Bill Lerach Sentenced
Who is Bill Lerach? Read the Economist article. He invented (if that’s the right term) the shareholder class-action lawsuit. We’ve all seen companies that lose money, their stock prices plummet - all due to mismanagement at the top. Often in these situations, the individual stockholders are hurt but the incompetent execs walk away with bonuses, golden parachutes, etc.
Lerach would organize the stockholders and then file suit against the company. His actions were often controversial but the penalties levied against him seem extreme.
I’d be interested in Professor Z’s take: is Lerach a martyr in the fight against poor corporate governance - or just another crook?
I have mixed feelings. Most people would say he was a shark or a vulture. Those class actions have little or no deterrent value. They are designed to generate legal fees for the class action attorneys.
The way it works is that the lawyer sees a stock take a nosedive. Then, he checks to see if the company made any misstatements in its prospectus, etc, and then the lawyers sue for fraud, claiming that the stockholders “relied” on the fraudulent statement. (We’ll see if the latest Supreme Court case makes it less likely that class action plaintiffs will prevail on these types of claims)
That’s not to say that all class action lawyers are vultures.
Nader makes a good point: he’s not as bad as some of the corporate execs that he sues. But, regardless of motive, a loss of shareholder value relating to a payment of millions in lawyers’ fees (especially where kickbacks are involved) or due to alleged fraud… it’s still a loss to shareholder value.