Getting even: Fighting Big Business or abusing the system?

To technology executives, public enemy No. 1 is William Lerach, a partner at Milberg Weiss Bershed Hynes & Lerach. His firm has recovered more that $2 billion in securities fraud cases and class-action suits during the past decade.

Mr. Lerach is renowned or, depending on your perspective, infamous for attacking corporations worldwide. His firm has represented clients in hundreds of cases, garnering million-dollar settlements and disparaging comments in equal measure.

Lerach's firm gained national prominence in the late 1980s when it successful represented shareholders of American Continental Corp. and Lincoln Savings & Loan in a class-action suit that concluded with a $1 billion jury verdict. Later, Lerach's firm won a $100 million jury verdict in 1988 against Apple Computer Inc. for securities fraud.

Lerach and his ilk claim the aforementioned scam is being perpetrated against shareholders who don't have the resources or knowledge to recoup their losses. Unsavory and illegal activities by corporations designed to boost stock prices, he said, are more common than most investors think.

"These companies need to create a devil to change the debate to a personal matter rather than focusing on the objective merits of these cases," Lerach said. "They can't stand the legal system because it's the only vehicle shareholders have to hold them accountable."

Of the 200 to 250 securities fraud cases filed this year, about 10 percent were dismissed for lack of evidence and less than 5 percent go to trial. The remaining 85 percent are settled out of court.

There have been some large settlements of late.

Sensormatic Electronics Corp., the makers of the security tags found in department stores, settled out of court for $53 million in October. While it admits no culpability, the complaint claims the company improperly recognized revenues in past quarters by manipulating shipments.

IDB Communications Corp. settled out of court in February 1995 for $75 million after its allegedly improperly reported revenues in several quarters. Essentially, the suit claimed IDB was recording income on merchandise shipped and then failing to record products that were later returned.

"But for every story you hear about a company that may not have been completely honest, you have hundreds of others that do it by the book," said John Sullivan, president of the Association for California Tort Reform. "We can't allow Lerach and other trial lawyers to turn California into a state favorable to this type of litigation."

There's a bill currently winding its way through Capitol Hill that ultimately might have more impact on the information technology industry than anything the Department of Justice does to Microsoft Corp.

It's called the Securities Litigation Uniform Standards Act of 1997 and it's main purpose is to prevent litigation-happy trial lawyers from circumventing the intent of the Private Securities Litigation Reform Act of 1995.

First, a little background.

In December 1995 Congress passed the Reform act after strong bipartisan support for the bill resulted in the first veto override in President Clinton's administration. The 1997 Standards act attempts to close any loopholes left open by the broad measures detailed in the 1995 act.

The 1997 act is designed to deal with alleged abusive practices committed in private securities litigation: the routine filing of class action lawsuits against public companies with little evidence; the targeting of defendants who have deep pockets covered by insurance or who are averse to extensive litigation; and the use of "professional plaintiffs" who receive the largest portion of the lawyers' fees in the event of the settlement.

"You have to remember that most of the companies being sued are successful and want to continue being successful," said Boris Feldman, a partner at Wilson Sonsini Goodrich & Rosati, a Palo Alto, Calif. firm that represents hundreds of technology companies fighting class-action suits. "But these plaintiffs are suing everyone the minute the stock price falls a little. It's gone beyond ridiculous."

Those supporting the Standards act believe the bill would go a long way toward dissuading lawsuits from opportunistic attorneys and shareholders. If the bill is passed, attorneys will no longer be able to file securities fraud suits against publicly traded companies in state courts.

"Plaintiff attorneys like Bill Lerach have been avoiding the intent of the Reform act by taking this type of litigation to individual states where the burden of proof isn't as stringent as it is in Federal Court," Feldman said.

But Lerach and others contend that big-money campaign donations and organizations such as Taxpayers Against Frivolous Lawsuits are making it nearly impossible for individual traders to recover losses incurred partly because of misleading information provided by the company.

"The same coalition that gutted the Federal Law is at work with huge contributions to obliterate shareholders' rights," Lerach said. "Some cases that I thought were air-tight examples of fraud were dismissed in Federal Court. (Technology companies) are determined to see this repeated time and time again."

For all the rancor surrounding securities fraud, the number of cases filed each year are relatively small compared with the number of publicly traded companies that are above reproach.

"Sure, there have been a few cases here and there when numbers have been altered or something of that nature, but they're incredibly rare," Feldman said. "Attorneys might conceive the idea that technology companies sit around and deliberately plan to mislead investors but that's not realistic. It might make for a good Oliver Stone movie, but in the business world that just doesn't fit."