The Lawyer Ceos Love To Hate

JUST HOW MUCH DO THE HIGH-TECH folks in Silicon Valley hate Bill Lerach? They've called him "parasite," "leech," "vermin," "pond scum" and "the lowest form of life on earth." And those are the compliments. "Is he still alive?" asked Al Shugart, CEO of Seagate Technology, in one magazine article. "I was thinking maybe something would've happened to him by now."

What is it about this curly, cherubic 49-year-old lawyer that engenders such disgust? Lerach, based in San Diego, is the nation's premier class-action specialist who sues fat-cat companies for securities fraud. Here's how he works: you buy a high-flying technology stock. Its price takes a plunge. Within days, Lerach hooks up with a few shareholders and is in court on their behalf -- and yours, since you're part of the "class" of affected investors -- claiming fraud. Typically, Lerach and his partners allege that by lies and deceptions the company has artificially jacked up the stock price. In defense, management cites the risks of the marketplace. These are nasty contests, the sort that corporate executives take personally, especially when they lose. "I've never doubted the sincerity of their hatred," Lerach says of his corporate adversaries. "But it doesn't bother me." In the last two years, Lerach and his firm have raked in a billion dollars for thousands of complaining investors -- from such companies as Dell Computers and Abbott Laboratories -- and a hefty portion of that for his law firm. Estimates of Lerach's annual salary go up to $10 million. He's spent some of it on a new 10,000-square-foot villa, with maid's quarters and a tile-roofed doghouse.

To hear him tell it, Lerach is a private enforcer of consumer protection -- a Robin Hood in pinstripes who takes from the rich and gives to, well . . . the less rich. To his critics, Lerachian lawsuits are "terrorism," "shakedowns" and "gun-to-the-head carjacking." Companies sometimes settle claims they regard as meritless just to avoid expensive court struggles. "He's like a schoolyard tough guy who says, "Give me all your cookies or I'll beat you up'," complains Shugart, whose disk-drive company has been sued three times by Lerach. "So you have to give him your cookies."

There's a verb in the Valley -- to be "Lerached." It means getting sued by shareholders when a corporation's stock falls off the table. Like that of Silicon Graphics Inc., the giant maker of 3-D computer workstations. Last fall SGI's stock rose to a high of $38.75, while nine top executives were selling $14 million of their shares. When the company on Jan. 2 announced disappointing revenues, the stock tumbled nearly 20 percent, costing shareholders millions. Enter Lerach. Last month he filed suit against SGI alleging that the stock price had been "artificially inflated" by executives who hid information about manufacturing delays. SGI, which Lerach once sued unsuccessfully, denies the charge.

The federal lawsuit normally would be just one of dozens Lerach brings annually. But this one is more significant. Late last year Congress passed securities reform designed to make the work of plaintiffs' lawyers like Lerach harder. They have to find more incriminating evidence before filing suit, and they risk draconian financial penalties if they lose. The SGI case is likely to be the first test of the new law, which SGI chair Ed McCracken lobbied extensively for. Lerach doesn't profess much worry. "They're trying to drive a stake in our heart," he says. "But they'll end up only stabbing us in the arm."

Lerach's firm makes mistakes. One hastily filed complaint against Philip Morris in 1993 used an old form and referred to the cigarette maker as part of "the toy industry." But even his enemies salute Lerach's preparation. There's an entire room at his firm of laser disks of SEC filings, which make it easier to pull up choice morsels on potential targets. Charming and arrogant, erudite and foulmouthed, he relishes being the poster boy of Silicon Valley's efforts to put him out of business. He calls himself "the Willie Horton of securities law."

In addition to the new federal statute, Lerach faces problems in California. Fearing that state courts could become a refuge for his kind of lawsuit, high-tech executives succeeded in getting an initiative on the California ballot next month that would severely limit class actions by small investors. In their campaign literature, backers of the measure don't mention Lerach, but just "one lawyer" who "took almost $250 million out of the California economy" in "a single year." Plaintiffs' lawyers have come back with their own initiative in November that would restore their rights in state court. Lerach and his firm have contributed $1.8 million -- two thirds of the total -- to efforts to defeat the March one. If they lose, maybe Lerach can sue.