As famed class-action lawyer William S. Lerach steps before a federal judge in Los Angeles today to learn his sentence in a wide-ranging fraud and conspiracy probe, his misdeeds and those of former colleagues may be helping to alter the way securities law is practiced. "What you're watching is a bit of a transition from a world in which class-action practice did have some disreputable aspects to a different model that's much more responsible, publicly oriented and closely regulated," said Stephen Bundy, who teaches law at Boalt Hall, at UC Berkeley.

These days, state pension funds and other institutional investors are the major plaintiffs in shareholder suits. Such big-money investors are reluctant to discuss their legal strategies, but litigation watchers contend that they are choosing their lawyers more carefully -- examining a firm's ethical record, for example, and even its campaign contributions. "There's heightened concern," said San Francisco lawyer Richard Heimann, who represents plaintiffs in securities class actions. Fund managers who have approached him want reassurance "that there weren't any skeletons in our closet," he said, often asking for written declarations from prospective lawyers that they have not been indicted or disciplined by the bar.

Some institutional investors have opted out of class actions in recent years, believing they would do better on their own, Heimann said. His firm represented Merrill Lynch in a securities class action against McKesson HBOC a couple of years ago. Class members ultimately recovered 15% of their losses in that case, he said, but Merrill Lynch recouped $150 million -- more than its monetary loss -- by opting out of the class and settling with McKesson separately. Heimann also helped settle a case last year in which two Alaska public funds recovered 90% of their economic losses by bowing out of the class. It was many times more than they would have gotten if they'd remained in, he said.