Lerach's Punishment Worse Than None at All

The government may be getting its pound of flesh from a plea agreement with class-action trial lawyer William Lerach, but investors won't be so lucky. They're left with a judicial system that's still saddled in many ways with the detritus of lawsuits championed by this attorney.

Lerach and co-conspirator Melvyn Weiss, who is expected to be indicted any day now on similar charges of fraud stemming from bogus class-action lawsuits, didn't invent the system they're charged with corrupting. But they honed it and refined it to such a point that they became synonymous with it.

While the class-action lawsuits were pretty much all the same to these lawyers, investors found the situation far more complicated. Essentially, investors were required to try to weed out the true evildoers from those caught up in a money-grabbing operation. WorldCom and Enron involved legitimate crimes that needed to be punished. Yet the Milberg Weiss operation also went after Raytheon (NYSE: RTN  ) , Rite Aid (NYSE: RAD  ) , and Deutsche Telekom (NYSE: DT  ) for little more than missing earnings estimates.

Companies strike out
In lawsuits like these, known as "strike suits," the plaintiffs simply sought to gain profit in the courtroom because they lost out in the marketplace. So the plea agreement that prosecutors have agreed to in Lerach's case will do little to curb other lawyers' enthusiasm for traveling down the same road.

Heck, it hasn't even deterred Lerach's own firm. Even as his indictment was pending, the Lerach Coughlin firm charged Countrywide Financial (NYSE: CFC  ) with deceptive practices. Why? Because its stock dropped from a high of $45 down to less than $20 a share.

A slap on the wrist
The deal will give the disgraced attorney one to two years in jail -- maybe. The presiding judge can always sentence him to home confinement or community service. It also fines him $8 million, pocket change when you consider that the law firm apparently received more than $1 billion in fees. The case against him alleged that the so-called victims had been paid off to the tune of $11 million to testify that they were victims of the nonexistent crimes.

Some defend the deal, saying that simply putting the biggest name in the industry behind bars and having him surrender his law license is enough to deter others. But it can also be argued that the wrist-slap being meted out does nothing to separate him from the profits he has (admittedly) illegally earned.

Worse than nothing at all
Insidious corporate corruption needs to be weeded out, its practitioners charged, and the guilty locked up -- not only to vindicate those harmed by the crime, but also as a preventative against widespread recurrence. When the punishment meted out is tame, when it doesn't rise to the level of the crime perpetrated, there's no lesson to be learned by others who may be tempted to go astray.

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