Blogs and Stories
How to Shake Down the Banks
F. Carter Smith / Landov
From prison, Bill Lerach, America’s premier class-action lawyer, has a roadmap to get all that bonus money back from the Wall Streeters who got us into this mess.
Like every fuming American, I want Wall Street bankers to be forced to disgorge the zillions they made while tanking the economy—not to mention the billions more they’ve paid themselves while on the taxpayers’ teat. But how?
My wife, Jody, like me a former White House staffer, had an idea: Get Bill Lerach, the country’s premier shareholder class action lawyer—who with his onetime partners at Milberg Weiss law firm was long known as the scourge of corporate America—on the case. A few years ago, she’d seen him in action at a program Stanford University runs for directors on public-company boards. Lerach did a mock deposition of an audit committee chairman that put the fear of God in everyone in the room. Surely Lerach would know how to get these greedy bastards to cough it up. The problem, of course, is that he’s been in prison since last May, serving a two-year sentence in Arizona for paying kickbacks to plaintiffs in his infamous shareholder suits.
Surely Lerach would know how to get these greedy bastards to cough it up. The problem, of course, is that he’s been in jail since last May.
Still, Jody’s idea was in the creative tradition that led FDR to name crafty Joe Kennedy to guard the henhouse as his first SEC chief in 1934. So I wrote it up on my blog, proposing that we sic Lerach on Wall Street, since all the White House has done is make noises about it being ‘hard’ or ‘impossible’ to claw back these recent bonuses, not to mention the other bogus zillions many bankers made while wrecking the economy.
What just came back was a letter from Lerach, passed on to me by a mutual friend, with a legal roadmap for Team Obama to follow:
Dear Mr. Miller:
I don’t usually respond to blog material about me but wanted to make an exception in your case. Your wife Jody is not wrong.
In fact, there is a way for the federal government to go after the obscenely excessive bonuses paid to the Wall Street pigs. One legal problem to be surmounted is that the federal government itself has no statutory authority to sue to recover excessive compensation paid officers of public companies. Such claims are exclusively the province of state law—here, the corporate haven of Delaware, where all the big banks are incorporated. But, in order to sue under state corporate law for waste of corporate assets or breach of fiduciary duty, you must be a common shareholder at the time of the wrong and at the time of the suit. Unfortunately, the federal government is a preferred shareholder in the banks and thus does not have standing to sue and, either way, many of the worst bonuses (i.e., paid to the ousted CEOs of Merrill Lynch [O’Neal] and Citi [Prince]) were paid before the government became a shareholder.
The solution to this dilemma is this. There are several entities of the federal government that one way or another own common stocks—and likely the common stock of the banks in question. The Pension Benefit Guaranty Corp. comes to mind. There are others. They will have standing to sue. They should join forces with four or five other large, prestigious, activist public pension funds—the City of New York and California Public Employees Retirement System (“CalPERS”) are examples—and bring a shareholders’ derivative suit against the grossly negligent boards of directors that permitted the wasteful bonuses to be paid as well as the defalcating executives who got them. Corporate law recognizes claims for breach of fiduciary duty, gross negligence, waste of corporate assets, or abuse of control to recover excessive compensation. Any recovery would flow back to the corporate entity—but since these are now taxpayer-supported entities, the recovery would benefit the taxpayers, i.e., help banks pay back TARP money sooner! These boards are covered by directors' and officers' liability insurance that could pay or help pay for any recovery. Best of all, the US Justice Department could represent the federal agency involved in the case or appear as amicus curiae if necessary—in any event, lending its considerable weight (and prestige) to the claims.
Because corporate law is designed to screw shareholders and protect corporate insiders and because Delaware is the most protective of havens with a long-demonstrated hostility to shareholders’ rights, any such suit would, of course, be difficult and have to overcome numerous procedural and substantive hurdles. But, just because it is hard doesn’t mean it should not be attempted. The mere bringing of the suit—especially against the directors—would have a beneficial deterrent effect on all directors going forward.
Were I free and still able to practice law, I could propose this strategy to President Obama—who, as a Harvard Law School graduate, would “get it.” And, I would have prosecuted the case on a contingent fee basis, i.e., no cost to the government; the fee, if any, to come out of a recovery—no recovery, no fee. Unfortunately, to do so one would have to find a way to get the proposal past the Wall Street alumni and sycophants who serve our new president and are creating the current “save-the-banks” strategy.
So, I appreciate the sentiments expressed by you and your wife, but, unfortunately, I am disabled from doing what I would like to do and what should be done.
Best wishes,
William Lerach
OK, Martin Luther King’s “Letter from Birmingham Jail” it ain’t. But at this moment I think even Dr. King would agree the Lerach solution could strike a blow for justice.
Bill Maher had it right when he said, “There are a million lawyers in the United States—doesn’t one of them know how to put a banker in jail?” Maybe not, but at least I’ve found one jailed lawyer with a promising way to make bad bankers pay. If Eric Holder does his duty and takes it from here, before long we’ll hear a phrase that will be music to the ears of an aggrieved and angry nation: “Mr. Prince, Mr. Lerach will see you for your deposition now.”
Matt Miller is a senior fellow at the Center for American Progress and the author of The Tyranny of Dead Ideas: Letting Go of the Old Ways of Thinking to Unleash a New Prosperity. He hosts “Left, Right & Center,” public radio’s weekly political roundtable, and blogs at mattmilleronline.com.
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Even if it is just identified as a possible course of action designed to get these bastards makes one feel like there's hope. Keep it up! They are a bunch of bottom of the barrel ponzers and should all be sent to the high security ward with the rest of the vilest of criminals.
Let's get some perspective here. Bill Lerach made billions in fee suing publicly traded companies. His plaintiffs didn't make that money - he did. Even in the cases where his claims had merit (and there were plenty which did not), he would be rewarded for his acts far out of proportion for the work he did. His most successful action was suing a publicly traded company and getting an either figure settlement simply to go away. The plaintiffs might get coupons for future purchases of the companies products but lerach got cold, hard cash.
Lerach identifies some correct aspects on how to ACTUALLY punish bad actors in these corporations (as opposed to the nonsense which is currently ongoing which is mostly about political posturing and demagoguery). But to turn the Federal government into a trial lawyer is like declaring war on Capitalism (again, only one step beyond the current actions by those in charge in their efforts to replace free markets with central-command and control from D.C. and bureaucrats who have no experience in any business of any kind).
Why all the 'off with their heads' directed at only financial firm executives and not the geniuses on Capitol Hill who were sheparding all these bailouts through and were AWOL when these problems were building and exploding? Why not declare the jihad on Congress and the bureaucrats at Treasury, Justice, SEC, etc. who have been driving spending in to the stratosphere and bailing out corrupt and failing companies?
It doesn't seem to do any good to sue a company that is already getting bailed-out w/ (b)millions of $. They will just need and get more money from the fed. I have no real problem with the bailout(i.e. loan that must be repaid with intrest) that these companies are getting from the fed either.
It would only be usefull to do it symbollically for the legal fees and minimal judgement to prove a point to the public.
Has Matt Miller sharpened the blade? Is Eric Holder have balls enough to don the black hood? Will the little people have a chance to savor the execution of corporate greed?
"Off with their heads"
I love these "from jail" blogs. First Conrad Black discussing Murdoch, now this...
I'm all for the concept of a "show trial" against the banks, but we should realize it is likely to "net negative" for us shareholder taxpayers. As he notes, the benefits flow to the company. We taxpayers are only minority shareholders, and there's no rule the collected money has to flow toward recouping us taxpayers. Further, the banks will be free to spend as many millions of our aid money as they want to defend the case, and the defense counsels will NOT take a contingent fee, I assure you. Then it will take years to try and get money actually back from these guys and most of it will have disappeared to off-shore and Swiss accounts or been transferred to untouchable trusts in their relatives names, etc. The only party that might pay is the insurance companies covering the board members from personal liability and guess what - we're already bailing the largest providers of that insurance out so that will be paid with more taxpayer money. And here's the best part - when our taxpayer money is used to pay a settlement in the case, suddenly that oh so generous "contingent" fee will come into play and a huge chunk of our tax money will flow to the lawyers...
In the end only the lawyers would profit from all this.
Again, I am all for justice from these greedy bastards. I just doubt this would do it. And as was pointed out, Obama is insulated by a bunch of Wall Street friend-and-family enablers anyway.
If you really want it back, let's get some new laws on the books. How about a new law that bars anyone who worked at a failed bank that made more than $1M in 2008/09 from working in the industry again unless they voluntarily pay a fee equal to 75% of their gross earnings in those years? I realize that's a crazy idea, but let's start thinking outside the box. We're stretching to find the legal basis to go after these people retroactively but what's the stop Congress from making new laws that get them go-forward? Some bankers will of course use this as a basis to retire (good riddance) or move to Asia or Europe (bon voyage!). But so be it.
I love the idea here, but the cynic in me says such a beautiful event would never happen. I am afraid America has succumbed to the military industrial complex that the last great republican leader we've had, Eisenhower, warned us of. I am an Obama supporter but I wonder how successful he can be in abating the culture of corporate greed that is ruining our country. I hold George Bush, the neo-con Republican Party and people like Rush Limbaugh & Sean Hannity largely responsible for this mess. They are part of a de facto conspiracy that waged a culture war to win political support so their rape of the American people could be completed. They have been mightily successful, but at what cost? They now find themselves sinking with the rest of us in the ship they steered onto the rocks. However, I am all for anything that seeks to remove the ill-gotten gains these modern day robber barrons hold in their greedy little hands. These people are dispicable. While they may never know justice in this life let us hope it is inescapable for them in whatever lies beyond.
Yeah, Rush Limbaugh created all this. Seriously, are you insane? Sean Hannity? Of course, the guy who created the Credit Default Swap. I totally forgot. NOT!!!
Fannie Mae and Freddie Mac have losses which dwarf ALL of these banks and they are COMPLETELY on taxpayer books. Those are completely, totally and wholly owned by DEMOCRATS. There isn't a Republican to be found anywhere in those two GSEs and their protectors, handlers and (in barney franks case) boyfriends are all in the same party up on the Hill.
If you want to be righteously outraged, you might want to change targets so you shoot the people who actually are preventing things from getting fixed as they cover their collective butts to prevent being implicated into the roles in the entire fiasco up to this point.
Get the partisan hat off and the American hat on.
Nice! The American public is smarter than the media or Washington gives them credit for. I've been pushing Miller's (or Lerach's) idea to the media & Washington for months now, so it's good to know some positive action could be in our future.
Lawyers as a class are generally scumbags (sorry, that's an insult to scumbags), which I know from experience with all kinds of attorneys. Rare is the ethical and decent attorney, (or judge for that matter - shall we include politicians, too?), and after all, they are partially to blame for empowering the greedy corporate chiefs to behave in their unethical and illegitimate ways. They should be required to sign an oath, much like doctors' Hippocratic Oath, that demands their allegiance to truth, honesty, ethics and integrity above money (perhaps even above their client's confidentiality when certain heinous crimes are committed).
In this specific example, attorneys that worked on behalf of the cheaters should be held liable as well.
When the law stops working for the benefit of the citizenry, then the law has become irrelevant. The law must serve the People, and when the system is corrupt, it's time for a re-do.
It's looking more and more like the government/legal/business/social structure we've created is failing us. If an intelligent, idealistic and seemingly ethical, Good man like Barack Obama can't get it done playing by the current rules, then it's time to change the rules. Or it'll be time for the people to rise up and throw all the bums out.
A slogan for our times might be:
"If honesty does not return,
then Washington, like Rome, must burn"
Hey, we all need a little anarchy now and then to keep folks honest. Could it be the nation/state is becoming extinct? Is social Darwinism at play? Is the next step a United Planet Federation? Spock, where are you?
Nice! The American public is smarter than the media or Washington gives them credit for. I've been pushing Miller's (or Lerach's) idea to the media & Washington for months now, so it's good to know some positive action could be in our future.
Lawyers as a class are generally scumbags (sorry, that's an insult to scumbags), which I know from experience with all kinds of attorneys. Rare is the ethical and decent attorney, (or judge for that matter - shall we include politicians, too?), and after all, they are partially to blame for empowering the greedy corporate chiefs to behave in their unethical and illegitimate ways. They should be required to sign an oath, much like doctors' Hippocratic Oath, that demands their allegiance to truth, honesty, ethics and integrity above money (perhaps even above their client's confidentiality when certain heinous crimes are committed).
In this specific example, attorneys that worked on behalf of the cheaters should be held liable as well.
When the law stops working for the benefit of the citizenry, then the law has become irrelevant. The law must serve the People, and when the system is corrupt, it's time for a re-do.
It's looking more and more like the government/legal/business/social structure we've created is failing us. If an intelligent, idealistic and seemingly ethical, Good man like Barack Obama can't get it done playing by the current rules, then it's time to change the rules. Or it'll be time for the people to rise up and throw all the bums out.
A slogan for our times might be:
"If honesty does not return,
then Washington, like Rome, must burn"
Hey, we all need a little anarchy now and then to keep folks honest. Could it be the nation/state is becoming extinct? Is social Darwinism at play? Is the next step a United Planet Federation? Spock, where are you?
Here's the problem: I don't think Obama, a guy who really wants billions for stimulus, wants to be bailing out AIG. But as anyone with a brain will tell you, if they default, most of civilization including China gets screwed. So when Glen Beck and Sean Hannity scream "Wah not with my money!" they are equal parts ignorant and uninformed. They scream no more bailouts. Republicans echo the thought. Without any of them realizing if they REALLY want to see disaster and socialism, they should keep yapping.
What a story?
Crooks going after Crooks.
I think the crazy right wing evangelists may be right. These are the indeed the end times.
I just thought global warming would get us, or maybe nukes, or a weird superbug that resistant to all antimicrobial therapy.
I didn't think civilization would simply implode
A major irony of the clawback bonus movement and even a criminal action is that the company which try this will wind up paying the attorneys fees of the people from whom they are trying to recoup the bonuses under Delaware corporate law.
If you're really interested in the moral vacuum of Wall Street, revisit the great documentary "Enron: The Smartest Guys in the Room." It's a stunning expose of greed, stupidity and the entitlement mentality of the money elite, but it's also prologue and preview to our current economic situation, clueless overcompensated executives included.
Who bankrolled Enron? Can you say Citibank, Chase, Morgan and Merrill Lynch? Who walked away from the Enron debacle without so much as a slap on the wrist? Citbank, Chase, Morgan and Merrill Lynch. Since they've never been held accountable for their lousy business decisions and irresponsible risk taking, why wouldn't they keep doing it? And seeing that there is no accountability, why wouldn't everyone on Wall Street do likewise?
I would like to see legal redress, whether via lawsuits based in current law or the establishment of new laws. In the meantime, I think we should invest in stocks on Wall Street -- the kind with chains and shackles. We could bail out the banks by selling rotten tomatoes to vengeful taxpayers for $1 a pop and allowing them to peg them at bank executives' heads.
"One legal problem to be surmounted is that the federal government itself has no statutory authority to sue to recover excessive compensation paid officers of public companies. Such claims are exclusively the province of state law-here, the corporate haven of Delaware, where all the big banks are incorporated." Don't jump to this false conclusion so quickly. The federal as well as state securities and banking laws likely have been violated. Public companies and banks are subject to strict disclosure requirements including as to executive compensation, and almost assuredly these disclosure requirements were violated. Moreover, it is not only the disclosure requirements that come into play but powerful rules such as SEC Rule 10b-5, which creates a private right of action for schemes and artifices to defraud. The legal standard under 10b-5 is "scienter," which is a significantly easier standard for a plaintiff to prove than the standard under common law fraud. In addition, the $18 billions in bonuses paid using $350 billion of taxpayer bailout funds may give rise to qui tam actions on behalf of the United States.
"But, in order to sue under state corporate law for waste of corporate assets or breach of fiduciary duty, you must be a common shareholder at the time of the wrong and at the time of the suit." U.S. agencies such as the Pension Benefit Guaranty Corporation likely have standing to sue as shareholders under the state statutes. Plaintiffs should not forget about the power causes of action under civil RICO. Lastly, one should not denigrate the White House team as eating out of the hands of Wall Street. I do not believe that this President is beholden to Wall Street.
I say IF we continue to bail them out, then WE set their salaries at $1 (that's ONE DOLLAR) per year, NO bonuses, no stocks, no stock options, not a penny more until they clean up their act, and REPAY every single penny back to the government!
Or they do have a choice, QUIT your job and give it to someone else who can DO the job!
But, sending them all to prison for life is great too, just no luxury prison, a high security prison where they can become bubba's bitch!
There is every reason to attack the banks on this issue. At stake is more than these recent outrageous bonuses. The real issue is corporate reform. Knuckles need to get rapped for stealing cookies, or the plague of unchecked greed will continue.
Finding a competent attorney to sue, however, may be problematic. It's a hard case with a lot of career implications. Unfortunately, I'm afraid that my hope that someone will take up the cause may be a little too audacious.
@ Fentro:
I also must address the lawyer-hate. I understand the animosity, but it is seriously misplaced. I know hundreds of attorneys. Almost all of them are decent and honest people whose primary goal is to help the people that come to them for help.
Greedy scumbag lawyers are out there. They have even touched my life by screwing family members of mine. They are the exception. I am confident that the incidence of douchebaggery among lawyers is no more than it is among the general populace (mechanics, doctors, contractors, sales clerks, restaurant owners, pastors).
We've all had bad experiences with all walks of people. Lay off the cynicism. It's bad for your health.
If we can't come up with a better plan than this, we are doomed. :(.
There is no question that Lerach would be the lawyer of choice to handle these cases. Let's put it in context: We have a Justice Department that has been decimated of talent over the past eight years; first, with Ashcroft's prayer sessions chasing out the best and the brightest and then with Gonzalez' reign that fired whoever was left that had any palpable level of competence. There is simply not enough talent within the Justic Department to pull off a successful prosecution of these Wall Street miscreants. Now comes Bill Lerach, one of the most acute legal minds of the century who languishes in jail for crimes of such a highly technical nature as to defy the compass of ordinary minds. Would it not make sense for Obama to pardon Lerach under the condition that he come into the Justice Department on special assignment to head up a task force to take down this Third Reich of U.S. capitalism? Talk about a win-win situation!
Perhaps Lerch could do the things he describes from prison. Hold the proceedings in prison, and with any luck, once the guilty are stripped of their ill-gotten-gains, the Wall St. bankers won't have to leave the building for many years. Given the damage they've done and that they would surely do again if given the opportunity, is getting them to pay back the billions they stole really enough?
This guy is my new favorite convict.
How ironic that the culmination of all that Republicans have worked for to set the course of this country ends up exposing their biggest weakness: they are not truly capitalists. The carefully maintained myth of "capitalist crusaders" versus evil socialist Democrats has been blown to bits. These guys were never representing the creative, individualistic risk-takers; they were busy protecting lazy, incompetent thugs with definite entitlement mentalities (right on, Hedda Harlowe).
Now that the curtain has been pulled back, what about all their arguments throughout the years against any social programs aimed to use public money to help the actual public? SInce we now know they were never capitalists, doesn't that mean the Democrats were never socialists? It's been fun watching the spin doctors feverishly trying to save their dying myth through impassioned ploys, I admit. But, when is someone going to be brave enough to seriously question some long-held, outdated conventional wisdom?
BTW, Mr. Miller, I'm currently reading your book on dead ideas and loving it.
this whole solution looks like it would come to a dead stop with one glance from Bidens eyes.
Glad to hear our convicts have computers. Do they have wireless wifi, or hardwired internet? I do appreciate this guy taking time from the country club prison's golf and polo to offer his advice.
don't put them in prison put them on the streets with no money and a sign saying scum sucking banker and see how long they last with no home no bogyguards no black limo to hide in my guess not long at all
All of this points out the big problem that got us where we are at the moment: NO DISGORGEMENT THEREFORE NO DETERRENT.
Lerach and his firm(s) brought hundreds, maybe thousands of lawsuits. I would wager that not one of them required full disgorgement of the ill gotten gains. This is no slight to Lerach or his legal skills, but a mere statement of what I believe to be fact.
Everytime someone profits from misdeeds, a new incentive is created to engage in similar conduct for profit. Once we start insisting upon complete disgorgement of ill-gotten gains and harsh penalties (not Club Fed type prisons and home confinement a la Bernie Madoff), then we'll see serious reform. Until then, I am not optimistic.
Even in most of Lerach's cases, settlements were obtained which used insurance money, so executives rarely had to reach into their pockets and when they did it was only for a fraction of what was obtained. Even in Lerach's own case, he did not completely disgorge his ill-gotten gains.
If this sounds like I'm slamming Lerach, I am not. On balance, I think Lerach did more good than harm and for the most part he is to be applauded, however he got greedy and got caught. As a result he fueled the lawyer animosity we have seen above in the comments. Let Lerach's example serve as a powerful reminder of how good people can be strayed by greed. Is the genie out of the bottle on deterring greed at this point?
As usual, Matt Miller is a crystal-clear voice on the most pressing issue of the day.
Listen to him evry Friday, or podcast it, as the host of KCRW's "Left, Right & Center."
As a person who has known Bill, and knows he is the best lawyer in the country in finding where the bodies are buried. The problem isn't finding more money, or the CEO's who are dumping it out the window and trying making them more accountable for their actions. It is putting it to better uses, it seems that the money going to the banks, GM and the stimulus package is a waste. The banks are going to use the money to plug up the holes and come back asking for more and raising our fees, GM will ask for more than go into bankruptcy and never pay it back and never fix the problem. The stimulus package to the people isn't going to work, because the people are not going to spend it they will hide it in their mattress.
We need a lean mean fighting machine.
We need jobs, the one that went south to Mexico, India and Ireland, we need them back here in USA.
Bill need anything? Email me Brian.
Thank you.
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