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Payback Time for Bill Lerach?

By Peter Burrows Back in 1990, Alan Shugart took on one of Silicon Valley's most detested antagonists: Attorney William Lerach. At the time, Shugart was CEO of disk-drive maker Seagate Technology (STX), which Lerach's law firm had repeatedly sued for securities fraud, seemingly on the basis of little more than an unexpected drop in its stock price.

After trying unsuccessfully to launch an industry group called Enough is Enough, Shugart railed against Lerach to any media outlet that would listen.

"A LOT OF ENEMIES." Once, after appearing on an hourlong national news show with Lerach, Shugart got a letter from his nemesis. Enclosed was the lawyer's business card, on which Lerach had scrawled: "Dear Al -- There's more coming."

Now, the tide may have turned. Securities lawyers say that a federal probe involving Lerach's former law firm, Milberg Weiss Bershad & Schulman, may also be aimed at Lerach, who left Milberg a year ago to co-found Lerach Coughlin Stoia Geller Rudman & Robbins. Lerach has retained the services of noted San Francisco attorney John Keker of Keker & Van Nest, says a source familiar with the proceedings. Says one securities lawyer of Lerach, "He's a high-profile guy, and he's made a lot of enemies."

No charges have been levied against Milberg Weiss or Lerach. But a federal grand jury recently indicted one of the plaintiffs in multiple civil cases brought by Milberg Weiss against companies between 1984 and 2001. The indictment alleges that the plaintiff, Seymour Lazar, received "kickbacks" for working with an undisclosed firm so it could quickly file suits before other shareholder law firms could file.

COSTLY ACTIONS. Sources say the undisclosed firm is Milberg Weiss, which issued a statement saying the indictment is "baseless" and "unfairly implicates the firm in the wrongdoing alleged against Lazar." Efforts to reach Lazar's attorney for comment for this story were unsuccessful.

Silicon Valley execs who have grappled with Lerach are already feeling more than a little vindicated. Although government reforms stopped the practice in the early 90s, the ability of Milberg Weiss to find a willing plaintiff to sue within hours of an unexpected stock drop raised suspicions with companies for years.

Faced with Lerach's aggressive tactics and the skill of his staff of lawyers, companies often would settle, rather than incur years of legal fees fighting a Milberg Weiss suit. They complained bitterly that Lerach was preying on legitimate companies which happened to have volatile stocks -- often tech-related outfits. Indeed, a judge removed the lead plaintiff from a Milberg suit against a tech firm called Terayon in 2004, questioning whether the plaintiff had helped drive down Terayon's stock by selling its stock short.

"LOVE TO SUE HIM." Based on such examples, companies came to despise Lerach. "He's just not a nice person," Shugart says to this day. "The government is 15 years too late on this one."

Privately, one Silicon Valley CEO says he would look at what legal recourse his firm might have to get back money spent defending against Milberg Weiss suits, if Lerach were now to be charged -- and ultimately found culpable -- for any improper conduct. Says this CEO: "I'd love to sue him -- although most people would be happy enough to see him in jailstripes."

Of course, such vengeful dreams are a long way from reality. While lawyers contacted for this article are certain that the U.S. Attorney's office will push its investigation aggressively, there is no evidence that Lerach is a target of the case.

Besides, Lerach has confounded critics many times before. In 1995, Shugart and other Silicon Valley execs led a lobbying effort that resulted in the Securities Litigation Reform Act, which made class-action law firms wait at least 60 days to bring a suit. It also stipulated that the largest aggrieved shareholders be the lead plaintiffs, rather than individuals with small stakes, such as Lazar.

GRUDGING ADMIRATION. Lerach's response? Rather than relying on small fry, he courted large pension funds and other big institutions that are now the usual plaintiffs. "It won't be the first time that people have claimed Bill Lerach was dead," says Seth Aronson, managing partner of O'Melveny & Myers' Los Angeles office. "He still manages to bring lawsuits." Big ones, too. For example, Lerach's firm is representing Enron and WorldCom shareholders.

Many of the corporate lawyers contacted for this story expressed grudging admiration for Lerach as a litigator. "He's been an adversary, but I feel badly for a guy who has always been honest with me, and who is a good, strong advocate" for his clients, said one securities lawyer that requested anonymity.

Some wonder if federal charges might cost Lerach's firm business with his big clients, such as state pension funds. One lawyer with a major corporation is already trying to round up others who have been sued by Milberg Weiss. "The companies that they've sued ought to get their money back," he says.

SEETHING ANGER. That won't be a slam dunk, say lawyers. Companies that have already lost in court to Lerach's legal team would have little legal recourse. And those that settled -- a majority of the cases -- often included promises of no follow-on litigation in the settlement papers.

Companies that defeated Milberg Weiss in court might try to get compensation for their legal costs -- and more. While he is skeptical that such lawsuits could succeed. "Maybe [a company] could try to come up with a malicious-prosecution theory, or some kind of abuse of process," says Bruce Vanyo, a partner at Wilson Sonsini Goodrich & Rosati. "There's going to be some very angry people out there." For some of Lerach's past targets, "this is very personal," adds Vanyo. That's for sure. Burrows is BusinessWeek's West Coast computer editor

with Lorraine Woellert in Washington

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