By Diya Gullapalli
Staff Reporter of THE WALL STREET JOURNAL
May 5, 2005 12:01 am ET
Sean Coffey once defended death-row convicts and flew Navy patrol planes.
More recently, he battled Wall Street banks, a once-huge accounting firm and others involved in the sale of WorldCom Inc. securities that became worthless. His aggressive tactics in that case helped secure more than $6 billion in settlements.
Those winnings have made him the hot lawyer of the moment in the lucrative field of class-action securities litigation. His next target: HealthSouth Corp. in Birmingham, Ala., another company singed by accounting-fraud allegations. His firm is lead counsel for the bondholders in that case and is vying for control of the shareholders’ class against Bill Lerach, a rival big-name lawyer from California.https://tpc.googlesyndication.com/safeframe/1-0-38/html/container.html
Mr. Coffey’s work on the WorldCom case culminated last month when Arthur Andersen LLP, WorldCom’s auditor at the time of its bankruptcy, agreed to settle for $65 million. Mr. Coffey and another partner in his firm, Max Berger, earlier helped force 17 securities firms and the outside directors of WorldCom (now MCI Inc. ) to settle on behalf of their main client and lead plaintiff, the New York State Common Retirement Fund. The settlements have shaken Wall Street, the audit profession and corporate boardrooms, especially because more than a third of the $61 million settlement with WorldCom’s outside directors must be paid from their own pockets.
As a result, investors in WorldCom bonds are entitled to receive an estimated 50 to 60 cents on the dollar; so far 700,000 claims have been filed. Moreover, plaintiffs are entitled to more money if Andersen pays more than $65 million in any other lawsuit as well as 20% of any distribution to Andersen’s 1,700 partners after settling other claims.
That payout is significantly more than the typical 25 cents to 30 cents on the dollar, said Chicago class-action lawyer David Kistenbroker, who wasn’t involved in the WorldCom case. Mr. Coffey’s New York firm, Bernstein Litowitz Berger & Grossmann LLP, stands to reap about $300 million in fees from the WorldCom case.
Mr. Lerach, who represents institutional investors in separate WorldCom suits, says Mr. Coffey should have fought for more. Mr. Lerach, who often competes with Mr. Coffey for lead-lawyer status in class-action cases, says he expects settlements for his clients to be “something significantly higher.”
The oldest of seven children of Irish immigrants, the 48-year-old Mr. Coffey attended Georgetown Law School in Washington at night. He sees himself as the plaintiffs’ bar counterpart to New York state’s attorney general, Eliot Spitzer, battling corporate giants on behalf of aggrieved investors. Such comparisons irk some of Mr. Coffey’s fellow plaintiffs’ lawyers, who privately say he has a big ego and hogs credit in cases that involve numerous other lawyers. Mr. Coffey says he tries to be careful to give others their due.
To get the WorldCom payouts, Messrs. Coffey and Berger employed a risky strategy: Demand big dollars from the get-go, refuse to back down and scare defendants by aggressively preparing for trial. Andersen was the only defendant that accepted the trial option, and even it backed down and settled about a month after opening arguments.
Mr. Coffey took on Andersen in another case several years ago. When he sued the now-defunct firm for its audits of the Baptist Foundation of Arizona, which went bankrupt and cost investors hundreds of millions of dollars, he lived in Phoenix for four months. A Catholic, he occasionally attended Baptist church services to better understand his witnesses. Andersen ended up settling for $217 million.
—Shawn Young contributed to this article.