Scruggs is the Mississippi trial lawyer who led the class-action suit that forced cigarette companies to cough up $250 billion in the late 1990s, a drama portrayed in the 1999 film The Insider. Now Scruggs is targeting Lehman for its role in financing First Alliance Corp., an Irvine, California, home equity lender that folded in 2000 amid allegations that it had ripped off some 18,000 mostly elderly borrowers by concealing huge fees and jacking up interest rates. First Alliance and its founder, Brian Chisick, were sued by the Federal Trade Commission and six state attorneys general and paid $95 million last spring to settle the predatory-lending charges.
Case closed? Hardly. Scruggs is now representing plaintiffs who are seeking about $400 million from Lehman. The new suit says the firm “aided and abetted” First Alliance’s allegedly fraudulent lending.
Proving Lehman’s liability will be difficult because no one from the firm directly defrauded a First Alliance borrower, says a lawyer working on the case: “It’s like trying to sue Smith & Wesson for murder. Did they make it possible? Yes. Are they liable? That’s a tougher call.” Neither party would comment on the suit, which is being tried in U.S. District Court in Santa Ana, California. But, as in the tobacco case, where internal documents bolstering the plaintiffs’ argument were provided by former Brown & Williamson biochemist Jeffrey Wigand, Scruggs has produced a 1995 Lehman memo likening the lender to a “used-car salesman.” Referring to First Alliance’s business practices, the memo said, “It is a requirement to leave your ethics at the door.”
