Kentucky judge allows disbarred attorney Lerach to stay on case

By John Sammon | May 11, 2018

FRANKFORT, Ky. (Legal Newsline) – Judge Phillip Shepherd of Kentucky's Franklin Circuit Court rejected a motion April 17 by defendants asking whether disbarred attorney William S. Lerach should be prevented from working as a “pension consultant” in a major investment-gone-wrong lawsuit.

However, Shepherd ruled Lerach could face a future probe if he so decides. Defendants wanted a stay of discovery lifted to investigate whether Lerach was essentially operating as a lawyer while working alongside his wife.

“The court denies without prejudice the defendants' motion to partially lift a stay of discovery,” the court brief reads. “The issues raised in the motion are irrelevant to the merits of the underlying suit and the motions presently before the court. However, the court may reconsider these issues in the future if circumstances warrant a re-examination of the allegations of unwarranted practice of law.” 

Lerach became a nationally known attorney, suing some of the biggest names in U.S. business, including Halliburton, and serving as a lead attorney in the collapse of oil giant Enron. He was brought down in 2006 after being indicted for paying $11.4 million in kickbacks to clients in class action lawsuits. 

William S. Lerach   New York Post

He pleaded guilty to one felony count of conspiracy to commit obstruction of justice and making false declarations under oath. Lerach was sentenced to two years in federal prison at a correctional facility in Arizona and fined $250,000.

His partner at the Milberg Weiss law firm Melvin Weiss was given a similar sentence.

Lerach's license to practice law was suspended in December 2008, and he was disbarred from the California State Bar in March 2009.

A resident of La Jolla, Calif., Lerach later opened Pension Forensics LLC in that community, a company that provides investigative and economic analysis and consulting services to determine the source of pension fund financial and actuarial problems.

In 2017 KKR & Co., a global investment firm based in New York, and Blackstone Group of New York, an alternate asset management firm, and their founders, including Henry Kravis, George Roberts and Stephen Schwarzman, were accused of failing to deliver hedge funds, high-risk investments using borrowed money, as advertised.

The investment companies were sued by a group of state taxpayers and officials of the Kentucky Retirement System (KRS), a state-run pension plan program designed to supplement Social Security benefits. Other defendants included New York-based Prisma Capital Partners CEO Girish Reddy and Jane Buchan CEO of Paamco, an investment firm in Irvine, Calif.  

The plaintiffs in their suit alleged KKR and Blackstone misrepresented expensive high-risk hedge funds as a safe way to garner high dividends. Instead they contended, the investments contributed to the KRS pension fund’s insolvency while the defendants pocketed lucrative and excessive fees.

According to a Dec. 27, 2017 report by Bloomberg, the allegations stated the defendants breached their fiduciary duty when they convinced KRS to invest as much as $1.5 billion in three bundles of hedge funds that performed much worse than investors expected.

One of the attorneys for the plaintiffs is Michelle Ciccarelli Lerach, a native of Kentucky who runs her own law firm in La Jolla, and is married to William Lerach. The case, which is ongoing, received a new twist when the husband joined his wife as a pension consultant for the plaintiffs.

The defendants maintained this was a breach of Kentucky law since William Lerach was a disbarred attorney and moved the court to lift a partial stay of discovery to do an investigation into whether he was engaging in the unauthorized practice of law.

“Kentucky law forbids a disbarred lawyer from conferring with clients, advising on legal strategy, and doing things that attorneys routinely do,” attorneys for the defendants said in the legal papers. "Mr. Lerach’s appearance before the court without introduction or explanation, together with his close involvement with the plaintiff’s counsel [wife], and possible contact with the plaintiffs themselves, raises questions regarding whether he is engaging in activity that his disbarment precludes.”

The defense contended Lerach appeared to be providing legal services to the clients. As an example, they said Lerach was receiving email correspondence from the plaintiffs to the defendants that had nothing to do with his supposed [pension] consultancy.

“Mr. Lerach’s participation in the case may compromise the integrity of the proceedings,” the defendants said in the legal brief.

Requests for comment from several attorneys in the case were unreturned.

However, Vanessa B. Cantley, attorney for the Louisville law firm of Bahe Cook Cantley & Nefzger PLC and a co-counsel for the plaintiffs, said there was nothing wrong with Lerach’s participation.

“Mr. Lerach’s role in this case has been well known since the suit was filed, and has been fully disclosed to everyone, and is completely proper,” Cantley told Legal Newsline.           

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