Lerach in a Hard Place

Stick Bill Lerach in a den of corporate defense lawyers — with the atmosphere heavy from stock option backdating probes, not to mention the SEC enforcement attorneys in the room — and one could expect at least a few taut exchanges. Indeed, on a securities litigation panel yesterday in San Francisco sponsored by the Practicing Law Institute, the head of plaintiff firm Lerach Coughlin Stoia Geller Rudman & Robbins proved a rumpled foil for his sleeker counterparts.

Lerach, of course, argued his securities class actions serve the public good by forcing corporate boards to be more ethical — though at one point, he did digress into more personal motivations: “Hey, we all gotta eat.”

Corporate directors and their lawyers — and lawyers who served as directors — have come under intense scrutiny in the backdating scandal because of option grants made by boards to top executives. In this scandal, some of “the actual [problematic] conduct is being done by the board,” SEC associate district administrator Marc Fagel said.

Irell & Manella partner David Siegel said he didn’t doubt fear of Lerach and the plaintiff bar was a good motivator, but that when it comes to stock option backdating, most post-2002 corporate directors want to do the right thing.

Now shareholders are getting hit with the huge cost of investigating accounting behavior from years ago, he said. “I think an inefficient cost/benefit analysis goes into the civil litigation,” Siegel said.

“That’s a rather benign view of the stock option backdating situation,” Lerach countered. “That view gives us some comfort, because we will not be without work in our old age.”

On derivative suits, Lerach played nice with the defense lawyers, arguing such actions brought by the plaintiff’s bar can help the company get around exclusions and collect on their D&O insurance policies. “That’s where a little, pesky shareholder lawyer can be helpful,” Lerach said.

“A little derivative lawyer might be OK,” Siegel responded. “Our problem is they’ve all been driven out of the business!”

Dan Levine

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