Legal Remedies Harder to Come By

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The villains in the scandals plaguing corporate America are many, and they include scheming executives, greedy bankers, lapdog accountants and obsequious attorneys.

But some big-time securities lawyers say federal lawmakers also must shoulder some of the blame for making it harder for shareholders to sue corporate wrongdoers.

Bill Lerach, the ubiquitous securities lawyer corporate America most loves to hate, says lawmakers all but gave corporate evildoers at companies like Enron and WorldCom a license to steal when they enacted the Private Securities Litigation Reform law of 1995.

The controversial law, enacted over a presidential veto, was supposed to deter frivolous shareholder suits by making it easier for federal judges to dismiss those actions. But according to Lerach, a partner with Milberg Weiss Bershad & Lerach in San Diego, the only thing the law has deterred is conscience.

"What's happened is that pro-corporate judges are using this law as a weapon to block valid cases and protect corporate malefactors," says Learch, the self-styled dean of shareholder litigation and the lead attorney on the multi-billion-dollar Enron shareholder class action. "There is no question that many good and thoroughly researched (lawsuits) are getting thrown out."

Center of the Storm

On one level, it's easy to dismiss Lerach's comments as self-serving hyperbole. After all, the 1995 law might never have been passed if not for Lerach's reputation of screaming fraud and running to the courthouse every time a company's stock fell.

Top of the Class Industries with the most securities fraud cases in the post-reform era
Industry	Lawsuits Filed - 1996 - 2000
Computer and Data Processing Services	167
Computer and Office Equipment	60
Drugs	36
Communications Equipment	34
Telephone Communications	29
Electronic Components	24
Medical Instruments & Supplies	21
Source: Michael Perino, Did the Private Securities Litigation Reform Ace Work?, 2002

But there's no denying the law has enacted some real barriers by prohibiting the plaintiffs' lawyers from conducting discovery in a case before a judge gets to rule on a motion to dismiss it. That means the lawyers can't depose any witness or gather any documents that might help support their allegations of securities fraud. And that prohibition can lead to cases getting tossed early.