Monday, December 04, 2006

In Class Action Securities Litigation Sometimes I Wonder Who are the Clients

Recently Floyd Norris in his blog Notions of High and Low Finance and Peter Lattman in the Wall Street Journal Law Blog posted articles about William S. Lerach (formerly a partner of the indicted Milberg Weiss law firm).

In his post entitled “Making Lerach Pay” Norris wrote:

William S. Lerach, the class-action securities lawyer most hated in Silicon Valley, and his law firm have been ordered by a federal judge in Houston to pay some of the legal costs incurred by Alliance Capital after Mr. Lerach sued the company in the Enron case. The judge says that Mr. Lerach pursed the case after it became clear it had no merit.

Mr. Norris asked the following question:

Would the deterrent have been greater if the penalty had been assessed against the lead plaintiff in this class action, the regents of the University of California, rather than against Mr. Lerach’s law firm? Might such a ruling make institutional investors less willing to serve as lead plaintiffs in class action suits?

In his post entitled “Judge: Lerach Should Pay Attorney’s Fees in Enron Litigation” Peter Lattman wrote:

Securities litigators are also surprised by her suggestion in the opinion that Lerach’s law firm, the lead counsel in the case, pay the legal fees and costs of Alliance (now known as AllianceBernstein), rather than the plaintiffs themselves.

I wrote the following comment in both of their Blogs:

I have learned from my training as a CPA to look at “substance over form.” In “form” many of law firms in the “class action” bar represent shareholders who are in theory their clients.

Unfortunately, in “substance” when we examine the pattern of behavior of certain law firms it appears that they have given up the ideals of the legal profession and now act as self serving businesses that represent not their client’s interest but their own interests.

Since the passage of the Private Securities Litigation Reform Act of 1995 was passed in law, large institutional investors (such as large public pension funds) have more power in the selection of the lead plaintiff’s counsel in class action securities litigation.

An unintended consequence the law has created is at least in appearance and possibly in practice is a “pay to play” situation.

Certain class action law firms funnel political contributions to politicians who serve as fiduciaries or politicians who appoint various fiduciaries to the large public pension plans who often exert considerable influence in the selection of lead counsel.

As a result, other law firms who are “less politically connected” that are vying to be appointed lead counsel are at a disadvantage due to the political contributions of competing law firms. These law firms who do not make such political contributions may be able to represent shareholders interests more effectively and economically.

There has been an increasing concentration of power in a few selected class action plaintiff law firms since this legislation has been enacted. Many such firms are those that seem to use their political clout.

We have seen the recent indictment of the Milberg Weiss law firm and more indictments may be coming. It is alleged that certain individuals at Milberg Weiss bribed people to be lead plaintiffs in shareholder litigation so it would increase the law firm’s chances of being selected lead counsel.

In many of these class action law suits the law firms make out much better economically than the supposed “clients” they represent – unless of course such clients have received bribes or are the beneficiaries of political contributions via “pay to play.”

Therefore, I can understand the Judge’s decision to make Mr. Lerach’s law firm pay some legal costs.

Mr. Lerach was a partner in the Milberg law firm and is no stranger to actions that create at least the appearance of “pay to play.”

Certain law firms of the class action plaintiff’s bar by bringing unwarranted law suits, possibly bribing potential “clients”, engaging in possible “pay to play”, and charging excessive legal fees are violating the same principles of transparency and accountability they claim to defend.

By such actions they give ammunition to those who seek to reduce accountability and responsibility of corporate executives who violate the integrity of our capitalist free market economic system.


Sam E. Antar


I was rightfully sued by Milberg Weiss in the Crazy Eddie class action litigation.

If the allegations against the law firm and certain defendants in the indictment are true it would be particularly distressing for me that members of the very same firm that prosecuted me in the name of rooting out criminality have possibly succumbed to the same level of my former immorality.

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