The orange T-shirt hanging from the back of Sean Coffey's office door says ''I Am Arthur Andersen.'' It was once an advertisement of corporate pride in the face of a criminal indictment, now it's a lawyer's trophy.

In 2002 and April this year, Coffey, a partner at New York-based Bernstein, Litowitz, Berger and Grossman, wrested a total of US$282 million (HK$2.2 billion) in two settlements with Andersen, destroyed by its 2002 federal indictment for obstruction in the Enron case.

Coffey, 49, used the lessons he learned in the Andersen cases to muscle some of the world's biggest banks into paying WorldCom investors more than US$6 billion in 17 settlements, one in May last year and 16 in March this year.

WorldCom led to a novel settlement with the company's former directors that required them to pay a portion out of their own wallets, a precedent that reverberated in boardrooms nationwide.

''It's the way you change behavior on Wall Street,'' Coffey said. ''The way you truly change it is by hurting them in the pocketbook because that is what the Street is all about.''

His efforts have made him a thorn in the side of Wall Street - and earned him the envy of his peers. ``He has mastered how to litigate and defend cases from all sides of the bar at a high level,'' said Leonard Barrack, partner at Barrack, Rodos and Bacine, the firm that served as Coffey's co-counsel in the WorldCom case.

Much of Coffey's work in reaching the two Andersen settlements informed his overall strategy against the banks in the WorldCom case: brooking no delays by defendants, setting firm trial dates and penalizing those who waited too long to settle.

In the WorldCom litigation, the investment banks that underwrote the long-distance company's securities, led by Citigroup and JPMorgan, tried to blame Andersen for signing off on WorldCom's books. The strategy backfired, leaving a trail of judicial rulings that can be used against the banks in the future.

``Ten years ago, we made it harder to bring these lawsuits, and now the movement is in the other direction,'' says securities law expert Marcel Kahan, a professor at New York University School of Law. ``Now there is a perception that there is a lot of wrongdoing.''

With HealthSouth founder Richard Scrushy's acquittal on criminal fraud charges June 28, Coffey is moving forward with the civil litigation on behalf of the company's bondholders. He lost his bid July 8 to take control of the entire case, including the shareholder claims.

Coffey said he hopes to leverage his US$6 billion WorldCom success in the investor suit against the owner of rehabilitation hospitals, its former officers and directors, auditor Ernst & Young and HealthSouth's banks, led by UBS.

Scrushy was freed of all criminal charges July 13, after US prosecutors dropped their appeal of dismissed perjury counts.

More white-collar criminal enforcement and more personal financial deterrents are the long-term effects of the WorldCom case, said securities law professor Michael Perino.

``Focusing on getting some sort of payment directly out of the pockets of directors, and the SEC imposing fines that were unheard of just a few years ago, makes these kinds of issues much more serious for the companies,'' Perino said. The US Securities and Exchange Commission fined WorldCom US$750 million.

Most securities fraud class actions are settled well before trial. As a result, few cases explore how underwriters can avoid being liable for an issuer's lies, the so-called due diligence defense, under a 1933 securities law.

``Underwriters were lulled into a false sense of security,'' said David Trone, senior US banking analyst at Fox-Pitt Kelton, the securities division of Swiss Reinsurance in New York. ``They assumed the auditors and company lawyers were doing their jobs, which had at one time been a successful defense by underwriters.''

Trone said given the losses in the WorldCom case, banks may think twice about underwriting the securities of another WorldCom lest Coffey or one of his colleagues be waiting at the other end.

``Given their massive loan and legal losses, I don't buy the conspiracy theories that these underwriters executed massive bond offerings in firms they knew were a house of cards,'' he said.

By not settling until the eve of trial, most of WorldCom's investment banks allowed the litigation to progress far enough that US District Judge Denise Cote, the judge who presided over the case, reaffirmed and perhaps expanded the responsibilities and liabilities of underwriters for the first time in more than 70 years.

``The judge opined that an underwriter could not use reliance on other professionals as a blanket defense, but `should have known,''' Trone said.

The value of the WorldCom litigation lies in the cases that will never occur because of its legacy, Coffey says. ``Having hammered these banks in their wallet, where it really matters, they are already taking steps to do better due diligence.''

Coffey worked as a military attache to then Vice President George HW Bush. While working in the White House for the Reagan administration, he attended Georgetown University Law Center in Washington, attaining his law degree in 1987.

During Andersen's WorldCom trial in New York, Coffey was admonished by Cote for dropping a reference to his military background in front of the jury. ``He can't help himself,'' one of his associates whispered to another in the gallery.

After graduating from law school, he worked at the US attorney's office in Manhattan and as a litigation partner at Latham & Watkins before joining Bernstein Litowitz in 1998.

``Top that resume off with the discipline he gained from serving in the US Navy,'' Barrack said. ``One comes out with an idiosyncratic combination - a press-savvy, skilled, disciplined plaintiffs' lawyer.''

Coffey's office is on the 38th floor of the UBS building in Manhattan's Midtown, an ironic turn because that bank is among the biggest defendants in the HealthSouth case. Behind his desk are various trophies, including a WorldCom cup and cozy with two playing cards, an ace and king of spades bearing the pictures of convicted WorldCom chief executive officer Bernard Ebbers and chief financial officer Scott Sullivan.

WorldCom filed for bankruptcy protection in July 2002 after revealing what became an US$11 billion fraud in which company officials artificially boosted sales while hiding expenses in an effort to meet Wall Street expectations from 1999 to 2002. Ebbers, convicted March 15 in Manhattan federal court of directing the fraud, was sentenced July 13 to 25 years in prison.

Beginning in 2000, WorldCom shifted reserves meant for future expenses in order to cover increasing line costs in the current quarter. After exhausting those reserves, it began classifying as long-term assets the fees it paid other phone companies for using their transmission lines.

The long-distance phone company's 17 underwriters, who helped it sell US$15.4 billion in bonds, were obligated under federal law to inspect WorldCom's finances to make sure there was no fraud before selling its securities.

The banks said they had followed Andersen audits and opinions, which declared WorldCom's finances in order. The banks partly relied on the fact that Andersen had signed off on WorldCom's books with audits and so-called comfort letters expressing approval of the company's financial status, though they conceded that line costs and expenses at WorldCom were misstated during the first quarter of 2001.

WorldCom, which collapsed in July 2002, emerged from bankruptcy as MCI in April 2004.

Investors claimed Andersen had avoided digging into WorldCom's finances, bowing to pressure from the company in an effort to preserve its role as auditor. Andersen earned US$47.1 million in auditing and consulting fees from WorldCom from 1999 to 2001, investor lawyers said.

WorldCom lost US$184.6 billion in market value from a high in June 1999 until its bankruptcy.

A ruling by Cote December 15, allowing the civil case to go to trial, reaffirmed investment bank responsibility in a way that may never have happened had the banks settled earlier.

In 1933, Congress passed a securities law containing a provision that had gained little attention until the WorldCom case. Section 11 of the 1933 Securities Act allows investment banks, accounting firms and others to be held strictly liable for the wrongdoing of the companies for whom they sell securities. Their only defense is to show that no reasonable person could have discovered the fraud at the company even after performing a diligent investigation.

The law requires that underwriters and certifying accountants be held liable for investor losses if the prospectus included materially misleading information that a reasonable investor could have been expected to act upon and that could have been reasonably expected to be discovered by third-party firms such as banks and accountants.

The law was designed to impose a stringent standard of liability on the parties who play a direct role in a regulated offering, Cote wrote in her opinion. ``This design reflects Congress' sense that underwriters, issuers and accountants bear a moral responsibility to the public that is particularly heavy,'' she wrote.

The banks said they were entitled to rely on WorldCom's audited statements and Andersen's imprimatur, related through comfort letters, when deciding whether to sell its securities.

``Underwriters can rely on an accountant's audit opinion incorporated into a registration statement in presenting a defense,'' Cote wrote. ``Underwriters may not rely on an accountant's comfort letters for interim financial statements in presenting such a defense.''

Coffey contends that the ruling pumped new life into the old law. ``She basically tapped Wall Street on the shoulder and said, `You still have a job to do,''' he said.

New York University's Kahan said the three-year-long WorldCom case illustrated the distance the pendulum has swung since 1995, when Congress tried to rein in class actions with the Private Securities Litigation Reform Act.

``We are still suffering the aftershocks of Enron,'' he said. Enron filed for bankruptcy in December 2001 after revelations that the Houston-based energy trader had used off-the-books partnerships to artificially boost its bottom line by hiding billions of dollars of loans.

Companies that were sued in 2002 lost US$1.9 trillion in market value during the periods of alleged fraud, according to Stanford Law School's Securities Class Action Clearinghouse.

Securities settlements averaged US$24.3 million in 2002, a 65 percent increase over the average during the six previous years.

Cote also ruled as part of the WorldCom case that the liabilities of an underwriter that had already settled could still be applied to those that had not if they operated as a group. In a January 7 ruling, Cote said that although Salomon Smith Barney, now Citigroup Global Markets, had settled for US$2.6 billion in May last year, that did not relieve the other 16 banks of their responsibility as a syndicate that included Citigroup.

After Citigroup's settlement, Coffey offered the remaining 16 banks, led by JPMorgan, 45 days to agree to the same terms as applied to their share of the securities sales for WorldCom. He was rejected and many of the banks, including JPMorgan, ended up settling a year later for much more than they would have had they taken the initial offer.

Under the Citigroup terms, Coffey said, JPMorgan would have paid US$1.37 billion. Because the bank waited until the week before trial and was one of the last to settle, investors insisted on some additional remuneration as a result of that delay. The premium turned out to be US$630 million, or 46 percent, over the initial offer. The next closest premium was 17.5 percent, paid by Deutsche Bank.

Jay Kasner, lead lawyer for the underwriters, initially met Coffey's partner Max Berger, who led settlement talks while Coffey prepared for trial, Coffey said.

Kasner declined to comment on the case. ``There was no dialogue at all after they had a lunch together in early fall last year,'' Coffey said. ``We did not hear again from Mr Kasner until six of his clients had settled.''

In a court hearing April 30 last year, Coffey said JPMorgan internally warned against WorldCom's stability while publicly touting its securities.

``At the same time it is co-lead manager for the largest bond offering in history, internally it is hedging its own investment in WorldCom bonds to the tune of several hundred million dollars,'' Coffey said.

During a meeting with analysts July 21 last year, JPMorgan president Jamie Dimon said investor suits such as Coffey's were ``guilt by association.'' The bank did not admit or deny any wrongdoing.

Another piece of Coffey's office decor memorializes JPMorgan's role in the WorldCom drama. Against one wall is a JPMorgan poster advertising the bank's role as an adviser. ``I will be blind to nothing,'' the poster says. ``I will call a mirage a mirage.''

As for Coffey's next challenge, the HealthSouth case, he is already lead attorney for the company's bondholders. Unlike the WorldCom case, in which he ran the whole show, he must work with his old rival, William Lerach, whose law firm may end up representing all HealthSouth shareholders.

The lead counsels, with the assent of their clients, make decisions on strategy, settlement and trial tactics. The law firms also reap most of the fees.

In the WorldCom case, 55 lawyers from 10 law firms, led by Bernstein Litowitz, earned about 5.5 percent of the US$6.13 billion settlement amount, or more than US$330 million. Coffey said the division of fees has not yet been determined. He declined to say how much he was paid last year.

Lerach, 59, lost a bid to beat Coffey to WorldCom's banks in 2002 with a strategic misstep in which he unsuccessfully sought to evade Coffey's control by suing in state courts.

The failure of that strategy contributed to the breakup of Lerach's old firm, Milberg, Weiss, Bershad, Hynes & Lerach, once the preeminent securities-fraud law firm in the United States.

Neil Selinger, a New York lawyer representing Federated Funds in its lawsuit against HealthSouth, said the similarities between this case and WorldCom have more to do with the actors than the law.

``In both companies, you had demagogues running the thing who were so obsessed with how their companies were perceived on Wall Street that the message definitely trickled down that we have to do anything and everything to make the numbers,'' Selinger said, paraphrasing Ebbers' dictum to ``hit the numbers.''

In the case of HealthSouth, Coffey claims that executives, led by company founder Scrushy, inflated earnings by US$2.7 billion from 1996 to 2002. The complaint names 38 defendants, including HealthSouth, Scrushy, executives who pleaded guilty and other directors and officers.

It also names HealthSouth's former auditor, Ernst & Young, and various underwriters, led by UBS and Citigroup, as ``knowing participants'' in the fraud. The defendants have denied any wrongdoing.

As a lawyer for the Retirement Systems of Alabama, with US$26.6 billion in assets and US$21 million in HealthSouth losses, Coffey has found himself in the familiar position of facing Lerach across the aisle.

US District Judge Karon Bowdre, who presided over the Scrushy trial, has divided the case between stockholders and bondholders.

Scrushy was acquitted June 28 on all counts in his criminal prosecution after a four-month trial in Birmingham federal court. Coffey said the acquittal does not affect his case at all, because the standard of evidence in a civil case is much lower than in criminal litigation.

``Plus we get to question Mr Scrushy under oath at a deposition and at trial because he can no longer hide behind the Fifth Amendment,'' Coffey said, alluding to the acquittal.

Coffey got a head start on HealthSouth by arranging for an unusual swap of information with Birmingham US Attorney Alice Martin, he said.

In October 2003, more than a year before Scrushy's trial began, Martin allowed Coffey and his team to interview convicted former HealthSouth chief financial officer Michael Martin, who detailed the alleged fraud carried out with help from bankers and auditors.

According to Coffey, Martin spoke of a conversation he had with former UBS managing director William McGahan during a trip to Scrushy's lakeside vacation home. Martinapparently said he told McGahan he was very concerned that a pending HealthSouth takeover of another company would allow the other company to discover the fraud.

``I told him that if we did this transaction, we would all go to jail,'' Martin told jurors March 3 during Scrushy's trial.

Martin said he assured Scrushy that McGahan would not tell anyone of the fraud ``because he has as much to lose as we do.'' He said McGahan was a close friend. ``He had knowledge of the fraud based on what I told him, but he didn't participate in the fraud,'' Martin testified.

McGahan attorney Helen Gredd and UBS spokesman Kris Kagel declined to comment. Previously, Gredd said McGahan, who is not charged with a crime, denied knowledge of the fraud.

``UBS was lead underwriter for US$2 billion in bonds after that meeting,'' Coffey said.

The conversation shows that the bank could have discovered the fraud at HealthSouth before selling its securities, but that its bankers knew but did nothing, he said.

Other defendants in the HealthSouth case include Bank of America, Bear Stearns, Credit Suisse, Goldman Sachs, Lehman Brothers, Merrill Lynch and Deutsche Bank. The defendants have denied any wrongdoing.

However the HealthSouth case unfolds, Coffey's status among plaintiffs' attorneys has been forever elevated following the massive payoff - and the new legal precedents - stemming from the WorldCom case.

He betrays a sense of wonder about how things turned out. Coffey said JPMorgan and the 15 other banks remaining after Citigroup settled could have saved more than US$1 billion if only they had accepted his initial offer.