News
Litigation
Aug. 15, 2002
Lerach Minimizes Importance Of Certifications of Financials
WASHINGTON - An hour before chief executives at hundreds of major public companies were due to certify their financial statements as required by a new law, the guru of shareholder litigation told reporters the sworn oaths submitted to federal regulators shouldn't be interpreted as gospel truth.
William Lerach - the Milberg Weiss Bershad Hynes & Lerach lawyer so hated by Wall Street that Congress once passed a law intended to drive his practice out of business - said the new federal certification requirement won't ensure books aren't cooked.
"All that is being required is that executives certify that financial statements are true to the best of their knowledge, information and belief - weasel words that give a lot of room for lawyers and others to maneuver and perhaps sign, even though substantial doubt exists as to the accuracy of the certification," Lerach said.
Under the Sarbanes-Oxley Act signed by President Bush last month, corporate earnings and financial statements must be signed off on by chief executive officers and chief financial officers.
The requirement was intended to ensure accountability - or culpability - among corporate officers and to restore investor confidence in Wall Street, which has been rocked by scandals and devastating bankruptcies in recent months.
The scrappy litigator from San Diego spoke at a long-planned press conference Wednesday that began just before the 5 p.m. deadline to file certified financial reports to Securities and Exchange Commission Secretary Jonathan G. Katz. More than 300 public companies - from Ace Hardware to Yum Brands Inc. - had done so more than an hour before the deadline.
Milberg Weiss, which has sued Enron, Arthur Andersen, WorldCom and other companies embroiled in accounting failures on behalf of shareholders, had dubbed Wednesday "Restatement Day" - but restatements were few.
Less than a dozen companies reported they would restate their earnings. The market was unruffled, however, by the restatements and staged a late-day rally, sending the Dow Jones industrials up 260 points.
The few restatements didn't placate Lerach.
"There is wiggle room [in the certification requirement], and the executives may be able to sign with their fingers crossed and hope for the best going forward," he said. "Some of us suspect the fact that so many companies have been willing to certify indicates just that."
"That's silly," said Wayne Smith, a securities litigation defense lawyer at Gibson, Dunn & Crutcher. "Bill Lerach assumes everybody in corporate America is a fraud committing evil and should be called to account, and therefore obviously they're lying."
Executives facing possible 20-year jail terms for signing off on falsified financial reports have been deterred from fudging their numbers, Smith said.
Other securities litigation defense attorneys also scoffed at Lerach's pronouncements, insisting that companies are not trying to cheat the requirements in the new Sarbanes-Oxley Act.
"Everybody I've come in contact with is taking this very seriously," William Sullivan of Brobeck, Phleger & Harrison said. "Everybody knows that 'Wild Bill' [Lerach] is going to be on the prowl."
Sullivan said that the SEC won't allow any filers to get away with dishonest certifications and that executives know it.
Milberg Weiss has been criticized for relying on a "professional plaintiff" strategy, relying on the same individuals to launch any number of class actions.
Led by the controversial Lerach, 55, Milberg Weiss filed 85 percent of the securities class actions in California last year.
It also is the lead plaintiff in a booming new class-action trend of filing lawsuits over the allocation of shares in hot initial public offerings. Over the past 30 years, the firm has recovered more than $20 billion for investors, consumers and workers.
Numerous legislative efforts have been launched to curtail class actions and specifically to curtail Milberg Weiss.
The most far-reaching of those was the 1995 Private Securities Litigation Reform Act, nicknamed the "Kill Lerach Act." It tried to reduce the number of securities class actions by raising pleading standards, limiting "professional plaintiffs" to no more than five class actions in three years and staying plaintiff discovery pending a motion to dismiss the case.
In January, a federal grand jury in Los Angeles began investigating whether New York-based Milberg Weiss had engaged in a scheme to solicit investors and fabricate shareholders to bring major class actions.
Surrounded by hovering press agents inside the National Press Club's First Amendment Lounge on Wednesday, Lerach took full advantage of his free speech rights as he faced a phalanx of electronic media just as companies faced their SEC filing deadline.
He said shareholders and the public will be harmed as a result of weak federal regulation following the corporate fraud scandals of 2002.
"The comfort that this process was supposed to give us will turn out to be cold comfort indeed," he said.
The Associated Press contributed to this story.
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James Gordon Meek
Daily Journal Staff Writer
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