THE BLOG

The Fall of the 'King of Torts' Is Merely the Tip of the Iceberg of Class Action Deceit

06/01/2010 05:12 am ET | Updated May 25, 2011

The Wall Street Journal recently reviewed a new book published this month about attorney-felon and former "King of Torts" class action lawyer Bill Lerach. The article deals with the unscrupulous ways in which he sued corporations claiming to be on the side of "the little guy" -- while amassing a personal fortune estimated at $900 million, according to the San Diego Business Journal.

However, by focusing on Mr. Lerach's personal misdeeds, the article fails to address the much larger fraud which plaintiff's securities class action lawyers perpetrate every day against the very "little guy" that they claim to represent. Securities class action lawsuits hurt the "little guy" shareholder, and benefit the multi-millionaire class action lawyers.

What would you think of a legal system in which someone burglarizes your home, yet you are the one who is sued and have to pay for the damage caused by the burglar? A crime has taken place but the penalty is imposed on the victim. Wouldn't you think that such a system which allowed lawyers to collect huge fees for obtaining this kind of twisted justice was tragically flawed?

But this is a typical securities class action lawsuit. You own stock in a company. The corporate executives do something the Lerachs of the legal world can sue about, so they file their lawsuit against the corporation claiming to represent you, the shareholder. The lawsuit settles, but the corporate employees responsible for the alleged wrongdoing pay nothing. The settlements are paid for by the company's insurer who is paid by, you guessed it, the shareholders! As a result the shareholders are essentially suing themselves and paying for the settlement when, to begin with, they were the victims of the wrongdoing! This is exactly like the homeowner who has to pay for the burglar's crime. When the company pays directly, the settlement involuntarily takes the shareholders' money out of the company and gives it back to the shareholder, less the lawyer's one-third fee. And to add insult to injury, the shareholders' investment is diminished due to the reduction in the value of the corporation's assets caused by the lawsuit. The shareholders lose three times, while the class action lawyers win big. Sue enough multi-billion dollar companies, and it's possible to amass a $900 million personal fortune.

If you think I am misstating the case, I offer as my first witness U.S. District Court Judge, the Honorable Jed S. Rakoff, who in refusing to approve a $33 million class action settlement with Bank of America, called the settlement "not fair, first and foremost, because it does not comport with the most elementary notions of justice and morality." "[THE SETTLEMENT] PROPOSES THAT THE THE SHAREHOLDERS WHO WERE THE VICTIMS OF THE BANK'S ALLEGED MISCONDUCT NOW PAY THE PENALTY FOR THAT MISCONDUCT." With more than 200 securities class action lawsuits being filed against American companies in a typical year, it is easy to see that Mr. Lerach's crimes are indeed merely the tip of a monstrous iceberg that is the securities class action lawsuit racket.