SAN FRANCISCO–Securities class actions are being brought with more institutions as plaintiffs and show no signs of decreasing, despite the imprisonment of one of the nation's busiest class action lawyers, a legal expert told underwriters meeting here.

The comments by attorney Boris Feldman came Wednesday at the Professional Liability Underwriting Society's International Conference, where a panel warned that securities suits still fail to get enough judicial scrutiny and there are indications many such actions continue to be tinged with fraud.

Attendees at the conference were shown a video titled "The Rise and Fall of William Lerach," featuring one of the last interviews granted by Mr. Lerach, an attorney who was imprisoned for paying illegal kickbacks to persons who agreed to become plaintiffs in securities class actions.

Mr. Lerach commented in the video that the ends of unethical conduct justified the means of working for "a greater good."

Panel moderator John McCarrick, a partner for Edwards Angell Palmer & Dodge, asked what impact the loss of such a high-profile representative has had on the securities class action plaintiffs' bar.

Mr. Feldman, a defense lawyer and partner with Wilson Sonini Goodrich & Rosati, noted that when U.S. senators debated the Private Securities Litigation Reform Act of 1995, they pointed to Mr. Lerach as the demon to be defeated.

The act they crafted was intended to raise pleading standards and emplace other hurdles for securities fraud suits that were being brought in federal court by shareholders after a company experienced a drop in stock prices.

"But we've seen since that the level of talent in the plaintiffs' bar is deep and broad," Mr. Feldman said. To some extent, "the power has shifted away from an individual lawyer with a strong personal following to institutions," he said in reference to a provision of the reform act that put institutional investors with significant financial interests, such as pension funds, in the role of lead plaintiff.

"As someone who defends companies and has to settle cases," Mr. Feldman said that "in some ways it was easier" dealing with Mr. Lerach or other partners of his former firm, Milberg Weiss, than with activist pension funds.

The funds, he said, operate with a high "level of outrage" over fraudulent actions of defendants, and he noted that directors and officers liability insurers who cover defendants in securities cases are no better off now that Mr. Lerach is serving a two-year prison term.

Joseph Grundfest, a law professor from Stanford Law School, said "attorneys with egos" are actually at odds with "the best interests of the plaintiffs' class action bar as an industry."

He explained that "the optimal public position of the industry is not about [the] lawyers, but about the merits of our cases. It's about the need to do justice [and] to vindicate the rights of poor, innocent shareholders."

Another panelist, Vaughn Walker, chief judge for the U.S. District Court in San Francisco, said Mr. Lerach had a lot of "accessories" to his crimes, suggesting that judges and defendants, by not performing their jobs adequately, helped plaintiffs' attorneys–and that they still do.

"The judges are a problem in these cases. They haven't scrutinized the settlements… as closely as they should," he said.

"We all like settlements. Cases go away. They clear dockets. So judges are very receptive to settlements and don't scrutinize them carefully," Judge Walker said.

In addition, he said, if the defense bar "can't blow the case out of the water at the pleading stage, they proceed immediately to mediation and attempt to settle the case. So you don't have the facts coming out the way you would in traditional litigation."

Mr. Lerach and others "were operating in an environment where they could do a lot of things without the scrutiny that would ordinarily be there–and that condition has largely not changed," he said, also suggesting that institutional investors have not taken a more prominent role.

"Cases where you have large, responsible institutional investors, who are sophisticated and able to monitor litigation–to ride herd on the lawyers and make important decisions about when to settle and for how much," he said, are "relatively few cases."

Exceptions to such actions, he and the other panelists said, are cases of accounting restatements or serious fraud, such as the Enron case.

"In the vast majority of cases, things have not changed from the way they existed prior to the Reform Act. Plaintiffs' lawyers are still very much in the driver's seat in these cases," Judge Walker said.

Mr. Feldman noted that another type of lead plaintiff is starting to emerge in many cases he's involved in–union locals or Taft-Hartley Funds. "You have to wonder what's in it for them," he said.

"It's conceivable that…passing money…to an individual that brought a lot of suits for you might be replaced by doing favors for small pension funds that have a history of corruption," he said, suggesting that the type of scheme that landed Mr. Lerach in a federal prison might not be gone for good.

Professor Grundfest seemed to suggest that another scheme might be emerging when he described some findings he uncovered about confidential witness statements, which are now often included in securities case pleadings.

While it's difficult to find a lot of information about these situations because many cases are under seal, the professor said he has discovered that at least 100 confidential witnesses later repudiated their statements when they were deposed as cases moved forward.

They may say, "That's not what I ever said," or "I had a phone call from a guy. He didn't identify himself as an investigator and I couldn't possibly have said that because I have nothing to do with these functions at the corporation."

The reasons for this could range from "the most innocent in the world to the most nefarious," he said. A witness may have forgotten or misunderstood an investigator, he suggested. But when you have more than 100 instances of this occurring, he added, "you have an issue that goes to the credibility of the process in a way that's not dissimilar from the video we saw."

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