| Book Reviews |

In Fed We Trust: Ben Bernanke’s ket system. When Lehman Brothers David Wessel relates the Bernanke War on the Great Panic appeared on the brink of collapse in family’s Southern roots; talented Ben’s September 2008, Secretary of the Trea- “escape” from the small town of Dil- By David Wessel sury Henry Paulson signaled that the lion, S.C.; his years as a professor at Crown Business, New York, NY, 2009. 323 administration would support at most Princeton University; and his appoint- pages, $26.99. a takeover of Lehman Brothers by an- ment as a member of the Fed in 2002, other firm. When no bank or brokerage followed by his chairmanship in 2006. house would purchase Lehman Broth- Bernanke came to his chairmanship Re v i e w e d b y He n r y S. Co h n ers, which was weighed down with keenly aware of the Fed’s failures in the In In Fed We Trust, Wall Street Jour- toxic assets, the government refused to 1920s and 1930s first to prevent the De- nal reporter David Wessel provides take any other steps. On Sept. 15, 2008, pression and then to involve itself in fix- information essential to understanding Lehman Brothers filed for bankruptcy. ing it. He knew that, with the New Deal, the financial crisis of 2008. He joins a This event triggered what has be- the Fed had taken on a much more ac- growing number of authors who have come known as the Great Panic of 2008. tive role in managing the country’s mon- written on the subject, including An- Economists advised that the U.S. market ey supply and ensuring against the fall drew Ross Sorkin, whose Too Big To system—and indeed the world econo- of financial institutions. Bernanke was Fail was reviewed in the February 2010 my—was about to self-destruct, with determined to prevent what he labeled issue of The Federal Lawyer. Wessel’s numerous other companies failing as Le- “Depression 2.” His motto, at least after book not only thoroughly explores the hman Brothers had. Bernanke and Paul- the Lehman debacle, was do “whatever Federal Reserve Board’s role in attempt- son realized that the Treasury Depart- it takes.” This attitude, according to Wes- ing to end the economic downturn but ment and the Fed would have to take sel, has turned the Fed into, in effect, a also is a fine biography of Ben Bernan- immediate action. Consequently, when fourth branch of government. ke, the Fed’s controversial chairman. the mega-giant AIG reported that it was The recession of 2008 officially end- In Fed We Trust depicts the almost in imminent danger, the Fed stepped in ed in 2010, but the debate over buyouts godlike reverence that the public and and purchased AIG for the federal gov- and the Fed’s actions continue. In Janu- the financial markets held for the Fed’s ernment for $80 billion. The U.S. gov- ary 2010, Bernanke became eligible for a prior chairman, Alan Greenspan, who ernment also purchased the semi-public second term as Fed chairman, and he un- served from 1987 to 2005. But Green- mortgage lending institutions, Fannie derwent a bruising confirmation process span missed the signals that the hous- Mae (Federal National Mortgage Asso- in the Senate. Bernanke faced one group ing market was a bubble, blown into ciation) and Freddie Mac (Federal Home that argued that the buyouts and stimulus exorbitant size by subprime loans, and Loan Mortgage Corporation). packages had not hastened the end of about to burst. After becoming Fed Just after these developments, on the recession. On the other side, some chairman in February 2006, Bernanke Sept. 25, 2008, the two presidential argued that, as a Bush appointee, Ber- cautiously monitored world economic candidates, John McCain and Barack nanke had not reacted quickly enough conditions and directed some adjust- Obama, met with President Bush and to the warning signs in the housing and ments in interest rates. In March 2008, his staff and congressional leaders in stock markets as the Great Panic of 2008 however, he oversaw more aggressive the oval office. Bush played no role unfolded. On Jan. 28, 2010, Bernanke action in engineering the rescue of the at the meeting, which was dominated was reconfirmed by a vote of 70 to 30, brokerage house, Bear Stearns. by sharp exchanges between Treasury the weakest endorsement of a chairman Wessel’s book first turns dramatic as Secretary Henry Paulson and Speaker in the Fed’s 96-year history. he describes the unsuccessful effort to of the House Nancy Pelosi (D-Calif.). In Fed We Trust is an excellent find a stable partner for Bear Stearns, The next event in the drama took primer on the latest developments at the provision of a temporary infusion place when Congress passed the Emer- the Federal Reserve Board. Bernanke, of cash by the Federal Reserve, and gency Economic Stabilization Act of newly re-appointed, has made it clear then the sale of the firm to JPMorgan 2008 (the bailout) and the Troubled As- that he will continue to do “whatever Chase. In fall 2008, policy-makers as set Relief Program (TARP) in October it takes” to stabilize the economy and well as their critics would, again and 2008—a month before Obama won the speed the recovery. He recently put again, raise as a precedent the Fed’s presidential race. This legislation led to in place steps for a gradual increase extraordinary exercise of its powers in another series of bailouts for banks, in- of interest rates and the elimination of cleaning up the Bear Stearns debacle in cluding Washington Mutual, Wachovia, the drastic measures adopted during the spring of that year. If the Fed was and Golden West. The bailout of Bank the crisis. On Mar. 1, 2010, Donald L. willing to cross the Rubicon to help this of America, scheduled for the morning of Kohn, Bernanke’s deputy, whom Wes- brokerage house, why shouldn’t it act inauguration day, was hastily re-arranged sel also profiles, announced that he was as aggressively to save other institu- by the Bush administration to take place resigning. On April 29, 2010, President tions in desperate shape? on the Friday before Jan. 20, 2009. Obama nominated Janet L. Yellen as The Bush administration, however, The architect of the Fed’s role as res- Kohn’s replacement; her confirmation resisted departures from the free mar- cuer was its chairman, Ben Bernanke. by the Senate would align the Fed even

68 | The Federal Lawyer | May 2010 more closely with his administration’s for bringing them a lucrative class action Register (ALR), an organization that, act- economic program. TFL case for which he qualified as a plaintiff. ing on behalf of the insurance compa- The firm’s arrangements were of neces- nies involved, was offering a reward. Henry S. Cohn is a judge of the Con- sity more complicated than that. They Drabek’s questions led the director of necticut Superior Court. had Cooperman bring in a third-party the ALR, Anna Kisluk, to believe that lawyer (often James Tierney) to serve Drabek knew something about the case, as an intermediary. The bargained-for and she informed the Federal Bureau of Circle of Greed: The Spectacular kickback to Cooperman would go first Investigation of the conversation. Rise and Fall of the Lawyer Who to Tierney and would be accounted for In time, FBI agents followed the bread Brought Corporate America to Its on Milberg Weiss’ books as a “referral crumbs back to Little. Little wanted to Knees fee.” Of course, Tierney, an entertain- make a deal, so he showed them the ment lawyer who represented Timothy missing masterpieces in the Mill River By Patrick Dillon and Carl M. Cannon Hutton and Gloria Estefan, had contrib- Indoor Self-Storage facility in Olmstead Broadway Books, New York, NY, 2010. 532 uted neither the referral nor anything Falls, Ohio. He had been keeping them pages, $28.00. else in these Cooperman lawsuits, but at the urging of his former law partner, he would dutifully pass along the mon- James Tierney, because a client of Tier- ey after taking his own cut. ney’s had falsely claimed to police and Re v i e w e d b y Chr i s t o p h e r C. Fa i l l e There were other favored plaintiffs insurers alike that these paintings had Bill Lerach, an extraordinarily talented in the Milberg Weiss stable—and other been taken off his walls by a burglar. and ferocious plaintiffs’ lawyer, made a lawyer intermediaries as well. Still, Coop- The client engaged in that insurance fortune representing shareholders who erman and Tierney acquired great sig- fraud was Steven G. Cooperman. had bought high and sold low. Much nificance through the misfortunes of one So it was that, in July 1998, a Los An- of Circle of Greed is about his successes of Tierney’s partners, J.J. Little. In early geles grand jury indicted Steven Coop- in such lawsuits, and some of the book 1996, for reasons that need not concern erman on 18 felony counts, including describes the seamy side of the business us, Little left his practice in California and insurance fraud and tax fraud. By this model he followed in the process. moved to Rocky River, Ohio, a town time, Cooperman had received a total near Cleveland. There he romanced and of more than $6 million from his rela- Cooperman and Tierney moved in with Pamela Davis. In August tionship with Milberg Weiss, and he de- A class-action law firm needs plain- of that year, two officers of the Rocky cided that his knowledge of the modus tiffs. Accordingly, there has developed River police department responded to operandi of that law firm was his best— a class of “professional plaintiffs,” who a call reporting a domestic disturbance and perhaps his only—bargaining chip purchase shares in companies that and walked into a heated argument be- in hopes of a tolerable plea deal. they believe will become the target of tween Little and Davis. In her fury, Davis Over the course of the following few lawsuits. It was an excess of largesse told the police, “He’s a meth addict, a years, Bill Lerach and his West Coast toward members of this class, and dis- drunk, he’s assaulted me before. He’s sit- team became too big to be contained honesty about that largesse, that caused ting on stolen art worth millions, in a se- within the New York-centered partner- the downfall of Bill Lerach and the law cret location.” The officers decided they ship of Milberg Weiss. Lerach spun his firm, Milberg Weiss, in which he was had no basis for action—in response to own team off from the mother ship for- a partner for almost 30 years, and of either the domestic disturbance or Davis’ mally in May 2004 and called the new which he was the public face—its alter accusations. They warned the couple to partnership Lerach Coughlin Stoia & ego—for much of that time. calm down and went on their way. But Robbins LLP. It was another two years One of the plaintiffs favored by a police record of someone making that after that spin-off that a grand jury Milberg Weiss’ largesse was a Beverly statement about J.J. Little now existed. brought in indictments related to Mil- Hills ophthalmologist named Steven berg Weiss’ activities. Cooperman, with whom Lerach first Picasso and Monet made contact in 1988. By summer 1993, In early 1997, Pamela Davis took Fischel and Keating Cooperman had become notorious as a up with a new acquaintance, Dennis All of that is fascinating and could professional plaintiff. Dillon and Can- Drabek. She told Drabek what she had make the plot of a film noir. Still, much of non quote an opinion issued that sum- told the police—what her former lover, this book and perhaps the more intrigu- mer by U.S. District Judge Joe Kendall Little, had told her—that there were ing parts involve neither Milberg Weiss’ (Northern District of ), who, in two valuable works of art, stolen from illegal methods of recruiting and retaining dismissing a certain class action, noted somewhere in California, sitting in a the loyalty of plaintiffs nor the bizarrely somewhat sardonically, “Plaintiffs … nearby self-storage facility. Drabek was indirect way in which that system unrav- have among their ranks one of the un- intrigued and ended up scanning news eled on the shores of Lake Erie. No, the luckiest and most victimized investors clippings and calling friends in Califor- really good material turns out to be about in the history of the securities business, nia. He discovered that a Picasso and a Daniel R. Fischel, a professor of law, a Mr. Steven G. Cooperman. ...” Monet had been stolen from a Los An- one-time clerk for Supreme Court Justice Milberg Weiss would not simply or geles area home five years before and blatantly give Cooperman a kickback were still missing. He called the Art Loss reviews continued on page 70

May 2010 | The Federal Lawyer | 69 reviews continued from page 69 Potter Stewart, and a man of free mar- ($700,000) in service to the plaintiffs. leged it differently.” That is a moment for ket convictions. Through the 1980s and Hollywood: and the trial appears to have 1990s, Fischel served as an expert witness Hansen and Lerach had other such moments. for a wide range of prominent defendants The next crucial bit can be told in On Friday, April 9, 1999, the jury re- in securities-fraud lawsuits. Not surpris- the authors’ words: tired to deliberate. Soon thereafter, the ingly, he crossed paths with Bill Lerach in jury sent the judge a request asking to that capacity. (In the interests of full dis- After being dogged for months by review the reports Lexecon had done closure, I should mention that I wrote a allegations that he was a crook, on behalf of Keating and Lincoln. Lerach favorable review in The Federal Lawyer of after being tainted as a potential and his colleagues at the defense table Payback, Fischel’s 1995 book on insider expert witness, possibly costing were happy to hear this request, because trading and the Michael Milken case.) his consulting company millions they thought it meant that the jurors were The good material also necessarily fo- of dollars in fees, Daniel Fischel coming around to the view that there was cuses on Charles Keating, the man who was in the clear. But one matter a close enough link between Lexecon ended up at the center of the great late- was overlooked. Even though the and Lincoln to have warranted Lexecon’s 1980s savings and loan scandal. Keating resolution was untraditional [a dis- inclusion in the 1990 complaint. But the was the principal of American Continen- position rather than a settlement], defendants had misread the jury, which tal Corporation (ACC), a land develop- a traditional exercise normally fol- returned to the courtroom Monday after- ment company that purchased Lincoln lows. It requires a release, mean- noon with a verdict of $45 million com- Savings and Loan in 1984. In 1987–1988, ing both parties agree not to pensatory damages. Judge Zagel ordered Keating paid Lexecon, an economic subsequently sue the other. The a hearing to determine punitive damages consulting firm in which Daniel Fischel concluding documents in the case to begin the following morning. was a principal, to prepare reports on of the plaintiffs versus Lexecon did That hearing never took place. The the soundness of Lincoln. Keating then not contain a release document. two sides settled on a total of $50 mil- used these reports to persuade federal lion, with the proviso that the plaintiffs and state regulators to leave him alone. Oops! receive it by 5 p.m. Tuesday. Milberg In 1988–1989, the real estate bubble In November 1992, Lexecon sued Weiss didn’t have $50 million sitting in burst, leading to the failure of both ACC Milberg Weiss on a variety of grounds, a petty cash drawer, and the firm’s li- and Lincoln. Although Lincoln’s deposi- which, after years of pretrial maneu- ability insurance would cover only $5 tors were insured, it soon became clear verings, boiled down to tortious in- million. Therefore, the law firm had to that Lincoln had been steering some of terference with Fischel and Lexecon’s raise the sum in a single day by getting its depositors into noninsured and highly business relationships. This lawsuit partners to pitch in and by obtaining speculative ACC-sponsored investments. came to trial in March 1999. any short-term loans they could man- Many of those depositors-turned-inves- Dillon and Cannon describe the trial age to get. Communications and wire tors were of modest means, unsophisti- in some detail, focusing on a show- transfers flew about hectically, and by cated, and elderly. They lost their money, down in which Lerach took the stand the end of that day, Chicago time, Lex- and Keating was indicted by both the and subjected himself to questioning by econ had its $50 million. state of California and the . Fischel’s attorney, Mark Hansen. Han- In 1990, Milberg Weiss sued Lincoln sen zeroed in on the statement, in the Final Irony Savings and Loan, Charles Keating, and class action complaint against various The two plot lines on which this re- dozens of other entities on behalf of the Keating-related parties, that Fischel and view has focused represent significant class of investors injured by the demise Lexecon had hidden from federal regu- parts—but much less than the whole— of ACC. The firm named both Lexecon lators the fact that they were actually of the narrative arc of this fact-crowded and Fischel himself as defendants. Ler- working for Lincoln Savings and Loan book. I commend the authors for their ach was apparently crucial in the firm’s when they submitted their report. industry and for the clarity with which decision to include Fischel, and Dillon “Exhibit 100 is before you, Mr. Lerach. they have told a complicated tale. and Cannon believe that this decision Take a moment to look at it,” said Hansen. On May 18, 2006, about two years after arose from frustration over Fischel’s ex- “This is the letter that accompanied the Lerach had left Milberg Weiss, the federal cessive effectiveness as a defense wit- report to the [Federal Home Loan Bank grand jury in Los Angeles indicted that ness. Milberg Weiss’ complaint included Board], correct?” Lerach claimed not to firm and two of its partners on 20 counts. the allegation that Lexecon’s submissions have seen the cover letter, Exhibit 100, in One of the named partners, David Ber- to federal regulators had hidden the fact which Lexecon had informed the FHLBB shad, pleaded guilty, and it appears to that Lexecon itself had received funds that it was submitting a report as an advo- have been Bershad’s cooperation that from Keating. In June 1992, though, Mil- cate for Lincoln Savings and Loan. It had helped authorities zero in on what they berg Weiss accepted a disposition of the clearly disclosed, then, the point that Mil- regarded as a bigger fish—Bill Lerach. case as against Lexecon and Fischel. As berg Weiss had accused it of hiding. “But In time, Lerach would negotiate a part of that disposition, those particular the allegation is clearly a mistake, isn’t it?” plea deal, pleading guilty to one count defendants agreed to forfeit the equiv- Hansen pressed, to which Lerach replied, of obstructing justice by obtaining false alent of the Lexecon fee from Keating “If I had had this letter, I would have al- material declarations under oath. Specif-

70 | The Federal Lawyer | May 2010 ically, Milberg Weiss as a firm had solic- of his fellow Texan, George W. Bush. tration players—such as , ited clients to serve as the lead plaintiffs McClellan was White House press sec- , Andy Card, Condoleezza in class action lawsuits alleging securi- retary from 2003 to 2006, after having Rice, Dick Cheney, Colin Powell, and ties fraud and had paid the lead plain- served as deputy press secretary. Dur- Donald Rumsfeld—and gives his opin- tiffs well beyond what other members ing his tenure, he did not lose his ap- ion of their characters and personali- of the class would ever receive, while preciation and fondness for the Presi- ties. McClellan also describes the role encouraging these lead plaintiffs to dent nor his agreement with Bush’s of press secretary, the frustrations that deny to the court that they were getting aspirations, but McClellan’s belief that accompany the job, and his own ap- any such favorable treatment. the Bush administration was playing a proach to it. Lerach’s one-time mentor, Melvyn positive role in domestic and foreign McClellan’s departure after six loyal Weiss, was also caught in the prosecu- affairs dwindled. He came to believe years was precipitated by the Valerie torial net and imprisoned. What was that the administration’s continuing in a Plame affair. Bush had asked McClel- for so long known as Milberg Weiss is campaign mode—engaging in manipu- lan to defend statements made by now known simply as Milberg LLP. lation, secrecy, and self-deception— Karl Rove, Bush’s chief of staff, by Another fish caught in the net was was contrary to the President’s stated Lewis “Scooter” Libby, Vice President John Torkelson, who had frequently goals of bipartisanship, transparency, Cheney’s chief of staff, that they had testified as an expert witness on the and good governance. McClellan had not disclosed that Plame was an under- issue of the measurement of plaintiffs’ expected Bush to fulfill these goals, be- cover CIA agent; both Rove and Libby damages in securities class actions cause he had witnessed him doing so had assured McClellan that they had brought by Milberg Weiss or Lerach when Bush was . not. When the truth proved otherwise, Coughlin. Torkelson was convicted of Of course, the tragedy of Sept. 11, McClellan was forced into the uncom- perjury essentially for refusing to help 2001, to which the new President ini- fortable position of either admitting the government against Lerach, and he tially reacted powerfully and grace- that he had been duped or suffering in entered a federal penitentiary in Au- fully, was a significant factor in Bush’s silence. Already reaching burnout, Mc- gust 2006. Meanwhile, the California- decision to launch a pre-emptive at- Clellan resigned. based firm that for a long time was a tack on Saddam Hussein’s regime in As with most autobiographies, What branch of Milberg Weiss, but in 2004 Iraq. McClellan reports that Bush de- Happened attempts to burnish the au- became Lerach Coughlin Stoia & Rob- spised Saddam’s cruelty and evil na- thor’s image. Although McClellan offers bins LLP, continues as Coughlin Stoia ture, which Bush saw as having been mea culpas on minor matters, he claims Geller Rudman and Robbins LLP. demonstrated by Saddam’s mass mur- that some of the administration’s major Dillon and Cannon conclude their ders of his own citizens and aggression blunders might have been avoided if book with a delightful irony. Coughlin against oil-rich neighboring nations in his advice had been followed. A recur- Stoia Geller Rudman and Robbins have the Middle East. However, in preparing ring theme of the book is that governing recently begun using an old face as an the United States and its allies to accept by continuing in the campaign mode expert witness to give the sort of mea- the military incursion, the administra- works against the national interest. But surement-of-damages testimony they tion relied far too heavily on the ratio- the suggestions that McClellan offers could once have gotten from Torkel- nale that Saddam possessed concealed for improving the situation appear as son: Daniel R. Fischel. TFL weapons of mass destruction. much a patina for better book sales as Although the American military ac- a serious pursuit. Nevertheless, What Christopher Faille, a member of the tion against Saddam was swift and Happened is a readable and balanced Connecticut bar since 1982, writes on decisive, keeping the peace in a frac- examination of the inner workings of a variety of financial issues, and is the tured nation was elusive. As stability the Bush administration and should co-author, with David O’Connor, of a in Iraq deteriorated and weapons of interest political junkies regardless of user-friendly guide to Basic Economic mass destruction were not found, op- their opinions of the former President Principles (2000). position to and distrust of Bush and his and his policies. TFL administration increased. Rather than admit his mistakes and demonstrate What Happened: Inside the Bush John C. Holmes served as a U.S. admin- transparency, according to McClellan, istrative law judge for 30 years, retir- White House and Washington’s Bush became more stubborn in his ing in 2004 as chief administrative law Culture of Deception pronouncements about Iraq, and the judge at the U.S. Department of the In- administration became more secretive. terior. He currently works part time as a By Scott McClellan By avidly seeking to expose the admin- legal and judicial consultant and can Public Affairs, New York, NY, 2008. 326 pages, istration’s blunders, the media stirred be reached at [email protected]. $27.95 (cloth), $16.95 (paper). up controversy in which increasingly strident Democratic politicians joined, and this helped cause the administra- Re v i e w e d b y Jo h n C. Ho l m e s tion to develop a fortress mentality. Scott McClellan was a longtime McClellan candidly discusses the friend, admirer, and trusted adviser roles and interactions of key adminis-

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