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Legal     1 - Duke Energy Employee Advocate

Legal - Page 13

"J.P. Morgan and the accounting industry and the high-tech companies can't buy us off."
- William Lerach, plaintiffs' lawyer

From Millions to 11 Cents Per Hour

New York Times – by Russ Mitchell – August 12, 2002

(8/11/02) - Assume you are a major corporate executive accused of a securities fraud that has caused hundreds of millions of dollars of investor losses. Maybe you'll be acquitted. But what if you're convicted? How long will your sentence last? Where will you serve the time? And will there be tennis?

An entire nation of stockholders, it seems, is calling for white-collar blood. Congress has enacted legislation calling for doubled maximum sentences. President Bush is threatening "hard time." Last week, Samuel D. Waksal, the former chief executive of ImClone Systems, was indicted on multiple charges including bank fraud — which alone could carry a 30-year sentence. On the day Worldcom's former chief financial officer, Scott D. Sullivan, was handcuffed and arrested, Attorney General John Ashcroft talked about sending him away for 65 years.

Hyperbole? Yes. But so is the widespread notion that major-league white-collar convicts don't face heavy prison time, according to interviews with prominent felons, lawyers and Justice Department officials.

On the contrary, nonviolent criminals convicted of financial felonies can face years or even decades in prison, especially since November 2001, when the United States Sentencing Commission drastically increased sentences for white-collar crime, with special emphasis on frauds involving many millions of dollars.

Under the older sentencing guidelines, a first-time, nonviolent offender who committed a fraud that caused 50 or more people to lose $100 million or more faced a prison sentence of 5 years to 6.5 years in a federal institution. Under the mathematical formula used by the sentencing commission in the 2001 guidelines, the same individual faces a minimum of 19.5 years and a maximum of 24.5 years. Michael R. Milken, the financier sentenced to 10 years for securities fraud in 1990, for example, could easily have received at least double that term under the 2001 guidelines. (His sentence was later reduced, and he served 22 months. Since then, federal parole has been abolished, and the best an inmate can hope for is a 15 percent reduction for good behavior.)

Ten years is a critical threshold; convicts sentenced to more than 10 years are placed in a prison behind fences and razor wire. Less than 10, and you've got a good chance of residing at a prison camp, often fenceless, for inmates with low risk for escape or violence regardless of their crime.

Say you've negotiated a deal with the prosecution, pleaded guilty to a lesser charge and been sentenced to five years in prison. The Bureau of Prisons has reviewed your nonviolent history, and you've qualified for camp. The bureau will try to locate you within 500 miles of your family, but makes no promises.

The idea that white-collar convicts angle for prisons where they can be among their own kind — at Allenwood, Pa., say, or Lompoc, Calif. — is a myth. For one thing, those serving time for white-collar crimes number only about 1,000 of the federal system's 160,000 inmates, or less than 1 percent. So you may be surprised to find yourself surrounded by drug dealers, robbers and check kiters. In any event, most prisoners try to land themselves where their visitors won't have to travel far.

You can request a particular camp, and sometimes you'll succeed, particularly if you have a good lawyer. You might want to be near your ailing mother, or be placed in a camp that serves special diets. You may be elderly or have special medical needs. A. Alfred Taubman, 78, the former chairman of Sotheby's, who began serving his one-year sentence less than two weeks ago for conspiring to fix prices, was placed at a prison medical center in Rochester, Minn., because of his age.

You'll also want court permission to self-surrender, which means having family or friends drive you to the prison and leave you at the gate. Otherwise, you'll ride what convicted felons call the Super Shuttle from hell: dressed in a jumpsuit, shackled, loaded on a van with up to 15 other prisoners, making stops at several prisons on a trip that could take hours or even days.

Former convicts say many illusions are broken the first day. "They expect either `The Shawshank Redemption' or the myth of `Club Fed'," said David Novak, who spent nine months at the prison camp in Eglin, Fla., in 1997 for purposely crashing his aircraft and filing a false insurance claim. ("I was an idiot," Mr. Novak said. "My value system was skewed.")

The term "camp" conjures images of horseback riding, swimming and weenie roasts. Mr. Novak said some Wall Street executives showed up thinking they could wear their own clothes, go home on weekends, play golf and bring their laptops — all wrong. Almost no personal property is allowed, not even contact lenses. Inmates are allowed only one religious text, one pair of eyeglasses, dentures and dental bridge, one solid wedding ring with no stones, $20 in change for vending machines and cash or money orders for an inmate account.

An inmate can put unlimited funds in the account but is allowed to spend only $175 a month. Inmates can buy from a small selection of athletic shoes, toiletries and snacks in the commissary, but most money is consumed on telephone calls, which are monitored. All prisoners are required to work, in jobs that pay 11 cents an hour — tax free.

Living conditions are tight. At most camps, bunk beds are crammed into small cubicles that hold two to six inmates. As a newcomer, you get the top bunk. That's no privilege: your bunkmate is unlikely to let you hang your legs over the side. Savvy inmates try to avoid a cubicle "on the waterfront," across from the bathrooms, where the flushing can be heard all night. Mr. Novak said his two-man room at Eglin was literally an office cubicle. Think of the cubicles occupied by the minions at your company, and imagine sharing one as living quarters with another person you may or may not like for the next several years.

If prison camps are not "Club Fed," neither are they arenas for violence. Newcomers often are terrified by the possibility of forced sex, but former inmates and prison officials agree that sexual assault in federal prisons is rare, even at the highest security levels, and practically unheard of in prison camps. Former inmates say that while officially forbidden, consensual sex is common and available.

Because incidents of violence are likely to land camp residents in tougher prisons, the level of violence is low at most camps, though fights do break out. A lawyer who served a year on insider trading charges, who asked not to be identified, said his camp's inmates included overflows from Wisconsin's state prison system. "We had a fair amount of gang problems with the Wisconsin people," he said. "They hit this one guy over the head with a baseball bat in the kitchen. They beat him up really bad."

Barry Minkow, who served 7.5 years after using his ZZZZ Best carpet cleaning company to defraud investors, predicted that some inmates would try to "shake down" any big-name Wall Streeter who ends up in prison, for money or favors. "They'll tell them, you shook down investors, I'm going to shake you down; you better pay me to protect you," he said. "It's repulsive, but it'll happen." Mr. Minkow's advice: just say no. Usually, he said, that works.

For any inmate, there is always the chance of ending up in "the hole," or solitary confinement. In some camps it's not so solitary. A former inmate at the Oxford, Wis., prison camp said its "hole" was hot and packed with prisoners in two-person cells, with bright lights on 24 hours a day and raucous noise all night long. A doctor sentenced to prison camp for Medicare fraud, who asked not to be identified, said exile to the hole often seemed arbitrary. "I was in with a well-known, prominent real estate executive whose wife was having a baby," he recalled. "He told the minister he was beside himself with the need to be with her for the delivery. He was turned in as a flight risk and sent to the hole." More typically, it's a fight that leads to the hole.

The risks of violence rise if you are transported to another prison or sent to testify at a trial. You'll be put in leg shackles, handcuffs and a "belly chain" to tie it together, and placed in a bus or a van with inmates who could come from any federal prison, including the highest-security ones. Inmates call these trips "diesel therapy."

Webster L. Hubbell, the associate attorney general in the first year of the Clinton administration who served an 18-month sentence, mostly at a camp in Cumberland, Md., for crimes related to the Whitewater scandal, said he flew "Con Air" to testify at trials in Arkansas. Mr. Hubbell said his fellow passengers, chained and shackled, flew five abreast to a hub in Oklahoma City. Before boarding another plane, he'd spend the night with a general prison population. "All of a sudden, you're with 500 people you don't know; some of them are serious offenders," he said. "You don't know what their hot buttons are."

The most common advice for staying out of trouble is universal: do your own time. In other words, mind your own business, avoid confrontation. Mr. Novak has assembled a list of basic rules of prison etiquette that he's published in a 200-page manual called "Downtime: A Guide to Federal Incarceration," for which he charges $39.95. The list includes: Don't rat. Don't cut in line. Don't ask. Don't touch. Pay your debts. Flush often. Don't whine.

According to Mr. Novak, many white-collar inmates tend to be whiners, holding a sense of entitlement, complaining about food, offensive language, the closeness of quarters and the educational level of the staff. "The other inmates have kids at home, wives who might be cheating on them, pending divorces, bankruptcy proceedings," said Mr. Novak. "Everyone has their own troubles, so shush up." Nobody, he said, wants to hear you are innocent.

The most productive way to serve your time, former inmates say, is self-improvement. Yes, several camps located at former military bases have tennis courts, now called "multi-use surfaces" that accommodate volleyball and basketball. Many inmates end up in better physical shape than their office careers ever allowed. Education in the federal prison system is widely considered a joke by inmates, but most camps have a library and, of course, there is plenty of time for reading and writing. Inmates can receive books by mail, although storage space is limited. They can subscribe to magazines, except those deemed pornographic. Mr. Hubbell advises anyone serving time, particularly those with shorter sentences, to consider it a sabbatical. "Or look on it as a monastery, though without the Gregorian chants," he said.

Mr. Minkow spent four years of his sentence doing harder time at a medium-security prison. His stay was a lot tougher than camp. He recalled watching a fellow inmate get into a fight, which moved outside where his friend got slammed in the head with a 25 pound weight-lifting plate. "It pretty near tore his ear off," Mr. Minkow said. Still, he credits his term for helping to turn his life around. "In my case, the system worked," he said. Mr. Minkow is now a preacher at the Community Bible Church in San Diego, and a spokesman for the Fraud Discovery Institute, which evaluates corporate systems to identify areas vulnerable to fraud. On Aug. 2, Mr. Minkow had the final three years of his probation removed, with the support of the prosecutor who tried him. The judge encouraged Mr. Minkow to use his business talents to fight fraud.

Mr. Minkow's hard-won advice: "Don't fail jail. Don't leave the same way you came in."

More Suing for Overtime Pay

Associated Press - by Adam Geller - August 5, 2002

There were years, Omar Belazi says, when he willingly logged 65-hour weeks, stayed late to vacuum the store's floor and clean the bathroom, or surrendered his Sundays to hit sales targets.

But a decade later -- after Belazi began asking his wife and father-in-law to clean his RadioShack store without pay to help him keep up -- he grew tired of waiting for the payback.

"It gets to be very stressful, very tiring... You just get up and go to RadioShack and go home and go to sleep," said Belazi, a former store manager at the Santa Barbara, Calif., location.

A growing number of workers like Belazi are demanding more from their employers. The result is a flood of lawsuits by employees, many in arguably "professional" jobs, who accuse their companies of cheating them out of overtime pay.

The surge in claims -- some resulting in multimillion dollar settlements -- reflects a rise in a long-simmering debate over overtime pay and who is entitled to it.

In part, that debate reflects the fact that Americans are working more hours -- longer than their counterparts in every other industrialized country -- and that employers are trying to stretch productivity. But it also hinges on changes in the jobs people do and what they're called.

With manufacturing jobs dwindling, more workers now toil for service-industry employers who pay salaries and give people hard-to-define titles like "manager" and "administrator."

Federal law says employers don't have to pay overtime to salaried workers in executive, administrative or professional jobs. But the law, the Fair Labor Standards Act, which has undergone only limited revision since the 1970s, relies on some outdated salary figures and terminology that leaves room for broad interpretation. California, which has become a hotbed of overtime battles, has a law that grants overtime pay to a broader group of workers.

That has helped stir clashes between employers and employees with very different ideas about the definition and responsibilities of a professional and what constitutes fair pay.

RadioShack agreed in July to pay $29.9 million to settle a lawsuit led by Belazi on behalf of 1,300 current and former California store managers. The workers contended they were owed overtime pay because the company made virtually all managerial decisions at higher levels, and mandated that they spend most of their hours as salesmen.

The payment by RadioShack is the most recent in a series of very large settlements in California. This spring, Starbucks agreed to pay a group of California store managers $18 million to settle an overtime suit. SBC Pacific Bell agreed last December to pay a group of engineers $35 million.

"It's become the cause of action du jour in California," said Mark Hill, senior vice president and general counsel for RadioShack, which has denied fault and notes that its store managers' average pay is $60,000 a year.

Elsewhere, drugstore chain Eckerd Corp. paid $8 million last year to settle a suit brought by a pair of former pharmacists at a store in Moss Bluff, La., on behalf of nearly 1,100 others. The suit accused Eckerd of docking the druggists' supposedly fixed salary if they worked less than 40 hours. But the company would not pay them more when they worked beyond their scheduled shifts, the workers said.

Eckerd denies liability and says it settled merely to avoid the expense of a lengthier court battle. Other pharmacy operators, including Long's and Wal-Mart, have been hit with similar suits.

Other lawsuits accuse companies of deliberately depriving hourly workers of overtime pay by forcing them to work off the clock. A pair of sales assistants at Credit Suisse First Boston in Miami -- secretaries to the firm's stockbrokers -- sued last year. The workers accuse the company of having an "unwritten rule" against overtime pay, exemplified by managers who told workers long hours were "the nature of the business." Credit Suisse declined comment.

Overtime lawsuits have been filed against Duke Energy:

Three Overtime Lawsuits Against Duke Energy

3 Duke Energy Employees Sue for OT Violations

Secret Energy Meetings to be Exposed

Reuters – August 5, 2002

WASHINGTON (Reuters) - A federal judge on Friday rejected efforts by the Bush administration to resist handing over documents related to a White House energy task force headed by Vice President Dick Cheney.

U.S. District Judge Emmet Sullivan approved a public interest law firm's plan for preliminary fact-finding, which seeks records relating to the workings of the task force and who it met with.

Sullivan gave the U.S. Justice Department 30 days to object or to comply with the request.

``I'm approving the proposed discovery plan the plaintiff has submitted,'' Sullivan said at a court hearing.

The suit filed by Judicial Watch, and later joined by the environmental group Sierra Club, seeks all records of the Cheney task force in an effort to find out what influence energy companies, including now-bankrupt Enron Corp., had on policy.

The White House has asserted its right to seek confidential advice in battling a string of lawsuits and congressional requests for information on the task force.

Justice Department lawyers argued in court on Friday that Judicial Watch had not supplied any evidence that non-government employees participated in the task force. This means it is not subject to the federal law on advisory committees cited in the lawsuit, they said.

``Unless plaintiffs are willing to come forward with some shred of evidence that that's not the case, this should be over,'' Deputy Assistant Attorney General Shannen Coffin told the court.

Sullivan rejected Coffin's arguments. ``Under what you are suggesting, no one can conduct a reasonable investigation ... in an effort to determine whether the law was complied with,'' he said.

Cheney's energy task force produced a policy in May 2001 that called for more oil and gas drilling and a revived nuclear power program. Environmentalists say they were largely shut out of the policy-making.

The task force was appointed by President Bush. Coffin disclosed in court that Cheney ``may have invited'' Secretary of State Colin Powell to participate.

Larry Klayman, chairman of Judicial Watch, said that raised questions about whether energy policy had influenced Bush's war on terrorism.

``Are we laying off of Saudi Arabia because of the links between the American oil industry and Saudi Arabia? That's the kind of information the American people need to know,'' Klayman told reporters after the court hearing.

More on the secret energy meetings:

Duke at Secret Energy Meetings

Asbestos Plaintiffs

The Deal - Soma Biswas – August 2, 2002

A federal judge has ruled that asbestos claimants against bankrupt W.R. Grace & Co. can include claims made after 1998 in their quest to prove that the company was insolvent and that its assets were fraudulently transferred.

The decision is bad news for Sealed Air Corp. Because the Saddle Brook, N.J.-based firm bought Grace unit Cryovac in 1998, it is potentially on the hook for the fraudulent conveyance.

U.S. District Judge Alfred Wolin in Newark, N.J., who is presiding over the asbestos-related bankruptcies of Grace and four other companies that filed for Chapter 11 in Wilmington, Del., said in his ruling Tuesday that, "as framed by the statute, the only question is whether the debtor was insolvent on the transfer date or became insolvent."

Fraudulent conveyance occurs if a company sells or transfers an asset when it's insolvent to prevent creditors and others from gaining control of it.

A seller, buyer or lender in a transaction can be charged in a fraudulent conveyance. Generally speaking, however, buyers are generally blamed.

In the Cryovac case, Sealed Air, not Grace, is the company the asbestos claimants are suing for fraudulent conveyance. Potentially, the asbestos claimants are seeking the value of the asset transferred, that is, the $4.9 billion Sealed Air paid for Cryovac.

That's why Sealed Air is appealing Wolin's ruling before the actual fraudulent conveyance trial against the company begins Sept. 30.

"What is interesting in the ruling is that asbestos claimants that came on board [after 1998] can be included," said Sandra Mayerson, a New York-based partner in the bankruptcy practice at Holland & Knight and a fraudulent conveyance expert.

"That's something new. Although logical, that's an expansion of existing law."

Wolin, in his 38-page opinion, cites the Uniform Fraudulent Transfer Act, a law on the books of most states, rather than on the fraudulent transfer statute of the federal bankruptcy code. The reason is because Grace and the asbestos plaintiffs have hung their arguments on state laws.

"The issue in the case has to do with whether or not the data that has accumulated with respect to claims since 1998 could be used in the consideration by the court as to what the claims were worth -- present and future -- as of the time of the transfer [to Sealed Air]," said the asbestos plaintiffs' attorney, Elihu Inselbuch of Caplin & Drysdale's New York office.

"You have to calculate what the liability was in 1998," he added. "But it's now 2002, and there's more information available about claims against Grace than in 1998. The question is, can you use that information?"

For the asbestos plaintiffs to prove the Cryovac deal involved fraudulent conveyance, they must demonstrate that Grace was insolvent in 1998. Whether Grace or Sealed Air knew it was insolvent is irrelevant.

"[Wolin's opinion] is controversial," said Martin Zohn, partner in corporate reorganizations at Proskauer Rose. "The real question is at what point in time should [the buyer, the seller and even banks that financed the acquisition] have realized that there was substantial asbestos liability."

Zohn says that while he thinks Wolin's ruling is a "sensible reading of the statute," other lawyers would argue that "it'd be too contingent" to count lawsuits that neither Grace nor Sealed Air knew would be filed against Grace in 1998 when the transaction took place.

Zohn noted the fraudulent transfer issues are relevant to a lot of companies.

"For example, many people argue that if the Ford Explorer is defective, should the company take that into account in estimating its liability even though no one has yet won a lawsuit on the dangers of the Explorer?" he said.

"The real question is at what point in time should they [Grace, Sealed Air and its bankers] have realized that Grace had substantial asbestos liability?"

Even if asbestos plaintiffs can show Grace was insolvent or that it knew it would be as a result of asbestos lawsuits going forward, they would also have to show that Cryovac was sold for less than it's worth in order to win against Sealed Air.

If they do win, they could sue Sealed Air to get back Cryovac or, more likely, settle for an equivalent amount -- that is, $4.9 billion.

Reverse Age Discrimination Suit

The National Law Journal - Arthur McCune – July 31, 2002

(7/30/02) - Suggesting that, maybe, youth isn't always wasted on the young, a federal appeals court on July 22 told a class of 196 defense-contractor employees, ages 40 to 49, that they can pursue a claim that they faced discrimination at work because they simply weren't old enough. Cline v. General Dynamics Land Systems Inc., No. 00-3468.

In a case it described as "outside the typical," the 6th U.S. Circuit Court of Appeals rejected an Ohio federal court finding that the plaintiffs' complaints about minimum age requirements for retiree health benefits amounted to "reverse discrimination," a situation not covered by the federal Age Discrimination in Employment Act (ADEA).

Disagreeing, the circuit court said, "[W]e do not share the commonly held belief that this situation is one of so-called 'reverse discrimination.' Insofar as we are able to determine, the expression 'reverse discrimination' has no ascertainable meaning under the law."

The plaintiffs, who worked in Lima, Ohio, for General Dynamics, sued their employer after a new collective bargaining agreement no longer required it to provide health benefits to retirees with 30 years of seniority. Instead, the benefits remained only for those who were 50 or older when the pact went into effect.

Though it acknowledged the new pact facially discriminated by creating two employee classes based solely on age, the district court said that the statute does not recognize "reverse discrimination" claims and that its purpose was "to address the problems faced by older workers, not workers who suffer discrimination because they are too young."

But the 6th Circuit countered that, "All the plaintiffs are members of the protected class ... . Therefore, the protected class should be protected; to hold otherwise is discrimination, plain and simple."

One of the employees' attorneys, E. Bruce Hadden of Columbus, Ohio, was heartened that the ruling stripped the case of its "reverse discrimination" tag, saying that only someone younger than the protected class could make such a claim.

In a dissent, Judge Glen M. Williams noted that in its 1992 case Hamilton v. Caterpillar Inc., the 7th Circuit said that the ADEA "does not protect the young as well as the old, or even, we think the younger against the older."

This split between the circuits makes this decision important, said Louis A. Jacobs, an employment law professor at Ohio State University and co-author of "Litigating Age Discrimination Cases." Such schisms can lead to further litigation that the Supreme Court must resolve.

But because the 6th Circuit has remanded the case, it remains in play. "That's why it's not earthshaking," Jacobs said, "but just a tremor."

In his dissent, Williams also said the ADEA was not designed to have courts "stand watch over labor unions" as they negotiate collective bargaining pacts.

Hadden, though, was pleased that the 6th Circuit rejected this thinking. "If you can get around the statute by a collective bargaining agreement," he said, "then there's no reason for the statute."

Defense counsel Craig C. Martin could not be reached.

Corporate Crime Fighting – by William Greider – July 29, 2002

(August 5, 2002 issue) - The cult of the CEO (as some business gurus now call it) promoted a celebration of testosterone and greed that has coarsened the culture and damaged economic life in severe ways. The adoration of corporate executives--those with a tough-guy disregard for their employees and social norms--seems to be receding now, along with stock prices and disappearing profits, but it does resemble a utopian cult, in which the followers obsessively worship a few strong guys said to possess superhuman qualities. The major media were taken in, but so were many sophisticates. The New Yorker published many admiring character studies of these new titans and even resurrected J.P. Morgan as a worthy icon for our time. Now that icons are falling all around, it seems daft that so many respectable, presumably rational citizens fell under the spell. The establishment's first line of defense--"only a few bad apples"--has been completely crumpled by events. Leaders from finance are now solemnly promising "business ethics" reforms, anxious to restore "trust" in a system that runs on other people's money.

William Lerach, the plaintiffs' lawyer reviled and feared by corporate executives, brings a sharp-edged and refreshingly anti-establishment voice to the emerging debate over how to reform corporate governance. Based in San Diego, Lerach is a fiercely opportunistic advocate for victimized shareholders and has brought hundreds of lawsuits against corporations large and small, usually for fraud. This is clearly his moment in history. Lerach's list of current defendants starts with Enron, WorldCom, Global Crossing, AT&T, Lucent and Qwest, along with many other firms where investors were duped and burned. His law firm, Milberg Weiss Bershad Hynes & Lerach, dominates the field and has an active docket of some 2,000 cases, roughly half of which involve stock-market abuses.

More significant, Milberg Weiss is opening up promising new territory for class-action litigation that could make Lerach and other trial lawyers into an important force for corporate reform--lawsuits that curb the grand larceny but also change operating routines and power structures within companies. The law firm has already won a string of minor victories in which corporations, in addition to paying cash settlements, were compelled to adopt various internal reforms--some of the same governance reforms that shareholder advocates have been pushing for years in proxy fights, usually without success.

In the present climate, Lerach and partners propose to up the ante. They are aggressively recruiting major pension funds and labor unions as plaintiffs with the promise that shareholder litigation can produce major reforms in corporate behavior--far beyond anything Congress is likely to enact or that the "self-regulating" measures proposed by financial leaders would accomplish. Their venture is untested, but has a potential to generate real leverage over the titans and a measure of power for victimized groups like investors, workers and communities.

As Lerach discusses the current scandals, one begins to grasp why he evokes fear and loathing in the executive class. He has a simple explanation for what generated the greedy excesses--the bloated CEO salaries and stock options, the insider loans and fraudulent bookkeeping to pump up stock prices. "Penis envy," he said. "I don't want to use the term, but that's almost what it is. It's like, 'Gee, when the CEO of that company over there is making $20 million, I ought to make $24 million.' Then the other guy says, 'Well, if he makes $24 million, then I've got to make $30 million.'"

Corporate moguls, Lerach explained, have a character flaw that is often fatal. "The CEO ultimately gets brought down by the very personality characteristics that made him successful in the first place," he said. "How did these guys get to the point where they control a big public company? It's not because they take no for an answer. Their whole life has been fighting and overcoming people who say no, you can't do it, don't do it, it's illegal. These guys say, 'To hell with you, we're doing it, we're getting it done, nobody can stop me.'" And, when they get to the top, nobody dares stop them.

What these animal spirits need is "adult supervision," Lerach observed. He envisions a system of discipline imposed by independent overseers, inside and outside the corporation, with the power to say no and make it stick. But Lerach doesn't expect much help in this from either reform legislation pending in Congress or from the Securities and Exchange Commission, which he has observed over the years steadily weakening the original intent of the securities laws enacted in the 1930s. "Since I view myself as a traditional liberal, I ought to be in favor of enhanced government regulation, but I no longer believe in that," he said. "Because the regulated industries capture the regulators all the time. I don't care what rules you write. With an army of highly paid lobbyists permanently in Washington, they're too powerful, too permanent."

Obviously, he said, the most effective reform is sending executives to prison, though Lerach doubts this will happen either. Prosecutors are either too timid or outgunned by the platoons of pricey defense lawyers. "There is no criminal accountability for white-collar crime at that level; there simply isn't any," Lerach said. "The head of J.P. Morgan Chase does not give a crap if he gets caught in Enron and he has to use the Morgan shareholders' money to settle $2 billion in civil claims. He's still going to have his four homes; he's still going have his $300 million, his yacht, his life. You put him in jail for three years--not that I'm trying to pick on [CEO William] Harrison. But if he knew he had a real credible threat of going to jail for three years, he would behave differently."

If, as Lerach sees it, the regulators, the politicians and the prosecutors are not up to the task, that leaves trial lawyers to clean up the mess. An obviously self-interested conclusion, but Lerach said this on behalf of the much-disparaged trial lawyers: "We may not be perfect, but we are not corruptible. J.P. Morgan and the accounting industry and the high-tech companies can't buy us off. They can't stifle us the way they stifle the regulators. If there was a fair, level playing field for civil litigation, where victims could hold the perpetrators to account, it's not as powerful as jail time but it would have a prophylactic impact."

Yes, class-action lawyers do reap huge personal fortunes for their efforts, typically taking a quarter or a third of the cash that plaintiffs win. Yet, looking back over the past twenty years, trial lawyers seem to be the only successful reformers in American political life, consistently able to win significant public-interest victories over powerful business interests (tobacco is the best example). As a type, trial lawyers are attack dogs, not political theorists, but their leverage is real because it is based on large sums of money. Conceivably, their influence could help revive serious arguments about the nature of the corporation and of financial markets, making public space for fundamental critiques of the system that for many decades have been confined to academic conferences or kitchen-table conversations about who runs America.

The deeper debate is urgently needed. If the current swirl of reform actions succeeds only in restoring the status quo ante--a stock market that investors once again "trust"--then Americans at large will remain the losers. The problems of corporate governance are about much more than rapacious egotism. The glorification of CEOs and their outrageous self-dealings grew directly out of Wall Street's narrow-minded concept of the corporation's purpose, the doctrine known as "shareholder value." Starting in the 1980s, corporate raiders (often supported by the major pension funds) attacked and took down numerous managements on grounds that the CEOs were too timid about downsizing their companies--that is, squeezing and shedding workers or discarding viable units of production or slashing long-term research budgets in order to maximize short-term gains for shareholders and insiders.

In effect, CEOs were told to abandon the company's obligations to other interested groups and objectives, including the long-term viability of the company itself. Top executives were sacked if they hesitated, but richly rewarded when they embraced this new order of shareholders όber alles. The theory is used to justify the inflation of executive pay and stock options--incentives pegged to stock prices and meant to align CEOs more tightly with the shareholders' objective (making more money every quarter). The CEO's supposed solicitude for stockholders is now exposed as a cruel hoax. For investors who were enthralled by the cult of the CEO, the contagion of financial scandals is Wall Street's version of Jonestown.

The fundamental perversion is a doctrine that encourages managers to squeeze the other constituent contributors to a corporation's success--taking away real value from employees, suppliers, supporting communities and even customers--in order to reward the absentee owners. That twisted logic explains the internal destruction familiar to those who work for many (though not all) major corporations, from the researchers to middle managers to assembly-line workers. If this false doctrine survives reform, then CEOs may no longer be ripping off the shareholders so boldly, but society's larger long-term interests will continue to be sacrificed on the altar of "shareholder value."

It is probably too much to expect Lerach to challenge the theory head-on, since he and many of his clients, the pension funds, rely on "shareholder value" as an argument for their damage claims. However, his list of corporate governance reforms--especially the objectives in labor-backed cases--could definitely alter the balance of power, causing boards of directors to take a broader view of the company's purpose and to rethink their accountability to employees and society's values. In any case, Lerach's corrosive view of management is threatening to the Wall Street order, and so is his utter fearlessness (witness the Enron lawsuit in which he has targeted nine of the most powerful investment banks as insider culprits). Indeed, Lerach's edgy intellect is so aggressive it makes some allies nervous too. "He is very, very smart and aggressive," one labor official said. "But sometimes you think of a monkey with a razor blade." When I asked Lerach how he became such a zealous champion of defrauded investors, he spoke without a moment's hesitation about painful memories of his father.

"My father lost all his money in the '29 crash," Lerach explained, "and it scarred him for the rest of his life. He became 21 years old in April of 1929, inherited his own money, went to work as a stockbroker and lost it all [when the market crashed in the fall], lost his mother's money and lost his aunt's money. He ended up, like, selling [expletive deleted] shoes. Never got over it. He was just one of those men who were destroyed by the Depression. But, you know, he still loved the stock market. He always talked about it at dinner."

After law school at the University of Pittsburgh, Lerach joined a "white shoe" establishment law firm in that city and was further educated about the system from the inside. He worked on various corporate-finance deals and saw the power of the CEO's word. He participated in the defense of corporate clients against several class-action lawsuits, complaints that seemed absolutely meritorious to him. "We got them thrown out of court and investors didn't get [expletive deleted]," Lerach recalled. "I saw in those days that, if the plaintiffs' lawyers had two things--money and brains--they could do it. But money was the most important thing because the companies have the money." Milberg Weiss, which he joined in the late 1970s, has plenty of both.

During the past few years, in addition to harvesting lots of money, Milberg Weiss and some other plaintiffs' firms have been rewriting the rules of corporate governance, company by company, issue by issue. Cendant, a once high-flying conglomerate recently sued by the California and New York public-employee pension funds, agreed to make a majority of its directors independent, as defined by the Council of Institutional Investors. The board's audit, compensation and nominating committees will be composed entirely of independent directors. The repricing of stock options, a practice that keeps them whole while the other shareholders are losing, is prohibited unless approved by the shareholders. Dollar General, settling a fraud claim for $162 million in cash, agreed to reorganize its board too, with directors standing for re-election annually and two-thirds of them demonstrating actual independence. The board can hire its own outside advisers. Top executives must maintain a large equity stake in the company so they can't avoid personal losses if things go badly.

Wisconsin Energy, heavily fined for environmental violations and lying in court, agreed to create special internal officers to audit environmental behavior and various liabilities. They report directly to the board. Samsonite paid $24 million and settled for new controls to prevent insider trading and excessive executive pay. Its board, two-thirds independent, will meet at least once a year in executive session, without management. Occidental Petroleum, accused of breaching its fiduciary duty to protect shareholders, accepted similar reforms and a "lead independent director" who will oversee the other independent directors. Corrections Corporation of America agreed to prohibit repricing of stock options and various insider payments. WellPoint abolished its "golden parachute" payments to top managers. Calfed eliminated the "special benefits" company insiders were awarded in a proposed merger.

These and other victories demonstrate how a lawsuit's leverage can alter important points in a corporation's rules and standards, but they do not yet add up to a major breakthrough (partly because some of the companies were small or bankrupt). "We are just now at the outset of this corporate governance revolution," Lerach predicted in a speech last year before the Council of Institutional Investors, whose members include scores of major public pension funds like California's CalPERS, most labor pension funds jointly run by union-management trustees, and a few major companies. The council's newsletter, reflecting the wariness felt by many fund administrators, once described Lerach's approach as "corporate governance at gunpoint." He didn't disagree. "Just remember," he said, "oftentimes more is obtained with a kind word and a gun than a kind word alone."

Some skepticism continues, but Lerach has won an important endorsement from Robert Monks, the "dean of shareholder activists," as Fortune called him. "I like Lerach," Monks told me, "but I am frankly not hugely impressed with the governance accomplishments. However, this is the best game in town, so I am helping him get new clients and trying to work with him to effect more dramatic governance changes."

For the past two decades, Monks has been a leading theorist and activist in focusing shareholder proxy fights on the governing rules of major corporations. He urges the pension funds to drop their passive style of investing and become aggressively involved in the affairs of the companies they own. Shareholder proxy fights are also gaining energy from this season of scandals. Twenty percent of ExxonMobil's stockholders voted recently for a resolution demanding that the oil giant drop its hostility to global-warming reforms. That was more than double last year's vote, but it still lost. Shareholder resolutions may influence company attitudes, but except for rare instances, they do not force much actual change even when they win, because the companies are free to ignore the stockholder recommendations and regularly do.

"At least with litigation, if you win, you win," observed Sarah Teslik, executive director of the Council of Institutional Investors. Teslik shares the ambivalence toward Lerach and questions whether Milberg Weiss would really push that hard for governance reforms if it meant accepting a smaller cash settlement. The law firm has been accused of generating lawsuits for quick settlements that do not deliver much for plaintiffs, and it was explicitly targeted by the Private Securities Litigation Reform Act, passed by Congress in 1995 on behalf of Wall Street bankers, accounting firms and corporate execs. The law requires lead plaintiffs of status for shareholder litigation, but it seems to have backfired on the moguls. Lerach simply recruited more prestigious clients like the Regents of the University of California as lead plaintiff for the Enron case and is more adventurous than ever. "No question, Milberg Weiss and others are showing the way, even if imperfectly," Teslik said. "No question, the corporate lawyers fear Bill Lerach more than they do the SEC."

Some leading public pension funds are getting over timidity and making more aggressive demands themselves. CalPERS joined the New York and North Carolina employee pension funds recently to warn dozens of Wall Street investment firms that unless they eliminated their internal conflicts of interest, along the lines that New York Attorney General Eliot Spitzer imposed on Merrill Lynch, the three funds won't let them manage any of their pension money. Altogether, that represents more than $400 billion--a huge loss of business for bankers who don't comply. Feeling the general disgust, the New York Stock Exchange has proposed its own substantial list of corporate governance reforms to cover the exchange's listed companies, and its rules embrace many longstanding reform goals of shareholder activists. "I'm as surprised as anyone," Teslik said. "I've always referred to them as dinosaurs." These rules, however, apply only to "self-regulation," and the NYSE has a dismal record in getting tough with the people who pay its bills. Nevertheless, Teslik noted, the exchange's new rules will provide good ammunition for enforcement by Bill Lerach's lawsuits.

Lerach is building his own wish list for reforming companies: Require the rotation of auditors every three years. Install a corporate ethics officer with real authority and independent reporting responsibility to the board. Also a regulatory compliance officer with similar power. Rigorous controls to prevent "option flipping," insider trading and other forms of self-dealing. A holding period on stock options that prevents CEOs from cashing out in a falling market when other shareholders are losing. "These are our companies," Lerach said. "We own them. There are reasons beyond money to litigate."

Lerach is also examining the widespread mismanagement of 401(k) pension funds. "I think we may be sitting on a real powder keg here," he said. "In many instances, while 401(k) money was being shoved into the company's stock, the executives were bailing out of the company's stock. That doesn't look too pretty in hindsight. The executives have $50 million or $70 million in their pocket and Joe Sixpack, who spent forty years working for the company and thought he had $150,000 to retire, has got $9,000. That's not nice." The pension-fund trustees could be sued for violating their fiduciary obligations to the employee investors by pushing them into a stock they knew was in trouble and failing to disclose the true condition of the company. There are dozens and dozens of these cases, Lerach said, that would test the limits of the federal government's own pension-fund supervision and insurance liabilities.

In terms of broader social objectives, some of the most intriguing possibilities in Lerach's arsenal are the union-backed lawsuits against companies, brought by workers who are also shareholders, either directly or as beneficiary owners of pension-fund capital. Union-sponsored pension funds hold about $400 billion (modest compared with the company-sponsored funds), and Lerach argues that as lead plaintiffs in securities cases, they can win settlements that force businesses to accept union-friendly conditions, the right to organize, improved workplace safety, limits on moving production offshore and other concrete goals. "The labor union pension funds adhere to a view that I happen to agree with," he said. "Public companies that allow their workers to organize, treat them fairly and compensate appropriately--you know what? Those companies do better long-term. They don't get sued for violating wage and hour laws or civil rights or environmental laws. Good corporate citizenship pays off in performance. Labor pension funds have every right to advance their values as investors who happen to be workers. This could be a way for labor to makes its capital work for it."

A lawsuit backed by the Service Employees International Union against Fruit of the Loom accuses CEO William Farley and other executives of destroying the corporation's value with more than $700 million in losses and 16,000 US jobs shipped offshore, then bankruptcy. The Teamsters are supporting a suit against Overnite Transportation and its owner, Union Pacific, for violating labor and environmental laws. The Teamsters, Plumbers and Carpenters unions are suing Cisco Systems executives for defrauding shareholders by overstating earnings, while selling more than $600 million of their own stock.

The distinctive feature in most of these actions is that the workers, as shareholders, are suing the executives on behalf of the corporation itself, seeking to recover wasted company assets and perhaps win governance reforms in the settlements. Al Meyerhoff, a Milberg Weiss partner who is a former lawyer with the Natural Resources Defense Council, said that so-called derivative lawsuits "give a whole new line of attack to labor unions, environmentalists and others to go after corporate malfeasance. And it hits them where they live because the executives can be held personally responsible for the damage to the company." Milberg Weiss is applying similarly aggressive tactics against US multinationals operating overseas. It has won substantial cash settlements for workers exploited in the notorious Saipan sweatshops by brand-name clothing makers. "There wouldn't have been any settlement on Saipan if it weren't for Milberg Weiss," one labor-fund official said. "They really carry a big stick. The companies treat them viciously because they know this is real."

Of course, the overbearing power of American corporations is not going to be dismantled one lawsuit at a time. The larger structural elements of the corporation--the reach and purpose and unique legal privileges of these large private organizations--are artifacts embedded in law and politics. They are unlikely to be altered significantly as long as the alliances of corporations dominate public life so thoroughly, like latter-day political machines. But what trial lawyers bring to the abstraction of corporate governance is a sharp new blade that is cutting into some substantive territory. Together with shareholder activists, labor's working capital, environmentalists and others, the litigators can help make long-neglected questions of corporate power visible again, a necessary predicate for new politics.

The financial meltdown has already started a re-education process among victimized citizens, but, for the most part, progressives were caught flat-footed, not having developed a coherent vision of what the larger reforms should look like, much less a strategy for accomplishing them. The trial lawyers do not yet have a grand theory either, but maybe reformers can help them develop one. Here are some of the propositions that need discussion:

1. Other people's money. The stock-market system, as it currently functions, lacks legitimacy for many reasons, but a central one is this: Americans typically hand over their savings to financial firms that, by their nature, are driven by self-interested profit objectives and serve other, larger clients (mainly corporations) in ways that directly conflict with the interests and values of the investors. The scandals have illustrated these conflicts of interest on a grand scale, but the fundamental problem can be resolved only with new financial institutions, not internal rule changes. Ordinary investors need freestanding investment firms that are trustworthy because they are beholden to only one group--the people whose money is at stake. A few exist; more are developing. Working Americans are, likewise, entitled to their own representatives, preferably elected, to oversee their pension savings--trustees who can influence the investment policies and resist the antisocial enthusiasms that sweep through corporate boardrooms and Wall Street. Why give your capital to the known egomaniacs?

2. Governance for whom? If the "shareholder value" doctrine is repudiated, it must be replaced with a broader understanding of the corporation's purpose, its obligations to the other constituencies like employees, communities and society at large--and their right to be heard on major policy decisions. Contentious questions will have to be settled on how to design such a realignment, but many of the best-run corporations in America have never forgotten the value of inclusiveness. They already operate, quite successfully, with an explicit culture of encouraging bottom-up participation in workplace decisions, even business policy. For the recalcitrant, reformers might propose a variety of modest steps. Every couple of years, employees (or other constituents) could participate in a vote of confidence on the CEO's performance, only advisory and with secret ballots, but a chance to vent and surface deeper problems. Or communities could have a formal right to petition the board about larger priorities. As Lerach's reforms suggested, companies could be required to maintain independent audits of their risk management and environmental behavior, regularly shared with the public. Is the company ignoring the law? What are the potential liabilities if it gets caught?

3. Maximizing long-term value. Corporate behavior has been deformed, especially during the past two decades, by the pressures to generate short-term gains, and pension funds often participated in the pressuring. The question needs to be asked: Do pension funds and other institutional investors violate their fiduciary responsibility to investors and the beneficiary owners of retirement savings--workers and their families--when they ignore the long-term consequences of how the money is invested? Fiduciary duty is defined by law quite narrowly--maximizing value for the beneficiaries--but many corporations maximize returns by doing damage to society and trashing the very things people need and value in their lives (safe workplaces, stable communities, a healthy environment). The original purpose of the corporation is maximizing wealth for long-term benefit, not for the next quarter, and that principle needs to be restored.

Business professors James Hawley and Andrew Williams elaborated a compelling new theory, in The Rise of Fiduciary Capitalism, that describes pension funds as "universal owners," since they invest in all the major corporations across the stock market and effectively own the entire economy. Therefore, their portfolios are directly injured by antisocial corporate behavior, and they will pay the cost, one way or another, of pollution or abusive operating methods even if it yields profit to a particular company. This perspective invites the possibility of a challenging lawsuit by inventive trial lawyers and renewed activism to persuade pension-fund managers to rethink the meaning of their obligations.

4. New ownership. Who really owns the corporation? The historic fiction that it is the shareholders has been badly tattered by recent events and open again to critical scrutiny. They own the certificates called "stock shares," but that's about it. In practical reality, executive insiders exercise the controlling powers of ownership, usually accompanied by a few financiers and large-bloc shareowners, and they decide what happens to the returns. So long as shareholders remain distant from the actual company and ready to dump their shares on short notice, it is illogical to imagine they will ever exercise wise and patient supervision. In fact, the destructiveness and inequalities generated by corporations are unlikely to be reduced until the steep pyramid of power is flattened, with the ownership distributed broadly among employees and other interested constituencies, including trustworthy community institutions.

Workers at every level have a unique, intimate knowledge of the firm that shareholders and even executives can never acquire. The employees also accept various risks on behalf of the company's future that, unlike the CEO contracts, are seldom compensated. Employee stock ownership (or cooperatives and partnerships) can lead to the creation of more democratic systems of management and more equitable distribution of the rewards. It is not that workers will always get things right, but that the power to determine a company's direction and purpose is shared more widely among many minds and voices. The operating values of employees ought to be more firmly anchored in the surrounding social context and, for that matter, in common sense. It is hard to imagine that worker-owners could do any worse than those recently fallen titans.

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