Serial plantiff Lazar now a federal defendant
Thursday, January 19, 2006
By Rhonda L. Rundle, The Wall Street Journal
PALM SPRINGS, Calif. -- In his 50 years as a lawyer, investor and serial plaintiff in class-action lawsuits, Seymour M. Lazar has relied on the legal system to make money and trouble.
After his father disinherited him and other family members, he sued the estate. He sued Hertz Corp. for overcharging him for gas, and dozens of other big companies for other alleged transgressions. He even jumped into the legal fight over Howard Hughes's estate, promoting a mysterious will that turned up after the billionaire's 1976 death.
For years, like the fictional character in Woody Allen's "Zelig," Mr. Lazar popped up alongside the famous. Early rock-and-roller Johnny Rivers was a client, beat poet Allen Ginsberg was an acquaintance, and controversial corporate raider Meshulam Riklis was an associate.
Now, at the age of 78, Mr. Lazar is seldom seen. He is recovering from triple-bypass surgery, and his weight has dropped to 120 pounds. And for most of the past six months, federal authorities have confined him to his Palm Springs estate.
Mr. Lazar, long a legal thorn in the side of others, is facing the legal fight of his life. In an indictment unsealed in June, a federal grand jury in Los Angeles accused him of criminal acts related to more than 50 lawsuits, filed over more than 25 years, in which he or a family member served as lead plaintiff. They charged him with receiving "more than $2.4 million in secret and illegal kickback payments" from a New York law firm.
Mr. Lazar's case is intertwined with a long-running federal investigation of that firm, Milberg Weiss Bershad Hynes & Lerach, one of the nation's largest class-action law firms before it split in two in 2004. Over the years, that firm and its two successor firms have reaped billions of dollars of contingency fees by suing some of the nation's best-known companies for defrauding investors. In the process, they became targets of efforts to stem litigation against big business.
"I swear, they treat me like an absolute thug. I'm not supposed to leave the house," fumed Mr. Lazar during a recent extended interview, his first since the indictment. "Did I hurt anybody? Who did I cheat? Did anybody get screwed?" He added testily: "What they want me to do is hang Milberg Weiss. They don't care about me."
Frail and slightly stooped, Mr. Lazar spends his days shuffling about his Mediterranean-style home in the posh Las Palmas district of Palm Springs. During a lengthy discussion, held in part over lunch on his bougainvillea-draped patio, Mr. Lazar cast himself as a pawn caught between the Bush administration and powerful, corporate class-action attorneys. He did not argue the facts of the government's indictment. Instead, he contested the conclusion that his actions were illegal.
The government alleges that Milberg Weiss directed the "secret and illegal" payments to Mr. Lazar to induce him and his family members to serve as named plaintiffs in class-action lawsuits. Named plaintiffs aren't permitted by law to receive payments beyond those awarded by the courts, to avoid conflicts of interest between them and other class members, to whom they owe a fiduciary duty. Mr. Lazar's financial arrangement, the indictment says, spurred him to "falsely" represent that the fees sought by Milberg Weiss in the cases "were fair to the absent class members."
The government says Mr. Lazar was paid through various intermediary law firms and lawyers, including his personal attorney, Paul T. Selzer, who was also charged in the indictment. Lawyers at Milberg Weiss's successor firms were not accused of wrongdoing in the indictment, but the prosecutors' probe of some partners is continuing, lawyers involved in the case say.
During the recent discussion at his home, Mr. Lazar denied he had conflicts of interest or that the payments were illegal. He said he had taken litigation "ideas" to Milberg Weiss, which paid referral fees to his lawyers, including Mr. Selzer's firm. Those lawyers in turn allocated some of the fees to pay Mr. Lazar's personal bills from real-estate lawyers, appraisers and other professionals, he said. It's not unusual for lawyers to pay referral fees and Mr. Lazar said he had no reason to think the arrangement was improper. Milberg Weiss "gave me part of their fees after the court set the fees and after they got paid," he said. The fees amounted to 5 percent to 10 percent of Milberg Weiss's compensation on some, but not all cases, he said. The payments, he maintained, didn't reduce recoveries for other members of the class.
Lawyers for Milberg Weiss say Mr. Lazar wasn't paid to be a plaintiff. Referral fees, they say, are lawful. The alleged wrongdoing involving Mr. Lazar occurred before Milberg Weiss split into two firms: Milberg Weiss Bershad & Schulman in New York, and Lerach Coughlin Stoia Geller Rudman & Robbins in San Diego. Mr. Selzer's lawyer, David Weichert, said in a statement that his client is a prominent land-use lawyer who "has diligently upheld the law."
Mr. Lazar has long been an iconoclast. He says he made and lost millions of dollars as a securities trader. As a lawyer, he worked on cases with Melvin Belli and Marvin Mitchelson, famous forebears of the modern plaintiffs' bar. He says he hung out with counterculture icons of the 1960s including Mr. Ginsberg and psychedelic-drug activist Timothy Leary, whom he visited at the New York estate of a mutual friend.
He grew up on a ranch in the San Fernando Valley north of Los Angeles and graduated from law school at the University of Southern California in 1951. Before long, he was a fixture in the bars and trendy clubs around Hollywood. He purchased the Cafe Gala on the Sunset Strip, where such well-known musicians as pianist Bobby Short performed.
Over time, his legal practice attracted a clientele of musicians, composers and other entertainers, including, he says, comedian Lenny Bruce, jazz trumpeter Miles Davis and Broadway producer David Merrick. Mr. Rivers, who performed regularly at Whisky A Go-Go, a nightclub near Mr. Lazar's office, became a client. The musician, now 63, says Mr. Lazar helped him negotiate his first recording contract. He went on to record a string of hits, including "Secret Agent Man."
Poet Maya Angelou says she met Mr. Lazar when she was a cabaret singer in Hollywood in the 1950s. "I was very shapely and nice to look at, but Seymour saw more than that," she says. "He knew I was always writing and encouraged me to be more than a cocktail singer." Mr. Lazar says he briefly dated Ms. Angelou and they have remained friends over the years.
Mr. Lazar was driving a Rolls Royce and living the high life. But by the early 1960s, tired of kowtowing to clients, he had lost interest in his legal practice. "I felt I had gotten to the pinnacle and I wanted to make more money," he explains.
He started trading stocks part-time as a client of Cantor Fitzgerald & Co., then a small retail brokerage in Beverly Hills. He made more money trading merger-and-acquisition stocks than practicing law, recalls Gerald W. Demain, a former president of the firm.
Through firm founder B. Gerald "Bernie" Cantor, Mr. Lazar met Mr. Riklis, a financier and corporate raider. Mr. Lazar was eager to be a player in the financial world, Mr. Riklis recalls. "He was a smiling kind of a character and a very social guy, but he was no fool," Mr. Riklis says.
Mr. Lazar purchased a small stake in McCrory Corp., a Pennsylvania-based dime-store operator. Mr. Riklis, who controlled the company, invited him to join the board in 1963, in part to help with a fight against dissident shareholders. Mr. Riklis, now 82, says Mr. Lazar sported long hair and dressed like a "bum" in kooky leather outfits. (Mr. Lazar says Pierre Cardin made him a leather suit in Paris.) On one occasion, when Mr. Lazar showed up at a board meeting without socks, Mr. Riklis demanded that he put some on.
Mr. Riklis says his own financing and takeover activities made him a frequent target of lawsuits brought by what he pejoratively calls "second-story lawyers." He recalls talking to Mr. Lazar about lawyers who earned a living suing corporations and executives. He says Mr. Lazar "found out that it was the way people made money the easy way." Mr. Lazar says he doesn't recall talking to Mr. Riklis about class-action lawyers.
In the 1960s, Mr. Lazar moved to Nassau in the Bahamas to soak up the sun and trade merger stocks. He says he traded through an offshore company owned by his French-born, Chinese wife in order to save on transaction costs. For six years, he divided his time between Nassau and Cuernavaca, Mexico, where he cut a colorful and mysterious profile in the American expatriate community.
In 1969, the Securities and Exchange Commission accused Mr. Lazar of plotting with a "secret group" to manipulate the securities of meatpacker Armour & Co. and General Host Co., a food company seeking to acquire it. In 1975, Mr. Lazar and others consented to a settlement without admitting or denying guilt. Mr. Lazar now says his only violation was failing to disclose a 5 percent stake in Armour, a threshold he claims he exceeded for less than a day.
The SEC action made Mr. Lazar a target for Armour shareholders, who in 1973 filed a class-action suit against him and others. The lawsuit, which was dismissed, brought Mr. Lazar together for the first time with Melvyn Weiss, a founding partner of Milberg Weiss, who was a lawyer on the other side.
Shaken by his encounter with the SEC and by trading losses of $10 million on the deal, Mr. Lazar decided to change his life, he says. He left Cuernavaca and settled in Palm Springs with his family. He says he bought cheap desert land and invested in oil wells in Texas, Oklahoma, Kansas and Louisiana. He played backgammon and traveled the world collecting pre-Columbian and African art. He continued to buy and sell securities, but it was no longer an obsession, he says. His friend Bernard Cornfeld, whose Geneva-based mutual-fund empire had collapsed in scandal, introduced him to actor George Hamilton, who became a Palm Springs neighbor. Mr. Hamilton recalls that Mr. Lazar wore his hair long and "talked in a philosophical way -- sort of like a Zen master."
In 1976, he was contacted by an old pal, Mr. Mitchelson, the Los Angeles lawyer best known for bringing a "palimony" case on behalf of the girlfriend of actor Lee Marvin. Mr. Mitchelson asked Mr. Lazar to help him prove that a document left at the headquarters of the Mormon Church in Salt Lake City was a will written by the late billionaire Howard Hughes. One of the beneficiaries of the purported will was gas station owner Melvin Dummar. Mr. Dummar claimed that in 1967 he had given a ride to a disheveled man claiming to be Mr. Hughes, whom he encountered along a Nevada desert highway.
Mr. Lazar and Mr. Mitchelson helped fund the ensuing litigation over the eccentric aviator's vast estate. The two men, along with several other lawyers who championed the will, were hoping for a cut of what was expected to be tens of millions of dollars in legal fees if they prevailed. But their effort collapsed when a Las Vegas court ruled the document a forgery.
At about that time, Mr. Lazar began working with Mr. Weiss to bring lawsuits against corporations they contended were defrauding shareholders or consumers. Mr. Lazar says he doesn't remember his first case. The federal indictment says his relationship with Milberg Weiss began in or about 1976. That was the year William Lerach, then a junior lawyer at the firm, moved to San Diego to open a West Coast office. Mr. Lazar says he met Mr. Lerach through Mr. Weiss. A lawyer for Mr. Weiss said that because of the pending investigation and the charges against Mr. Lazar, his client felt it was inappropriate to comment.
Mr. Lazar says he came up with ideas for potential lawsuits simply by reading about corporate misdeeds in the newspaper. "I always tell people if I read The Wall Street Journal, I can come up with a class-action a day," he says. He started taking his ideas to Messrs. Weiss and Lerach. Mr. Lazar says he would volunteer himself or a family member to be lead plaintiff in shareholder suits. (Lead plaintiffs in consumer class-actions are not required to hold stock in target companies.) He was not, he insists, a tool of the lawyers. "I brought them every one of the cases," he says. "And I had to talk them into some of them because they're really busy."
In 1980, Mr. Lazar sued Hertz, using Milberg Weiss as his law firm. He had rented a Pontiac at the Ontario, Calif., airport and driven 78 miles to Palm Springs. He returned the car without refilling the tank and was charged $11.15, which he alleged was as much as $2.95 a gallon more than the maximum permitted under federal regulations. "I sued because I believed they were defrauding everybody and not just me," says Mr. Lazar. A judge threw out the case, citing the small sum of money involved. But Mr. Lazar appealed, and the case was reinstated. Eventually, Hertz settled.
Mr. Lazar insists that he didn't file lawsuits to make money but because companies were cheating customers and shareholders. "There were times I had money and times I didn't have money," says Mr. Lazar. In 1985, Manufacturers Hanover Trust Co., now part of J.P. Morgan Chase & Co., sued Mr. Lazar and his wife for failing to make good on $4 million of guarantees they had made on the bank's loans to an oil company. After a prolonged fight, he paid $3 million to settle the matter, he says.
Over the years, Mr. Lazar says, he conferred periodically with Mr. Lerach and dined with Mr. Weiss in New York. Both lawyers visited him at his Palm Springs home. He says he would explain stock trading and related market issues to the firm's lawyers.
Mr. Lazar's wife of 40 years, A.J. Lou, two of his three children, Adam and Tara, and his mother-in-law have all been plaintiffs in securities class-action cases brought by Milberg Weiss. Mr. Lazar says the family members acted as plaintiffs because the underlying securities were held in their names. (Plaintiffs in securities class-action suits, unlike those in consumer class actions, must be investors.)
The indictment charges Mr. Lazar and his lawyer, Mr. Selzer -- but not Mr. Lazar's family members -- with fraud, conspiracy and money laundering. During many of the years covered by the indictment, Mr. Seltzer was a partner in Best Best & Krieger, a California law firm based in Riverside. The firm has said that it isn't a subject of the government investigation and that it has cooperated with the probe.
Mr. Lazar was arraigned at the Riverside, Calif., federal court house on June 23. "When they arrested me, they threw me in irons," he complains. "The government wanted to keep me in jail forever. They didn't want me to have any bail because they thought I was going to flee. I have all my money here, my art here. I have $11 million in Bank of America here ... Where do they come up with these things?"
That evening, after posting a $5 million bond, he was released to home confinement and ordered to wear an electronic ankle bracelet. Eventually, he was allowed to go without the ankle cuff. In addition to his heart surgery, he has received chemotherapy treatments for lymphoma. He has lost 30 pounds from his already small frame. He says he's still an investor, but not a terribly active one.
In September, he received a letter from Banc of America Investment Services informing him that the bank had "decided to terminate our business relationship." It asked him to transfer his funds to another financial institution. A bank spokesman said the bank doesn't comment on customer relations. "It's unbelievable," Mr. Lazar mutters, pulling from his wallet a gold ATM card that shows he has been a customer since 1953.
On Thursday afternoon, Mr. Lazar appeared in federal court in Los Angeles. He wore a brown tweed sports coat and sat hunched in a wheelchair. He had difficulty hearing. At the court's direction, he was handed a hearing aid. After Mr. Lazar agreed to a doubling of his bail to $10 million, Judge Dean Pregerson released him from home confinement.
Mr. Lazar's trial is slated to begin on April 4. |
