Premier with Bill Lerach

0:00And now Talk Radio 760KFME presents, it's your money not theirs with your host, Richard Museo and Joe Vecchio. Now here are Richard and Joe. Thank you, Justin, for getting us on the air here. This is the premier edition of It's Your Money Not There's. I am your co-host and announcer, Joe Vecchio, and it's such a pleasure to be here in an honor. This signal for people who may not know reaches all the way up to Los Angeles, County, and beyond in the evenings. So it gets an advantage even over FM radio, believe it or not. But without any further delay, the real central figure in this program is Richard Museo and I'm going to toss to him right now to get into his life and career and the philosophy behind this show. Thank you, Joe. Actually, I'm not actually the real centerpiece of this show. But today we have a very special guest that we're going to get to in a minute. But again, I'm Richard Museo, I am a CPA, and my specialty is working with family offices.

1:06I'm known as the family office guy. So I work with very high net worth families. And some of the things we're going to be talking about on this show, where you might say the subtitles are, well, number one would be what we, what your stockbroker and what Wall Street don't want you to know. But this is not a protest show, by the way, it's not a protest show. And then the second subtitle would be, how are America's wealthiest families investing their money and how are they reducing their investment risk? Because a lot of smaller, shall we say, investors now have access to some of these things that America's wealthier families are doing. And that's for later shows because this is going to be a very interesting show because of who our special guest is and that would be Mr. Bill Lyrak and he is known as the king of the class action lawsuit. And we've got some very interesting things to talk about with Bill. But I wanted to try to put into perspective, and I'm going to ask him the same question, his career and some of the things we're going to talk about. And here's my story. I am, as I mentioned, a CPA, and I started my career at Arthur Anderson, but it was only

2:09there for two weeks because the gentleman who recruited me out of college at University of San Diego on my second Friday there said, hey, Richard, we're leaving the firm, my buddy Dan and I just started our own firm on Monday, you want to join us, I said sure. But I've always sort of liked Arthur Anderson since I started there and Mr. Lyrak is, of course, because of his class action experience, recovered over $7 billion for Enron investors, but of course Arthur Anderson was heavily involved in all of the litigation that went on surrounding Enron. And so he has credited maybe fairly, maybe not with putting Arthur Anderson out of business. I don't know if that's accurate or not, but certainly the Enron involvement did put Arthur Anderson out of business. So as a CPA, that sort of bothers me because I've always been very loyal to Arthur Anderson. On the other hand, this would be the other side of the coin. My aunt, well, late aunt, she passed away about six years ago. Her next door neighbor at her assisted living home in Rancho Bernardo was a woman named Mildred.

3:10And Mildred, at one point, owned a lot of Enron stock. And in fact, her stockbroker basically had her in Enron and nothing else, and that's sort of unconscionable. We'll be talking about those topics later, as the show moves along during the weeks. But the point is she had maybe $200,000 invested in Enron. It was a really sweet ride. She was maybe up to $500,000, $600,000, and then one day it all came crashing down. And Mildred had absolutely nothing left, except maybe $20,000 of other stuff that her stockbroker had stuck into her account. And of course, her fear was that she was going to have to be taken in by family, or even worse, maybe go to a medical facility because she was broke. And her most important desire, Mildred's most important desire was to, shall we say, live out the rest of her life independently and not be the ward of the state or a burden on her family. And when all was said and done, the class action suit against Enron, which recovered over $7 billion, she got back not her entire $200,000 investment.

4:11But I think a little bit over half, it was maybe $120,000. And she was able to live her life out, shall we say, independently and not see her worst fears realize. So it's difficult for me to put Mr. Lyrax's career in perspective, because on the one hand, my Arthur Anderson background on the other hand, I saw the extreme benefits that this whole process of the class action lawsuit, how this benefited my aunt's next-door neighbor, Mildred. So I guess my first question to you is, how do you put your career into perspective, given all that it involved? Well, Joe and Richard, listen, congratulations on your new show. I'm sure it's going to be a source of good useful information for investors and people and will be a big success. So best of luck to you. Boy, I'm glad that the story had a modestly happy ending, and we were able to make that recovery. And the lawsuits that we brought over the years did recover a lot of money for the fraud

5:13of the investors, and we think it helped try to shape corporate behavior in a better way. We worked hard, and we had a lot of grateful clients. We made some mistakes, and we paid a price for that, but I'm proud of the work we did. And by the way, Richard, they'd be more accurate to say, Arthur Anderson put Arthur Anderson out of business. It was Arthur Anderson's conduct in becoming so implicated in World Com and Enron that really brought down that firm. Yeah, I mean, I'd agree with that assessment, but it was certainly the Enron debacle that finished them off without question. Yeah. What percentage of your lawsuits were based on insider trading, and for those in the audience who may not know what insider trading is, maybe you could explain with that. Well, one of the problems in the market in Richard, I know, is very familiar with this. It's an uneven gain.

6:13The corporate insiders, especially the corporate officers, have a big advantage. They have access to what we call market sensitive or market important information that other investors simply don't have. Now the law prohibits them from profiting from that by selling or buying while in possession of non-public information. But unfortunately due to real severe regulatory failures and cutbacks in recent years, the bars against insider trading have been eroded. There's a lot of insider trading in Enron. The insider sold over $150 million worth of their stock before the crash came. And that would, if you remember, that Mazzoli, the CEO of the Savings and Loan Countrywide, I mean, this is a guy who sold $600 million worth of his stock in the year or two before

7:18this thing blew up and left investors holding the bag. It makes for rotten markets, it undercuts investors' confidence, but it helped the lawsuits when we brought it and exposed it because they were embarrassed by it and they didn't like getting caught. And the other argument is the SEC, if the SEC had been doing their job, there may not be as much need for a firm like yours recovering all of that. I think I read in your book that there were many years where your firm recovered much more than the SEC. Well, remember, look, the SEC was at one time a magnificent regulatory agency and a real example of the good things that a good independent regulatory agency can do in America. But unfortunately, it got captured by the industries. It regulates Wall Street and the corporate world. It's resolved to vigorously enforce the laws and regulations was badly eroded.

8:21And look, I think the SEC has to bear a lot of blame for especially the last financial crisis. And it's a lesson that we were having trouble learning in this country, but if you curtail the regulation of the financial markets severely, just given the nature of the markets and the people in those markets, you're going to get an upsurge in fraud. And it's innocent people like Richard's mother who pay the price, not the insiders who keep what they take. So my understanding is you recovered about $45 billion between all of the class actions. I mean, Enron and everything else added together is that a fairly accurate assessment. Well, it's the right number, but you say it wrong when you say you recovered. It wasn't just me. I had a tremendous group of partners and a wonderful law firm. We had, oh, I think we may have had 400 lawyers at our peak size.

9:22We had offices all over the United States. I had tremendous mentors who helped train me in the business, but also tremendous young people, very idealistic, very hardworking. So these recoveries weren't the work or the result of one person. You were more like the Supreme Allied commander, because this is a huge force of legal force that went forward when you were lead attorney like that. But Bill, I heard when you would go into settlement conferences, you would be greatly outnumbered. Could you tell us a little bit about that? Well, it was the nature of the kinds of cases that we brought. Oftentimes you had law firms, as defendants, accounting firms, investment banking firms, boarded directors, who knows? So there were lots and lots of defendants. They have a lot of money. They have big, powerful lawyers and lots of them. And many, many times, it was sort of fun to be honest.

10:23You'd sit in a giant conference room, one of these conferences. You'd tell you what you wonder how they ever even build it, much less gutted in the conference room. You're going to be surrounded by 15, 20, 25 lawyers. But you know what? If you had to fax on your side and you had the good documents, just doesn't really matter how many of them there are, you just have to weave your way through it. I believe one of your law partners, Michelle Chicarelli, told me that one of the final and run conferences occurred at the Peninsula Hotel in Chicago, and there were about four of you and about 180 of them. While that case was, we have a Latin expression, Sui Generus, one of a kind. But look, in a sense, Joe, was only evidence of how horrible the fraud was. I mean, you know, it's amazing. We have short memories of Americans as Americans. We had a couple of year period there between WorldComb and Enron and Tyco and a whole host

11:25of other companies that I could mention, American investors and pension funds, who are big investors in these equities, lost maybe as much as $14 trillion. You know, the guys on the Wall Street didn't lose $14 trillion. The chairman of Merrill Lynch, the guy who got booted out, took $250 million bucks down to Florida, Jerry Warner, who put the worst merger in the history of the world together, Jim Warner and AOL, he walks away with $760 million and is living in, you know, some friendship village or whatever it is up in California. I'm just saying it's unfair in the way it breaks down. The insiders walk away with too much and the ordinary people get to that. Well, maybe that's why some Americans are out on the streets, but let's take a little break. We'll be back with Mr. Bill Lyrak, who recovered over $45 billion in his illustrious career. We'll be back right after this break.

12:26I picked this song. Does everyone remember this great theme song, Henry Matsuni, Peter Gaunt, Love it, Love it. Hey, we have to thank one of our premier sponsors, Lestats Coffee House, a great little place in normal heights as the original site and they have one now in university heights, always packed open 24, 7, 365, great coffee. Please go visit Lestats. You're going to love it if you can find a seat. And if you'd like to call in tonight if we have some time, the toll-free number is 800, 760 KFMB, 800, 760, 5362, and back to you, Richard. So Bill, I got in the mail on Friday. This was like divine intervention. I got this piece of correspondence. It's called Notice of QS Communications Remission and it says that I, having once been a stockholder of QS, am eligible to receive or to participate in a recovery against Mr. Joseph Natio of $44 million. Okay. So $44 million has been recovered by the Justice Department and there's a law firm that's

13:30serving as the administrator of the remission process. And I received this notice because my records indicate that I was a shareholder, however, in big bold print. It says although you establish eligibility for participation in the plaintiff class, you are not eligible for remission distribution because your pro-rata distribution amount would not exceed the diminimous amount of $10 established by the Department of Justice. Now this is two things. Number one, it says I'm broke because I've got three teenagers, so I couldn't afford to buy very much QS. But beyond that, it brings up the big picture question. Are small investors better off now than they were five years ago or are they worse off now than they were, let's say, five years ago in 2006 or 2007 in terms of being protected by these kinds of ripoffs by large company? Well, unfortunately, I think the securities markets have become more speculative, more vulnerable, more volatile, more fraud infested and polluted by insider trading. And I think that is working to the great disadvantage of small investors.

14:33You know, the myth of a strong positive stock market returns over time being all but inevitable for investors has just been completely disproven over the last 15 years. The market hasn't gone very much of any way and there have been a lot of really significant and bad losses. Now why is that? Well, in significant part, it's because we toured on the regulatory structure that was meant to protect us, ordinary people, investors from the very sharp, avaricious, and ambitious people on Wall Street and in the corporate community. The SEC, badly cut back, now look, this settlement that you mentioned against Mr. Nausho involves alleged insider trading. And here you have a situation where I think people who were familiar with this, there was a criminal conviction, you wonder why the recovery is so modest.

15:36And then as Richard read, it's so small that he wouldn't even get $10. And that I think undermines the confidence of people in the system. If you're going to have a private litigation system to try to regulate the markets and supplement the government, which won't do a good job because it's captured by the industries, make it a fair fight, have the fight take place on a level playing field so that the people who are willing to stand up for the defraud of the investors have a chance to make a recovery like we made in Enron, which was a very large recovery and still only a part of the damages. The field of private enforcement, that is lawsuits by lawyers like I used to bring in and others, has been crippled by the corporate powers and the courts who've cut back on the ability to have a remedy. So what happens if you have an inadequate remedy, you get a cheap settlement,

16:36the people don't get much and it doesn't serve the system, either for deterrence or compensation. Well, I could have used my $9.12. I could have gotten a list of stats and enjoyed some great live music. But you know Richard, it's funny, I got letters from people over the years who got $9. And you know what they would say? It doesn't amount to much, but it means something to me that somebody cared enough to fight for me. Absolutely. Absolutely. There is part of that part of it too. So there's this thing called Sarbanes Oxley, those of us in a county call it Sox. And it's a regulatory, shall we say. Well, it was a bill many years ago that was designed to, shall we say, add protection to investors by placing more responsibility on CPAs and auditors who were, shall we say, doing the audits or the reviews of these companies. Given the economic mess this country's in, there are rumors that with regards to whatever, oh, that's called a reconciliation of our economic situation that comes out in the form of new legislation that Sarbanes Oxley might actually be, well, removed of some of its teeth. What are your impressions about Sarbanes Oxley?

17:42Has it worked? Has it not? And where do you think it might go? I've heard those rumors that the administration might trade curtailing Sarbanes actually for the stimulus bill or employment bill. I think I'm going to give an answer might surprise you a little bit, Richard. I am not enthusiastic about the impact of Sarbanes Oxley. And I'll tell you what I thought was wrong with it. And I think it's what's wrong with Dodd-Frank. Attempts to legislate and regulate the financial world, corporate world, and the banks become so lobbied, so heavily by such powerful interests that even if you get remedial legislation behind the scenes, it's shaped in a way that the industry can live with it. And my problem with Sarbanes Oxley is it's too much check the box kind of auditing. Now, you were an accountant. You remember what you learned. Fair presentation.

18:43There are general core accounting principles, full disclosure, fair presentation, substance over form. You don't need a lot of boxes to check if you've got an independent auditor who skeptical who is applying those core principles, but the core principles have been lost. Yeah, and my problem with Sarbanes Oxley was more of a personal one as a CPA. It made a lot of young people who came into my profession do a lot of rain dead work as I call it. And they didn't have much quality of life. It was even worse than tax season, I think, for these poor young people who had to do all of this, so we say, check the box stuff. Anyone going to break? Yeah, we're taking a break, right? I've already ripped Sarbanes Oxley. No apology to all the CPAs out there. Hey, when we come back, we'll get into pensions with Bill. That's what y'all want to hear about, so we'll be back right after this break. This is a great song too. This is a live 50. Welcome back to It's Your Money, Not Yours. Not theirs. Not theirs, I mean. Not theirs. Thank you with your illustrious host, Richard

19:46Museo and our terrific guest, Bill Lyrak. Richard, take it away. So Bill, I heard you speak at an event recently, and I'm going to ask you a question about that. And we also want to announce that Bill is going to be presenting in public on Thursday, November 17th, somewhere in Delmar Heights. I don't think the venue has been decided yet, but it's an event sponsored by advanced practice advisors, www.apa-ria.com, who's also one of the sponsors of our show. They are not stock brokers. They are registered investment advisors, so they take, shall we say, a much more independent and objective direction towards assisting people with meeting their financial goals. But Bill's going to be speaking about the pension mess, which is going to be my next question. By heard Bill speak about the pension mess at an event on September 1st, it was at Star San Diego, Star STAR stands for Strategic Trusted Advisors Roundtable. And that's a very interesting group here in San Diego, founded by Russ Davis and Karl Schiller that has grown from

20:48four members, only two years ago, to over 450 members of, shall we say, experience. Most of us have gray hair, professional advisors in the San Diego community attorneys, accountants, insurance specialist, wealth managers. And Bill actually did a very interesting presentation. It was actually covered by Bloomberg news. First time anybody actually flew over 2,000 miles to attend a star event, had over 110 days there. And we heard a great discussion of the real mess that pensions are in in this country, in particular, public pensions. So Bill, could you touch a little bit on the pension situation, particularly as it relates to, shall we say, the public sector? Well, of the many financial challenges facing our nation right now, the mess with the public pension funds, and to some extent, even the private corporate funds, has to rank right up there with the worst of them. It's a tragic example of a good idea gone bad. We put in

21:57place a public pension system, public employees of the states and counties, school teachers throughout the United States to take care of these people with a pension when they retired. The money was supposed to be carefully invested by a board of trustees. And unfortunately, the Wall Street money managers captured these funds. They lobbied for the repeal of the repeal of the