- Who is Byron Georgiou and why should Democrats care? (3-28-2011)
- Berkley’s Senate candidacy another marquee (4-15-2011)
- Berkley faces doubting Democrats, but won’t recede (5-1-2011)
- A ticket of Heller-Angle is favored, but... (3-20-2011)
On paper at least, Democrat Byron Georgiou will run against Congresswoman Shelley Berkley next year for the right to face Republican Dean Heller in the race for US Senate.
But in reality, Georgiou will also be fighting against the big banks and business interests he has battled with all his adult life as an attorney.
Georgiou, who sat on the US Financial Crisis Inquiry Commission that delivered its report in January, has started hammering away on banks and says that among the three candidates (so far), he’s most qualified to help Nevada get out of its deep recession.
“This is my issue. I know more about this issue than Congress member Heller and Congress member Berkley put together. I’ve been fighting financial fraud for more than a decade, I spent the last year and half on the Financial Inquiry Commission,” says Georgiou, 62. “I want to figure out how we can make the banks write down the principal of a mortgage to no greater than the value of a home. Nobody should have to impoverish their family for a generation to pay back a loan that is greater in principal amount than the value of the asset it finances.
“ Let’s not forget we’re the worst state in the nation in four very desperate categories: The highest unemployment rate, the highest rate of home foreclosures, the highest percentage of people underwater on their mortgages and the highest percentage drop in housing prices. What Nevadans need is real leadership and someone who has courage to do these things.
“My life experience demonstrates my willingness to take on the established interests and stand up to them better than anyone else,” he says.
Georgiou has the money to tell his story to voters – he hopes to have $10 million in his campaign account by the end of the year – and the resume to prove his willingness to stand up to the establishment.
His resume also shows some complexities and contradictions.
He grew up in Detroit in modest fashion, the only child of an immigrant father who was a meat cutter and grocer; and a mother who was a homemaker and secretary of the local Greek Orthodox Church.
Education was revered in the home and Georgiou excelled at school, winning a scholarship to Stanford University.
Far from his conservative home, he was changed by the San Francisco Bay environment of the late 1960s and early 1970s and became a national volunteer leader in Martin Luther King Jr.’s campaign to end poverty in America.
After graduating, he spent a year cofounding and running a school in rural Northern California as a labor of love. He particularly recalls teaching teenage boys how to read and them then reading”Huckleberry Finn” -- after they had been left behind by regular public schools.
After graduating from Harvard Law School, Georgiou bypassed opportunities to become a corporate lawyer and instead worked for years trying to gain justice for California farm workers in battles with corporate growers.
Working with the farm workers, he learned Spanish and an understanding of Latino culture – something he says will come in handy in the US Senate race.
After working as the top attorney for one of the nation’s best-known liberals, California Gov. Jerry Brown, Georgiou launched a law firm in San Diego representing unions and he eventually moved into an area of law that made him rich: Suing corporations for fraud on behalf of defrauded shareholders, including big state-worker pension funds he was friendly with.
This experience included winning $7.3 billion in settlements against major banks that shareholders said had colluded in the fraud perpetrated by Enron Corp. before its failure.
Today, Georgiou has plowed some of the riches he earned suing on behalf of shareholders into several businesses and investments – but don’t mistake him for a conservative businessman who’s going to win the endorsement of the US Chamber of Commerce.
In fact, the chamber’s Institute for Legal Reform complained when Georgiou was appointed to the Financial Crisis Inquiry Commission.
The San Diego-based law firm he was associated with, Coughlin Stoia Geller Rudman & Robbins, was well known for filing shareholder lawsuits. It later changed its name to Robbins Geller Rudman & Dowd -- and Georgiou is still associated with it.
The firm regularly sues banks and is known in Nevada for, since 2009, suing gaming companies Station Casinos, Caesars Entertainment, MGM Resorts International, Las Vegas Sands and International Game Technology.
The suits against the gaming companies are over declines in their stock prices and, in some cases, provisions in bond deals.
The suits have been met with denials and assertions that the plaintiffs are trying to cash in on industry woes caused by the global economic downturn as opposed to fraud or mismanagement.
Georgiou isn’t involved in these suits as an attorney – his “of counsel” role with the law firm has been to match it up with funds that lost money because of alleged corporate wrongdoing.
The U.S. Chamber’s Institute for Legal Reform said in 2010 it was worried that attorneys associated with Coughlin Stoia on the crisis inquiry panel and its staff would use their roles to gain an advantage in lawsuits.
Georgiou told the Wall Street Journal in 2010 that he doesn’t have any financial interest in Coughlin Stoia cases against companies that the commission was interested in and would have recused himself if he did.
The candidate’s company, Georgiou Enterprises, has investments in numerous companies including Xtreme Green Products Inc. in North Las Vegas, D’Andrea Golf Club in the Northern Nevada city of Sparks; Carlin Nevada Development LLC, a residential development in the Northern Nevada community; HealthFusion, a medical software firm; Infoplace USA, a shopping center customer service provider; Greenfields Coal, which converts coal-processing waste into clean-burning coal; Energy Systems International, “a “clean development mechanism” project developer for the capture of greenhouse gases; Allied Fiber, involved in fiber data network construction; the Salt Creek Golf Club in San Diego County; Synergy Golf Partners, which purchases and manages golf courses and related real estate; Corinthian Capital, which invests in small and mid-market companies; Energy Capital Partners, a private equity firm investing in energy infrastructure; and InterMedia Partners, an investor in media assets.
In the Las Vegas area, Georgiou likes to show off the Xtreme Green
“eco-vehicle company” developing, assembling and selling 100 percent electric-powered vehicles such as motorcycles, scooters, three-wheel police personal mobility vehicles, all terrain vehicles and utility terrain vehicles.
With 24 employees, the company reported sales of nearly $477,000 in 2010 and says it turned profitable in April.
The heart of the vehicles are lithium ion batteries imported from China – Georgiou says batteries comparable in price and quality are not manufactured in the United States.
Georgiou talked about his background and his campaign in his modest office at the Xtreme Green plant in North Las Vegas.
Who is Byron Georgiou?
I was born in Henry Ford Hospital in Detroit, which is about as Detroit as you can get.
I was the only child of a father who was an immigrant from the island of Cyprus and a mother who was born in America, but of immigrant parents of Greek ancestry.
We grew up very poor. We lived in a sixth-floor walk-up apartment in Detroit. I laugh about it now because I live in a high-rise now. Now, you pay more the higher up the unit is because it has a nicer view. But in those days, you paid less for rent the higher up it was because there was no elevator and you had to carry your groceries up five flights of stairs to a sixth-floor apartment. Each floor you went up, you paid less per month in rent.
My dad immigrated during the Depression and the only work he could find was as a butcher. He worked initially in a big meat packing house and later in his life he and two of his brothers started a little grocery store and meat market in the neighborhood where we lived.
I went to public schools in Detroit and later we went to a suburb, Dearborn, and I graduated from Dearborn High School at the top of my class. I was the top math student in the high schools of Michigan and I managed to get an academic scholarship to Stanford University.
It seems like education was important to you and your family while you were growing up.
I was blessed with a pretty nimble mind. My mother also graduated from Dearborn High School, second in her class. She’s very bright and is 91 and lives here in Las Vegas. Both she and my dad revered education. My father was born in a peasant farming village in the rural part of western Cyprus. In his village they only had a school to the eighth grade. He became the first person in his village to go beyond the eighth grade. His father was a farmer, but dad’s two older brothers had immigrated previously to Detroit and sent back money to enable my grandfather to send my dad and his younger brother to the British high school – Cyprus was a British colony – in the town of Paphos, which was on the coast and the regional capital. If you know your Bible, Paphos was one of the first places St. Paul went to evangelize because Cyprus is only about 100 miles from Jerusalem and the Holy Land.
So my dad and his brother were the first two kids from their village to graduate from the British high school, which was a pretty good education. To understand the sacrifice his family went through for them to go to school, my grandfather – and it makes me almost tear up to talk about – would work in the fields all day long. Then once a week at the end of the workday at sundown, he would load up a donkey with whatever food they could spare in the village -- cheese and olives and bread and vegetables -- and walk the donkey 16 miles down from the village to Paphos. He’d get there in the middle of the night, wake up his two sons who were sharing a sleeping room for four years, give them a hug, unload the stuff, put it in their room and then ride the donkey back 16 miles, up the mountain so he could get there by sunup so he could work another full day in the fields. If he didn’t work the fields, the fields wouldn’t get worked.
That’s what my grandfather sacrificed for my father’s and his younger brother’s education. When my father came to America, expecting to find his older brothers well established in Detroit, instead he came to the beginning of the Depression. He and his younger brother came together during the summer of 1930 to Detroit. They got a little sleeping room they shared in downtown Detroit in Greektown. They would look for work by walking up one of the main streets up to 8 Mile Road, which was the northern border of Detroit. There was a film with (rapper) Eminem called 8 Mile.
My dad and his brother, my uncle, would go to every single business that was still open looking for work in the Depression. They’d walk eight miles looking for work, and then to save a nickel each – which sometimes they didn’t have – they would walk back the eight miles in the dead of winter to home instead of riding the streetcar.
This is the kind of sacrifice they made to come to this country which enabled us to go, in one generation, from my father who was born in a peasant farming community in Cyprus, to his son.
My father and mother never made more than $15,000 per year in their life. And now his son has made more money than anyone could ever dream of making and is running for the United States Senate.
What did your mother do while you were growing up, did she have a career?
My mother used to help in the store a lot. She was the secretary of our church, the Greek Orthodox Church, and was paid a very modest amount.
She grew up in a very traditional Greek-American family. She wanted to become a doctor and her father forbade it because she’d have to be examining strange men.
If she were born today my mother would have been a physician and my father, bless his soul, would have been a lawyer or a diplomat. He passed away 10 years ago. Even though he didn’t have a huge education, by the standards of most immigrants to America he had a very good education. The British high school education is probably the equivalent of two years of American college. He was well spoken. He spoke Greek, he spoke English, he spoke French, he knew Latin.
He served from 1941 to 1945 in the second World War and in the course of that became a naturalized (U.S.) citizen. He was in the U.S. Army.
How did I do so well in high school? They never encouraged me to study. It was just understood. Education was revered in our family.
I was lucky enough to go to good public schools. I would have gone to the University of Michigan, which is where bright kids in Michigan go, but I was accepted at Stanford. The reason is the head of my high school math department had done some graduate work at Stanford and he called the chairman of the math department at Stanford and said, “I’ve got a kid here who is really good. He comes from a poor or moderate-income family and he couldn’t possibly go to Stanford unless you guys help him.”
And then you were off to Stanford.
That was the first time I had ever been on airplane and the first time I had been west of Chicago. I was 18 and flew from Detroit to San Francisco, it was the first time I ever saw a palm tree.
I graduated near the top of my class at Stanford, I spent a year founding a school in the rural part of Northern California, that school lasted almost 35 years. It taught rural poor kids and Native American kids. It was one of the great professional experiences of my life. I remember teaching two 15-year-olds, neither of whom knew how to read. One was Native American and another was a poor immigrant from the South. They had just been left in the back of the class over the years in the public school system. They used to come an hour before the rest of the school started and we would read “Huckleberry Finn,” literally sounding out the letters and the words and after a few months we managed to get through the book. The delight in their eyes when they discovered they could actually read (was tremendous). They would read every billboard we drove by, they were so delighted to be able to read.
Why did you start a school?
It was a time when people were questioning the meaning of life and the importance of careers.
One of the women’s parents owned a ranch in Mendocino County and it was kind of an old ranch, it wasn’t really working anymore, and they offered us that ranch to start a school and we were all excited about education so we started a school.
It was one of the great experiences of my life. I made $25 a month plus room and board. The students paid between nothing and $100 per month depending on ability to pay. It was called the Mariposa School and lasted about 30 years. I only spent a year there.
We had a lot of ideas about our educations and what was good and not good and we thought we would experiment with things that could be done better. I taught seventh and eighth graders and I taught everything from math and science to reading and everything else. It was a great school.
It sounds like the San Francisco Bay and Stanford experience really changed you.
I received a full academic scholarship. I started at Stanford as a math/physics double major, but I ended up finishing in the honors program in social thought/institutions, which studied political and economic theory.
This was from 1966-1970 in the San Francisco Bay area, with all that that implies. A long way from Detroit. It was a big cultural change. I was a crew cut kid, I was a pretty good wrestler, I was as straight a Midwestern kid as one could be expected to be. My roommate at Stanford had hair to the middle of his back, he spoke seven languages and had graduated from the International School of Geneva. He came from a very wealthy family, two more different people couldn’t have been brought together.
That opened up the world to me, I’m incredibly appreciative of the education I received at Stanford and I’ve been very generous with Stanford since I’ve made some money.
During my sophomore year at Stanford, I took a term off to work in the later stages of the civil rights movement and organized a group of students from Stanford to go to Washington for the Poor People’s Campaign (organized by Martin Luther King Jr. and the Southern Christian Leadership Conference).
It had the somewhat less-than-modest goal of ending poverty in America. We established a tent city on the National Mall, which was called Resurrection City.
People came by mule train, by covered wagon, by car, by bus, by jalopy, from all over the country to camp out and stay until the Congress did something real about ending poverty in America.
A couple years earlier Lyndon Johnson in his administration had done a huge study on poverty, so people were addressing why it was in the richest country in the history of the world we still had so many poor and homeless people.
So Martin Luther King as a civil rights leader and poor people generally organized this. It was scheduled to begin May 1 of 1968. He was assassinated in April 1968. So the preparations were ongoing, I had gotten there in early April, I ended up becoming the national volunteer coordinator for the Southern Christian Leadership Conference and brought students down in busloads to help build the tent city.
We were building the tent city in anticipation of the arrival of all the people coming, and Martin Luther King gets assassinated trying to help sanitation workers in Memphis get their collective bargaining rights.
Ralph Abernathy took over. They brought (King’s) coffin on a funeral march through Resurrection City.
The Poor People’s campaign in his honor went on. It opened May 1.
We proceeded to lobby the Congress, we got basically nowhere. It rained 26 out of 31 days in May. So, the tent city and the mall were becoming like a mud bowl. God challenged us in so many ways.
We sent delegations up from Native Americans to poor whites and blacks from the South and poor people from urban parts of America to talk to their legislators.
Our original permit expired at the end of May, it was extended to expire on June 24. On the morning of that day, the U.S. Capitol Police, with guns drawn and bayonettes on the end of their rifles rousted us from the tent city. Three hundred of us went to the Congress for one last entreaty and then a fair number of us were arrested under a statute that at the time prohibited demonstrations from within 500 feet of the U.S. Capitol (building), a statute which has since been declared unconstitutional as violative of the First Amendment right to assembly.
We all pled no contest, I did 10 days (in jail). This was two days after my 20th birthday. It was a formative experience in my life, which horrified my immigrant father and my mother who couldn’t figure out what I was doing.
When we first went in as young boys in the D.C. House of Corrections, that wasn’t the greatest place to be at 19 or 20 years old.
That was in the spring of 1968, I went back to school and finished essentially at the top of my class. There were nine of us who were buddies, guys and women who graduated together from Stanford, who couldn’t decide what we wanted to do. I had been admitted to Harvard Law School with some scholarship help.
My immigrant parents were horrified I had gone to jail, they were more horrified I was admitted to Harvard Law School and that I had turned it down (to work at Mariposa School). I had to re-apply and I was admitted the second time.
I spent three years at Harvard Law School and graduated magna cum laude, which is the highest except for one guy who graduated summa cum laude. He committed the IRS code and regulations to memory before we graduated and spent his whole life helping rich people and corporations get out of their taxes.
I spent a year as a law clerk to a chief judge of a federal court. I was looking for a job and I had offers from every major Wall Street law firm and rather than follow my classmates to line my pockets representing the special interests of America for the rest of my life, I spent the next five years working with farm workers enforcing the California Agricultural Labor Relations Act.
In the 30s when the National Labor Relations Act was passed, they couldn’t get it through the Senate because of lot of rural, farming-state senators wouldn’t vote for it until they exempted farm workers.
The last thing they wanted was to see farm workers have the right to collectively bargain and approve their working conditions. Keeping farm workers oppressed was something the agricultural community of America thought was a good thing.
So they exempted farm workers in the 30s. They were not covered by any labor laws in America, at all, until 1975 when this act was passed (in California) that gave farm workers similar rights industrial workers had enjoyed for 40 years.
I was in the first crop of lawyers (dealing with the law). I had worked for a federal judge and happened to have worked on a case where I wrote a huge opinion on the issue of federal preemption. That’s whether certain activities could be legislated on exclusively by the federal government, or by the states. I was something of an expert on federal preemption. I was able to write the brief in the U.S. Supreme Court when I was about 26 years old that convinced the court to let stand state legislation which had established collective bargaining rights for farm workers. They said that area of the law was not preempted by the federal government, because the federal government in that 40 years had chosen not to cover farm workers.
I spent four or five years working with farm workers. I was working for the (California) government agency that was supposed to keep peace between the United Farm Workers and the Teamsters and the growers, and I did.
The growers all believed we were supporters of the organizations of farm workers – and to be truthful we were. So I worked side by side with Cesar Chavez and his people.
It was among the most satisfying periods of my life trying to help people who needed it. I was working for $11,000 per year for the state.
If you would have gone to the University of Michigan, would you have a different life today? That Stanford, San Francisco Bay experience seemed to change your life.
It really changed my direction. I grew up in a very conservative, immigrant middle-class background. My hair was short. I lettered in wrestling and tennis. My life would have been extremely different, no question about it. In going to California in the late 60s to go to college, that changed my life in many ways. I went to the Poor People’s Campaign, got arrested; started a school and started to work with farm workers. I’d say my whole life was modified by that experience.
These are the flukes of life. There have been a lot of times in my life where I took a chance and maybe that leads into my Senate candidacy. There were things I have in my life that took courage and went against the established orthodoxy. I’m doing it again today. Here I am doing it again today, in a Senate race with two members of Congress. Then there’s little old me, who’s the underdog and a businessman and a lawyer.
And how did your career progress?
In the course of the farm workers stuff I learned to speak Spanish, in the streets and the fields, not in the classroom. When I was prosecuting unfair labor practices – a lot of people trying to organize for the United Farm Workers got fired by the growers – to get their jobs back with back pay, most of the witnesses were lingual in Spanish. I would ask a question in English, the interpreter would translate it into Spanish, the witness would respond in Spanish and the interpreter would translate it back into English. You do that all day long, it’s like being in a language lab nonstop.
That distinguishes me pretty significantly from both Congress members in this race, because I have already done, in the Financial Crisis Inquiry Commission, interviews on Spanish language television about the financial crisis, and I can do my own ads and interviews in the Spanish language radio and television. Given the increasing importance of the Latino vote in Nevada, that’s one of the advantages I have in this race.
Heller has been a profound opponent of Latino rights by voting against the Dream Act (giving young undocumented immigrants who were brought to the United States by their parents a path to legalization by pursuing a college education or serving in the U.S. armed forces). His profile in the Latino community is horrific. Although Shelley’s is of course better, she can’t relate to that community like I can because I lived in their homes and prepared witnesses in their homes and community.
In the course of all of that, the author of the California Farm Workers Labor Relations Act was Jerry Brown, who then became governor. He was a close friend of Cesar Chavez, who nominated him for president in 1976. I met Jerry and his then legal affairs secretary. I worked on his presidential and reelection campaigns in 1976 and 1978 and I became chief legal adviser to Jerry Brown.
I was about 31 years old, I appointed 100 judges a year at a time when I didn’t realize how preposterous it was to be entrusted with that kind of authority. I litigated all kinds of cases including the Diablo Canyon nuclear power plant in front of the Nuclear Regulatory Commission. I was in charge of clemencies and extraditions. I had a big job and I had several lawyers working for me.
When that finished, Jerry wanted to appoint me to be a judge. I was maybe 33, I said, “Jerry, I’m a little too young. I’m kind of an active person.”
I moved back to San Diego County where I had been living during my service with the farm labor board and opened up a law firm with a buddy of mine who had graduated with me from Harvard Law School. We represented most of the public and private sector labor organizations south of Los Angeles.
I did that for 10 or 12 years, I was still restless. In the course of this I ran unsuccessfully for the (U.S.) House of Representatives twice in 1990 and 1992 (for San Diego-area districts).
I had been ready to think of something else and after the 1992 race I basically left my law firm to my partners and started something called American Partners Capital Group in 1994. My partner was Dale Hanson, who had been the CEO of CalPERS, which was and is the largest pension fund in the country.
American Partners helped venture funds get organized and we helped raise money for their funds. I had been a union-side labor lawyer, I knew the union pension funds well. Dale had been “Mr. Public Pension Fund” his whole life.
That got me more into the business world than the legal world. We had that firm to about 2000, when Dale decided to retire and we had the tech meltdown.
We organized a bunch of investment funds and I was involved with a lot of different companies along the way.
In 2000, I got back into the law as “of counsel” for the largest firm in the world that did plaintiff securities work. The reason why they wanted me and I felt like I could be good at it was not because I knew anything about securities law.
Congress in 1995 had enacted the Private Securities Litigation Reform Act, which changed the rules. It had been the law that the party that first filed a piece of litigation was the presumptive lead plaintiff in a class-action case against a company accused of securities fraud. That led to a lot of kind of races to the courthouse. The Congress changed the law in 1995, which became effective in about 1998, to make the presumptive lead plaintiff the party that had suffered the greatest financial loss of the members of the class.
If you wanted to lead the class, you had to make a motion and the court would choose the party it thought was the most suitable lead plaintiff.
That party would then choose the lead counsel. Firms like Milberg Weiss, with which I was affiliated, had for years a stable of people who would run to the courthouse, who owned 100 shares of stock in all of these companies, to become lead plaintiff and become lead counsel.
Congress changed the rules, which put institutional investors in charge. I had just come out of six or seven years of representing institutional investors all over the country in helping them decide what private equity funds to invest in, so I knew the leading people in the institutional investor community all over the country. They offered me an “of counsel” position with the company, which means a million different things. Basically in my case it meant I would affiliate loosely with the firm and I would attempt to assist them in meeting with the large institutional investors around the country and the world who might suffer losses in securities fraud cases so they would consider the firm as lead counsel to represent them.
I did that starting in August 2000 and I’m still loosely affiliated with its successor firm. In the course of that in 2001 and 2001 I got the University of California retirement system, which had lost $150 million in the Enron fraud, to choose our firm to move for lead plaintiff and lead counsel and they were chosen in what turned out to be the largest securities fraud case in the history of the world.
They also did Dynegy, and CalPERS did some stuff in WorldCom.
In the course of all this, Milberg Weiss split into two, it’s a long sordid story. Mel Weiss, who was the head of the firm in New York, and Bill Lerach, who was the head of the firm in San Diego, were both investigated for violations of law that originated years before, under the old rules when they had a stable of plaintiffs to bring cases to the courthouse, long before I was involved in the firm.
And the contention was they were compensating plaintiffs without disclosing to the court that they were doing so in order to encourage those plaintiffs to race to the courthouse and file a case so they could become the lead counsel and make a lot of money.
From the time the Bush administration began in 2000, until 2007 and 2008, the administration was investigating Mel Weiss in New York and his partners and Bill Lerach in the West, trying to take them down, because they were the leading people who were bringing to justice securities fraud defendants in the corporate world. They were not friends of the corporate world generally and so the Bush Justice Department spent seven years investigating them. At the end of the day, both were prosecuted and pled guilty to crimes that occurred back in the early 1990s.
It’s relevant to me because I can assure you if I’m successful in this race somebody or other, either Shelley or Heller, is going to accuse me of having been affiliated with these guys who later each spent a year in federal prison. The crimes for which they were convicted related to events that occurred 20 years ago in the late 80s and 90s.
(Lerach and Weiss went to prison for what prosecutors called an $11.3 million kickback scheme that involved payments to professional shareholder plaintiffs and witnesses.
Prosecutors in 2007 said Milberg Weiss had earned an estimated $250 million over two decades with class-action lawsuits involving kickbacks against some of the nation’s biggest companies).
What’s the name of the firm you’re still affiliated with?
Robbins, Geller, Rudman & Dowd.
They’re still the biggest firm in the world that does this work. In 2004, the firm split in two. The East Coast firm is now called Milberg LLP. Milberg was dead before the Justice Department investigation, so they couldn’t convict him. The West Coast firm is Robbins, Geller, Rudman & Dowd.
My affiliation was always with the western part of the firm. When the firm split up, my agreement went with the western folks.
The problem with these cases is they take a long time. We started the Enron case in 2001 and we didn’t get paid a fee until November of 2008. During all those years I theoretically had an entitlement to a portion of whatever fee the firm earned, but you still have to live for seven years in the meantime. So the firm used to advance me a certain amount of money every month.
People have differing views about these firms, but I believe they perform an incredibly important function in America. It’s really entrepreneurial work. They are investing their time and money for many, many years on a contingent basis. They only take cases they think they can win.
In the Enron case, our bankers for the firm advanced some $30 million in out-of-pocket expenses and more than $100 million of attorney time before they got a penny. So you have to have a strong line of credit. The firm had its line of credit with Citibank. That was ironic, because Citi was the first of the big banks that conspired with Enron to cause the fraud to settle. They settled for $2 billion, which was not chump change. And they were financing the litigation all the way along.
In the course of all this I learned a whole lot about securities litigation and ended up becoming the second lead lawyer in some of the biggest cases in the history of the world.
Enron. Dynegy. Worldcom. AOL-Time Warner. UnitedHealth Group, and others.
For a poor immigrant kid, who had never done badly but never made a lot of money defending labor unions in Southern California, when we recovered $7.3 billion in the Enron case, and the court awarded us a fee of 9.5 percent, that was a fee of $688 million to the firm of which I was entitled to a piece and I suddenly became a wealthy man.
The first significant fee I received while I was affiliated with this firm was in 2005. I brought CalPERS into the WorldCom case. We recovered for them more than $200 million and I got a fee on that. We had a lot of other cases. In the fall of 2005 I received my first significant check from anything I had ever done in my life that was in excess of $1 million. If you look at what I’m doing now, the foundation of the family fortune is in part the businesses I’m involved in and in part came from me being compensated for my role in the firm securing the plaintiff positions in these important cases.
And I became the No. 2 negotiator to Bill Lerach for most of the time in Enron, Dynegy, WorldCom and AOL-Time Warner and most of these cases.
I was at the table for extraordinary experiences. It’s like being in the World Series or the Super Bowl for a lawyer. We had a dozen defendant banks (in the Enron case), each of which was represented by one of the top law firms in the world. CitiGroup’s lawyers were being paid $10 million a month for four years. So that’s half a billion dollars until Citi settled. And that’s part of the reason Citi settled. Because they were having to pick up gargantuan law firm expenses.
After we settled for $2 billion with Citi, we decided that in order to not treat CitiGroup badly and to let the defendants know we were serious, that we wouldn’t take settlements from the other big banks under at least that much or 10 perhaps 10 percent more than Citi had paid.
We wanted them to know we weren’t fooling around and we were taking this thing to trial. There were almost $30 billion in (shareholder) losses, so these defendant banks had to seriously think about whether they were going to go to trial. That’s why Citi paid $2 billion because if they had gone to trial, they could have gotten hit with $25 billion and that could put them out of business.
The next big target was JPMorgan Chase. We had the goods on them. Their vice chairman had sent an email that said effectively, “The reason Enron loves these transactions we are doing with them is they are disguised debt. The reason we love them is we get to charge 300 basis points (3 percent) more for the money than if we were providing a traditional loan.”
This Enron fraud could not have happened without the banks. Enron never made any money. It lost $6 billion in those years, so it needed cash infusions to keep itself going.
(JPMorgan Chase eventually settled for $2.2 billion).
That kind of litigation is the highest-stakes litigation in history. That case recovered $7.3 billion, which was the largest recovery ever. Over 90 percent of the money collected went back to investors.
Every investor who got money back would tell you we did a hell of a job. Paying us less than 10 percent of what we got for them was a good deal given that we litigated for seven years against the biggest firms in the world and took a lot of risk. Remember, Enron went bankrupt. Their auditors (Arthur Andersen) went out of business. When we started the case, nobody believed we could recover serious money. We were taking a huge risk, suing banks under unproven theory.
On the Financial Crisis Inquiry Commission, were you surprised at what happened in 2008 given the lessons supposedly learned from Enron and WorldCom at the beginning of the decade?
It didn’t surprise me. Intervening, we had an administration that was absolutely in bed with the banks. Christopher Cox, who was head of the Securities and Exchange Commission during the later years of the Bush administration, was a joke. He was the worst chairman of the SEC in the history of America. He directed an agency that abandoned its central mission, which was to protect the interests of investors. It permitted the investment banks to have leverage of 40 to 1. Come on! That meant that when their assets were modestly hit by the reduction in the value of housing and mortgages, that they went from 100 percent to 97 percent, they had blown through their 2 1/2 percent capital level and they were bankrupt. They were insolvent.
How could you possibly, as head of the SEC with responsibility for overseeing the investment banking community, permit each of the investment banks – Goldman Sachs, Merrill Lynch, Bear Stearns, Lehman Brothers, Citi, Morgan Stanley – to operate with 2 1/2 percent capital? They hid their off-balance-sheet entities to make it look like they had more capital than they did.
Then the Federal Reserve, which was responsible for the safety and soundness of our entire financial system, permitted Citi, JPMorgan and everybody else to operate similarly in the banking community even though they were FDIC guaranteed.
In the private sector, you can’t imagine the testimony we heard. The Citi guys, the former CFO and the former chief risk officer, testified under oath to our commission that they did not know that when their investment bank subsidiary was selling collateralized debt obligations (CDOs) to investors, they had sold them with liquidity puts. They enabled investors, in the event the CDOs were downgraded or the underlying mortgages were downgraded, to essentially make Citi buy them back. In one day, they had to buy $25 billion of these CDOs back, which was at the time one third of their capital. They had $75 billion of capital on almost $3 trillion of assets. It was about 2 1/2 percent of their assets.
The other testimony that was outrageous came from the American International Group (AIG) guys. The CEO, the CFO and the chief risk officer testified and by that time they were working for the government. The government owned 79 percent of AIG at that time because we had bailed them out. They testified their financial products division, which had sold these credit default swaps, did so with capital call requirements that enable the purchasers of the credit default swaps, under certain circumstances, to demand that the credit default swaps be backed up by capital from AIG. Remember, a credit default swap is essentially an insurance policy that someone who owns a mortgage-backed security buys in order to protect themselves in the event the mortgage-backed security becomes valueless or of less value. But it wasn’t called “insurance,” because if it was called insurance they would have had to put up capital or reserves under state insurance codes.
What happened to AIG was after Goldman and others came forward in the summer of ‘08 and said, “Look, these bonds have been downgraded and AIG itself had been downgraded.” That triggered an entitlement for the purchasers of the credit default swaps to demand that AIG put up capital to essentially backstop the obligation.
There was a big fight about how much capital they had to put up. At the end of the day, it was billions and billions of dollars they didn’t have, so they became insolvent.
This wasn’t just some chump company. This was AIG – the oldest, best-capitalized, most-respected insurance company in the world. They were started in the 19th Century sometime. These guys put the entire enterprise at risk by permitting their financial products subsidiary in London to sell these credit default swaps with these collateral-call provisions and claimed to us under oath they didn’t even know it.
Were there improprieties in the public and private sector that contributed to the financial crisis? Of course there were. Our conclusion was that it was avoidable.
The Fed also dropped the ball. The Fed had the responsibility to supervise the banks, it didn’t. The Fed had the responsibility to supervise the production of mortgages, it didn’t.
There was rampant mortgage fraud. In 2004, the FBI issued a report saying there was rampant mortgage fraud and then the people responsible for going after it in the Justice Department didn’t do anything about it. In fact they used the federal preemption principals to prevent the state attorneys general to go after fraud under state law, arguing mortgages issued by federal institutions could only be acted upon by the feds, not the states. We had testimony from the attorney general of Illinois. They wanted to go after mortgage fraud in Chicago, but they couldn’t because the feds brought lawsuits to prevent them from doing so. That was going on in the Bush administration.
In the private sector, you had nobody accountable for the money. You had a mortgage broker who put people into a loan and they got their commission at the front end. They got double commission if they put people in a mortgage that was worse for the borrower and more profitable for the bank. So you have people in loans they can’t afford.
The loans were pooled by the banks and put into mortgage-backed securities and bankers were making their underwriting fee at the front end without regard to any consequence to if the thing survives. Then you have the lawyers drafting it up getting paid. You have the auditors putting their blessing on the security getting paid up front without regard to whether it works.
You have the credit rating agencies who have to rate it “AAA” because they’re getting paid a percentage of the security. If they don’t rate it “`AAA,” most institutional investors around the world can’t buy it.
If they don’t buy it, the credit rating agency doesn’t get paid. It’s a terrible conflict. Eighty-six percent of the “AAA”-rated securities are later downgraded to junk.
Everybody in the system had a way out, there was no accountability for the creation of these products that turned out to be toxic and they brought our whole financial system down.
Now 70 percent of the people in the Las Vegas Valley who own homes have mortgages that are greater than their homes are worth. Historically, we have fought our way out of most recessions with a major contribution from housing. Now we’re stuck because we have a glut of foreclosures and people are struggling to pay back their loans.
Did the Bush administration towards the end of its administration and the Obama administration do enough to correct these things, has Congress done enough?
They have not done enough. There’s more to be done. That’s a huge issue (underwater homeowners). People are trying to decide whether to engage in strategic default in which they walk away from their obligations, which most honorable people in America don’t want to do.
Is there something Congress can do to help the banks with this process of writing down the value of principle to match the value of the home?
I would hope so. We just bailed out the banks. We’re bailing out the banks each and every day. We’re still letting them borrow at the (Federal Reserve’s) discount window at 50 basis points (0.5 percent) and they’re turning around and lending the money back to us by purchasing treasury securities that pay 2 ∏ or 3 percent. So the difference is essentially just capitalizing the banks. If they do that with $10 billion, and they have a 3 percent spread, that means they’re making $300 million a year. It’s going right to their bottom line, which we’re providing them. That’s a dirty little secret, people aren’t even talking about that.
And how did you end up in Las Vegas?
I’m involved in several businesses in Nevada. I got divorced and remarried (to Therese Collins). We decided to move here in the fall of 2005. Nevada’s a great state.
We were involved with Xtreme Green, I was involved with the D’Andrea Golf Club in Sparks. Originally we had hoped we could use some of the land on the D’Andrea course to build houses, but given the economic circumstances that didn’t work out. Now what we’re doing there is weddings and events and celebrations. It’s doing OK.
Are you too new here to think about running for the U.S. Senate?
My wife and I moved here. We live here. We bought a home here. We don’t own any property outside of Nevada. We go to church here. Both of our daughters were born here and they’re being raised here.
Like most Nevadans, neither of us were born here. We had 34 percent population growth between 2000 and 2010 in Nevada so most of the people in Nevada are pretty new. I believe we’re as committed to Nevada as anyone who was born here and ultimately the voters of Nevada will have to decide who the best person is on the basis of their background and experience. Most Nevadans are transplants here and have come here because of the opportunities here and we’re among them.
Have you thought about running for one of the House seats rather than the Senate right away?
I’m not doing it. The U.S. Senate is where I can make a difference right away, even as a new senator.
You have a compelling story. How much of your own money are you going to spend to tell it?
I don’t know, but here’s what I have done. I was in the race for less than a month in March and I reported having raised almost $600,000 from others. I’ve loaned $500,000 of my own money to the campaign. So I reported almost $1.1 million cash on hand as of March 31. The $600,000 I raised was almost as much as Heller and Shelley raised in the whole first quarter. I’m a serious player. Between what I can raise and what I can lend to the campaign, I’m going to try and have $10 million in the bank by the end of this year. If I do that, we’ll get our message out. I’m blasting out of the box.
My friends ask why I’m running for the Senate. In part it’s a biblical notion: “From those to whom much has been given, much is to be expected.”
This country has been incredibly good to me and my family. I’m the only child of a man born to a peasant farmer, immigrated to America and spent his whole life cutting meat – and a mother who was born here to immigrant parents. I got to go to Stanford and Harvard law school, and worked for governors and litigated the biggest case in the history of civil litigation and served on the Financial Crisis Inquiry Commission and now I’m running for the U.S. Senate and have investments in a lot of interesting businesses. All in one generation. If I’m not an embodiment of the American dream, I don’t know who is.
I believe people like me owe the society something back. I’m at the stage of my life where I’ve accumulated a little bit of wisdom. I own and operate four businesses in Nevada that are creating jobs and I’m meeting a payroll every day in four counties in Nevada. That experience is valuable to bring to the U.S. Senate because we don’t seem to have too much of it there.
When the founders created this country, they never intended that the only people to be entitled to run for office would be career politicians who have never done anything else other than run for office. I bring a lifetime of experience of fighting for the rights of middle-class working people and the litigation against Enron and for farm workers when I first got out of law school and looking into the root causes of the financial crisis.
My background and experience better qualifies me to serve in the U.S. Senate than the two other candidates in this race, who are both members of Congress.