WASHINGTON -- John Edwards launched his slight public career -- one Senate term, two presidential candidacies -- with the money and reputation he made as a trial lawyer. Today he is the candidate of a small fraction of the electorate but a sizable portion of America's trial lawyers. Edwards says Washington is "corrupt." Well.
Within Edwards' lucrative trial bar constituency, there has been a flurry of criminal indictments. Their target has been what Fortune magazine calls the law firm of Hubris Hypocrisy and Greed. (See Peter Elkind's jaw-dropping report in the issue of Nov. 13, 2006.) The real name of the nation's foremost securities class-action firm is Milberg Weiss.
It has been indicted as a "racketeering enterprise" that obstructed justice and committed perjury, bribery and fraud while collecting about $250 million in fees from about 250 cases using paid plaintiffs, which is illegal. Several of the firm's members, past and present, also have been indicted.
Since 1965, the firm has won, often by tactics indistinguishable from extortion, $45 billion from corporations -- more than $1 billion a year for plaintiffs claiming to have been cheated as investors. Plaintiffs firms such as Milberg Weiss are paid contingency fees -- they are paid only if they win, but up to 30 percent of what is won. Mel Weiss, whose case is going to trial, and his former partner, Bill Lerach, who specialized in volatile stocks of Silicon Valley companies in the 1990s and is now going to jail, each pocketed -- it would be strange to say they earned -- more than $100 million in the 1990s. The firm itself has been charged with paying $11.4 million to three serial plaintiffs who testified in 180 cases over 25 years, claiming to have been repeatedly defrauded.
For Milberg Weiss to land the lucrative role as lead counsel, in charge of a case, it had to be first to file suit -- to win the "race to the courthouse." The firm's tactic was to store a few plaintiffs in its pantry. They would buy small amounts of stock in many companies, so they were poised to sue any of the companies whose stock lost substantial value.Lead plaintiffs must swear that they are not getting special payments. According to prosecutors, some of Milberg Weiss' phony plaintiffs were getting millions of dollars in kickbacks -- generally about 10 percent of net attorneys' fees -- for their charade as injured investors.
David Bershad, who has made $161 million with the firm since 1983, has pleaded guilty to one charge and cooperated with prosecutors. Steven Schulman has pleaded guilty to racketeering. The collateral damage is still spreading. A Los Angeles attorney has pleaded guilty to acting as a conduit for secret payments to one of the pantry plaintiffs for accepting payments from Milberg Weiss for work never done and for passing the payments on to the plaintiff.
How do you convict a company of the crime of having the price of its stock fall? How do you prove that a company is guilty of fraud and liable for losses it presumably did not want? Often you do not prove it, or even plan to. Rather, you threaten to be such a costly nuisance that the company pays you to go away. Milberg Weiss is even suing investment banks on behalf of investors in companies' initial public offerings that soared and then plummeted.
Does political money flow toward beliefs or do beliefs move toward money? Much scholarship strongly suggests the former. Democrats are rewarded for their devotion to trial lawyers, but there is another reason why they are disposed to devotion. The problem is not that Democrats are "bought" by trial lawyers. The problem is that Democrats, who see victims everywhere, are actually disposed to believe the narrative of pandemic victimization of investors.
Milberg Weiss turned that narrative into gold, which it shared with Democrats. Since 1980, the firm's partners have given more than $7 million to Democratic candidates, and an additional $500,000 to help build the Democratic National Committee's new headquarters.
Until Lerach pleaded guilty he was a fundraiser for Edwards, for whom he collected $64,000 from lawyers in the firm he founded after he had a falling out with Weiss. Remember this when next you hear Edwards' populist riff about trial lawyers as white knights protecting little people.