If not for a case of insurance fraud, a kickback scheme William Lerach, who was one of the nation's busiest class actions before being imprisoned earlier this year, might never have come to light, according to a former assistant U.S. attorney.
Robert McGahan, lead prosecutor in the case United States v. William S. Lerach, described how the discovery of two famous paintings in a Cleveland storage locker and a complex series of events ultimately led to Mr. Lerach's imprisonment for paying illegal kickbacks to people who agreed to become plaintiffs in securities class actions.
Mr. McGahan's comments came during a video titled "The Rise and Fall of William Lerach," which was shown during the opening session of the Professional Liability Underwriting Society international conference in San Francisco earlier this month.
The group has an interest in securities class actions because of the directors and officers liability claims that result.
Mr. McGahan explained that the paintings involved in the art theft fraud were once owned by Steven Cooperman, a retired eye surgeon.
Mr. Cooperman, who staged a phony theft of the paintings–Picasso's "Nude Before A Mirror" and Monet's "Customs Officer's Cabin At Pourville" to collect insurance proceeds at a time when he needed funds to pay off some debts, was also one of the people paid off by Mr. Lerach's firm to serve as a plaintiff in securities class actions, Mr. McGahan reported on the video.
Describing Mr. Cooperman as a "serial plaintiff," the prosecutor said Mr. Cooperman filed roughly 70 securities cases, garnering "hundreds of millions of dollars in attorneys' fees" for one of Mr. Lerach's former law firms, Milberg Weiss.
According to Mr. McGahan, Mr. Cooperman's partner in crime was an attorney friend named James Tierney (not involved with Milberg Weiss), who agreed to take the "grossly overinsured" paintings from Mr. Cooperman's house in 1992 when the doctor was away.
The insurance companies, suspecting fraud, actually refused to pay, but Mr. Cooperman sued them and ultimately settled with the insurers for $17 million.
Mr. Tierney gave the paintings to an associate of his law firm, J. J. Little, who put them in the Cleveland storage locker. Mr. Little's girlfriend revealed the stash to Cleveland police during their investigation of domestic abuse, Mr. McGahan reported.
The police contacted the FBI, and the criminal investigation ultimately led back to Mr. Cooperman, who was convicted on the insurance fraud charge in 1999.
"I knew there was going to be trouble one day when I picked up the newspaper and saw a former client of our firm was cooperating with prosecutors," Mr. Lerach commented on the video, referring to the fact that Mr. Cooperman offered to testify against Milberg Weiss in order to reduce his prison time. "You didn't have to be Einstein to figure out who they were coming after," Mr. Lerach said.
During the video, Mr. Lerach also commented that the ends of unethical conduct engaged in by his firm were justified because they were working for "a greater good."
"I'm always troubled to hear anybody raise the argument in any context that the ends justify the means," Mr. McGahan said.
"Many think Milberg Weiss [attorneys were] not pursuing any greater good, but simply lining their own pockets through extortion," he said. "I can't imagine that each and every one of these lawsuits brought by Steven Cooperman involved actual fraud" by the corporate defendants sued in the securities cases, Mr. McGahan said.
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