a new lawsuit against Care Investment Trust and certain of its directors and officers, according to this press release, here. The complaint (which weishs in at a short nine pages and which may be found here) alleges that the company’s June 22, 2007 prospectus failed to allege that certain of the assets in the company’s portfolio of health-care related assets were materially impaired and therefore overvalued, and that the company was experiencing difficulty in securing warehouse financing lines. Cases like this suggest that as the credit complications arising from the subprime lending mess spread outward, it is going to become increasinly maintaining definitional clarity over what is and what is not subprime lending related litgation. But as I have noted in numerous prior posts (most recently here) the litigation wave spreading outward from the subprime mess could encompass a broad variety of companies and cases, including companies and cases having nothing directly to do with subprime lending itself. But because this company’s difficulties appear to derive from the complications in the credit market, I am aiding it to my list of subprime lending related lawsuits (here), on the theory that this company’s woes derive from the follow on contagion effect of the subprime mess. Interested parties who disagree with this case’s inclusion in the list should let me know.