AOL-Time Warner's Good Fortune?

Fortune magazine has long history of documenting the collapse of high-flying big businesses and their top guns. Its writers broke big stories on Enron and gave narrative to a host of corporate accounting scandals. This month's cover story continues the tradition. In a piece chronicling the downfall of "the nation's meanest law firm," Fortune tells the saga of the Justice Department's long-running investigation of the shareholder litigation firm, Milberg Weiss. In May, the Justice Department indicted the firm for allegedly paying kickbacks to plaintiffs in class actions. The Fortune story homes in on former Milberg partner Bill Lerach (who has not been indicted), listing many companies Lerach and his firm have sued, from Apple Computer to United Airlines to 3Com (nine times!) to the Gap. One company missing from Fortune's list, though, is AOL-Time Warner, the magazine's parent company.

In February, from his new law firm, Lerach filed a billion-dollar suit against AOL-Time Warner on behalf of 70 institutional investors over alleged misrepresentations during the company's 2000 merger. The suit has been big news because the plaintiffs opted out of a $2.65 billion settlement with AOL-Time Warner in an earlier lawsuit (filed by Milberg Weiss), in search of a better deal. None of that, however, made it into the Fortune story.

Lerach has written a letter to the editor complaining about the treatment--as well as the timing. Fortune posted the story online one day after a settlement conference in the case. Lerach writes:

Despite the fact that the AOL-Time Warner suit has generated significant media attention and that the billion dollar demand and the timing of the settlement conference was known for weeks before the publication of the article, Fortune did not mention even once that it was an adverse party in this major lawsuit – a fact that would have shed light on the magazine’s agenda. It is clear that the article was meant to impact the case by undermining our resolve to recover the billions of dollars of losses your company caused our clients. Nice try. Let me assure you that the article has strengthened our resolve to hold your corporation accountable to justice.

Lerach, who declined to be interviewed for the story, has a legitimate gripe about the lack of disclosure, but I doubt that it was the result of collusion between Fortune's editors and AOL-Time Warner's corporate suits. Indeed, the author, Fortune editor-at-large Peter Elkind, told me he wasn't aware of the lawsuit. As for the timing of the piece, he says it was simply a coincidence. "It's absurd to suggest there was any connection. I don't talk to Richard Parsons," he says. "It's not a big deal to acknowledge a conflict. I would certainly have disclosed it if I had known about it."

Elkind may not have known about the current lawsuit, but he knew Lerach had sued his employer in the past. In 2000, Elkind wrote a profile of Lerach that disclosed that he and Milberg Weiss had sued both AOL and Time Warner when they were separate companies, and Elkind says he knew about the original Milberg Weiss suit over the merger, too, but says he thought it had settled "years ago." In fact, that suit only settled in April this year. Still, none of this adds up to a corporate defense strategy. Just sloppy reporting...