September 30, 2004

From Lerach to Franken In The Same Morning

Talk about your juxtapositions. I went to hear Bill Lerach, the attorney so famously (or infamously) associated with class-action securities lawsuits, speak at the San Diego Venture Group breakfast session this morning.

"How many CEOs are there in the audience?" the moderator asked at the beginning of the session. Hundreds of hands went up. "It's a target-rich environment," the moderator then quipped to Lerach.

"I haven't eaten breakfast this morning," Lerach said.

Some highlights of some of the things Lerach spoke about over the course of the hour:

  • Corporate fraud is still going on, despite all the high-profile criminal suits, people going to jail, etc. "There's just as much fraud as ever", he said. "The insiders are still cooking the books".

  • "Billions of dollars [due to litigation] are going to change hands in the next 24 months."

  • He spoke a lot about the "unintended consequences" of both Sarbanes-Oxley legistlation, as well as the 1995 securities reform legistlation that limited shareholder power.

  • He spoke a lot about "derivative lawsuits" -- "historically the red-headed step-children of class actions" but now coming into favor by many law firms -- particularly suits over 401k's and other issues

  • Asked by the moderator why the majority of cases he deals with are small- to mid-cap companies as opposed to big-cap companies, Lerach said: "Look, you get up each morning and take what comes. It's like we're hunters. A big animal walks in front of you and you shoot. A small animal walks in front of you and you go after that."

  • Sarbanes-Oxley has been helpful, he said, because it serves as a "discovery roadmap", and it has changed judicial attitudes. Federal judges, even conservative ones, are far less sympathetic to directors and officers who claim they weren't aware of fraud or corruption going on in the company.

  • As for the term "safe harbor": "We used to call it, 'safe ocean'".

  • He twice mentioned Cardinal Health and the $155M of insider trading that went on there. Enron and Cardinal Health were probably the two most-often mentioned companies over the course of the hour.

  • He spoke about a new case that hasn't gone public yet, where the emails exchanged really blew him away. "I don't know how humans can write these emails," he said. The case involves millions of dollars of fraud and fake warehouses and other things. In this case, his investigators found an email dated 9/11/2001 from the CFO to the CEO of this company that said, "Today's a bad day for America, but a lucky day for us."

  • "These cases are not frivolous. You know that."

  • But at one point during the talk, Lerach admitted that the main thing that causes him to go after a company is a sudden price change in the company's stock price. That's pretty much it. And that's why so many people think his suits are frivolous. It's why people look upon Lerach and other such attorneys as predators, hyenas on the savannah of the marketplace.

  • During the Q&A, I asked him what he thought of the Google IPO, and whether or not that type of IPO was a good or bad trend if other companies go that route in the future. I was surprised he didn't want to comment on it. "That's beyond my expertise to answer," he said. "It seems they were successful with their IPO."

From the Lerach event I make a quick stop over at UCSD to catch a bit of the live broadcast of the Al Franken Show at Mandeville Auditorium.

I only stayed for the first hour of the three-hour program, but it was great. Franken has a great wit, and the audience was great as well. The media were all over the place outside, with those newsvans with their 100-ft antenna poles popping up on top.

Meg Ryan made a surprise appearance, sitting down next to Franken at the table onstage to perform a funny skit about "liberals" in Hollywood. Funny line from Meg during the skit: "These frivolous lawsuits [the very ones Lerach & Co are famous for!] cost America jobs -- like the one I didn't get for Erin Brockovich!"

I've not listened to the Franken show much, or anything else on Air America (it only recently became available in the San Diego market, on, of all things, a ClearChannel-owned AM station), but he is pretty damn good at what he does, and he makes some really good points. Also, until today, I never quite understood Air America's choice of using recordings of live Grateful Dead concerts as the background/theme music on the show. But seeing Franken live, with the Dead music blaring from the PA during the breaks, and hearing it blaring from the PA outside the building and echoing around the campus, it was really exciting and affective. Suddenly it all made sense and I now see how it works.

Posted by brian at September 30, 2004 12:38 PM

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