Shakedown artist

Attorney William Lerach is preparing to serve his two-year prison sentence, though The Wall Street Journal's coverage of the process makes it sound more like an 18-year-old deciding where to attend college:

"They say the weather's better at Lompoc, but the commissary's better at Taft," the wealthy barrister told the Journal during a tour of Lerach's multimillion-dollar mansion on the Pacific cliffs above La Jolla. So Lerach asked the judge to send him to the low-security federal penitentiary at Lompoc, more generally called "Club Fed." The judge complied.

Lerach was found guilty -- several of his former associates also stand charged -- in a scheme to kick back large payments to clients who agreed to serve as lead plaintiffs in class-action lawsuits.

While admitting his guilt, Lerach makes light of the offense, asserting no one else has ever been prosecuted for a mere ethical misstep. The practice of handing secret kickbacks to the plaintiffs is illegal because such favoritism can potentially work against other plaintiffs in the class action, though Lerach denies that ever happened. Furthermore -- sounding a bit like Barabas in "The Jew of Malta" -- he asserts he stopped paying the kickbacks years ago.

The disgraced champion of the "stockholders" class-action lawsuit may have a point -- not that he committed no serious crime, but that a legal system nearly impotent when it comes to policing such massive misbehavior ended up charging him with what amounts to a lesser offense.

The specialty that attorney Lerach perfected -- some say he actually invented it -- was to scan the business pages, looking for publicly traded corporations whose stock values had fallen. Lerach would then locate a holder of that company's stock -- we now know how he got these "aggrieved parties" to come aboard -- to serve as lead plaintiff in a class-action lawsuit which contended every stockholder had been defrauded by utterances of corporate officers voicing false promises of riches to be made just by buying their shares.

Now, it's certainly possible to commit criminal fraud in touting a stock issue. But those aren't the folks Lerach and his pals went after. They simply claimed that virtually any positive utterances about their companies which had been issued by a reputable corporate CEO or CFO, prior to a period during which share values fell, constituted wrongdoing.

Aware they could face unsophisticated juries who might buy such nonsense, many corporations paid up. How well the lawyers did on their fees can be judged by a quick perusal of the real estate listings for clifftop mansions in La Jolla.

Who were the real culprits? Other than the greedy perpetrators, let's start with the judges who allowed such lawsuits to move forward.

Stockholders should be presumed to be knowledgeable investors who realize any issue can move down as well as up for any number of non-criminal reasons.

The real victims, here? Not just the extorted corporations, from which Lerach and his buddies sucked wealth like giant tapeworms, but every U.S. investor who's attended a stockholders' meeting in recent years, hoping to hear some straight news but was told, "On advice of counsel we can't answer your questions because we might get hauled into court for making false promises."

That's Lerach's legacy. And it stinks.