Has the Justice Department Achieved what the PSLRA Could Not?

Today’s New York Times reports that famed securities plaintiffs attorney Bill Lerach may leave the firm he founded three years ago.  Lerach is the lead attorney in the ongoing Enron securities litigation and has already recovered $7.3 billion for shareholders in the case. Here is the story: Top Lawyer, Under Fire, May Depart.

The Times reports that Lerach’s expected departure may be part of a deal to spare his firm an indictment in connection with an ongoing investigation into allegations of kickbacks paid to securities class action plaintiffs.  Lerach’s former firm, Milberg Weiss, and two of its former partners are currently under indictment in connection with the alleged scheme.

If the Times reports are true, there is a certain irony in the trajectory of Lerach’s career since Congress adopted the Private Securities Litigation Reform Act of 1995 (PSLRA), a bill said to be designed to put Lerach out of business.  Instead, the PSLRA only served to strengthen Lerach’s position as the top securities litigator in the country. 

More ironic is the fact that the PSLRA’s lead plaintiff provisions should have eliminated any temptation to “bribe” individual shareholders to serve as class action plaintiffs.  Under the lead plaintiff provisions, institutional investors with the largest stake in shareholder suits became the most attractive potential clients.  Many such investors are willing to pay plaintiffs firms to monitor their portfolios and, due to their significant stakes in the corporations, should need little inducement to serves as lead plaintiffs in securities litigation.

So, the PSLRA which was designed to destroy Lerach did not, and the practice of relying on “professional plaintiffs” that the PSLRA was designed to eliminate may yet lead to his downfall.

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