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Marc M. Harris et Cie., S.A., a foreign
Corporation; The Firm of Marc M. Harris, Inc., a foreign corporation; and Marc
M. Harris, Ltd., a foreign Corporation, Plaintiffs, vs. David E. Marchant and Offshore Business
News & Research, Inc., Defendants August 10, 1999 Case No. 98-761-CIV-MOORE FINDINGS
OF FACT AND CONCLUSIONS OF LAW This
cause came before the Court upon the claims of Plaintiffs Marc M. Harris et
Cie, S.A., The Firm of Marc M. Harris, Inc., and Marc Harris Trust Company, Ltd
against Defendants David E. Marchant and Offshore Business News & Research,
Inc. Plaintiffs seek damages, including punitive damages, for libel and
negligence related to an article published by Defendants regarding Plaintiffs’
business. This
matter was tried before the Court without a jury on July 6-8 and. July 28-30,
1999. Upon due consideration of the arguments and evidence presented at trial,
the Court enters the following Findings of Fact and Conclusions of Law pursuant
to Rule 52(a) of the Federal Rules of Civil Procedure. To the extent that
Findings of Fact may be deemed Conclusions of Law, they shall so be considered,
Similarly, to the extent that Conclusions of Law may be deemed Findings of
Fact, they shall so be considered. [*2] FINDINGS
OF FACT 1.
Plaintiff Marc M, Harris et Cie,, S.A., is organized and does business by virtue of
the laws of the British Virgin Islands. It is administered in Panama by La
Firma de Marc M. Harris. S.A., a wholly-owned subsidiary organized and doing
business by virtue of the laws Of Panama. 2.
Plaintiff The Firm of Marc M. Harris, Cie., is organized and does business by
virtue of the laws of the British Virgin Islands. 3.
Plaintiff Marc M Harris Trust Company, Ltd. is organized and does business by
virtue of the laws of Nevis. 4.
Plaintiff entities, as well as their numerous non-party subsidiaries and
affiliated organizations, are collectively known as “The Harris Organization”
Plaintiff Marc M. Harris et Cie., S.A., is the parent company of Inc The Harris
Organization. 5.
Defendant David E. Marchant (“Marchant”) is it individual non-citizen resident
of the Southern District of Florida. 6.
Defendant Offshore Business News & Research. Inc. (“OBN&R”) is a
corporation organized under the laws of Florida in 1996, with its place of
business in Miami, Florida. 7.
Marchant was and is the president and sole shareholder of OBN&R. OBN&R
publishes two newsletters, one of which is known as “Offshore Alert.” Offshore
Alert is distributed to subscribers on a monthly basis via ordinary mall,
e-mail, Internet, and facsimile. 8.
Marchant is an investigative journalist, and for all intents and purposes is
responsible for operating OBN&R, including the research, writing, and
publishing of its articles. [*3] 9. In
addition to his Journalistic activities, Marchant hires himself out to persons
or entities interested in obtaining information and research regarding
so-called offshore businesses, investments, and operations. 10. On
March 3, 1998, Marchant was hired by James Bennett a Texas attorney, to conduct
research on The Harris Organization and their offshore investment products.
Marchant had no previous knowledge regarding The Harris Organization at the
time of this engagement. 11. In
the course of his research, Marchant spoke with John Shockey ( “Shockey”), the
former head of the United States Department of the Treasury’s Comptroller of
the Currency office in Florida. 12.
Marchant learned from Shockey that Marc M. Harris (“Harris”), the founder and
de facto head of The Harris Organization, had operated several offshore shell
banks in Monserrat [sic] in
the 1980s. These banks were subsequently closed down in 1983 by British banking
authorities for conducting Illegal and fraudulent activities” According to
Shockey, these banks exhibited numerous financial and fiduciary improprieties.
One of the banks, the Fidelity Overseas Bank, took fees from clients ever
though it never performed any services for them. Another hank, the First City
Bank, doctored its financial statements Finally, a third bank, the Allied
Reserve Bank was issued cease-and-desist orders for operating in the United
States without authorization. 13. In
the course of conducting research on The Harris Organization, Marchant also
spoke with several former officers and managers of The Harris Organization,
including Carl Dilley (“Dilley”). 14.
Dilley was nominally a “consultant” with The Harris Organization from
approximately April 1996 to March 1997. For all intents and purposes, however,
he was an employee of The Harris Organization, as the substitution of normal
employee status with the [*4] label
of “consultant” was a common mechanism by which expatriates avoided Panamanian
income taxes. 15.
Dilley was hired to revamp the financial record-keeping system at The Harris
Organization, as well as to oversee and monitor numerous special projects
within the Organization including the Infra-fit investment and the Latin
American Real Estate (“L.A.R.E”) investment. Dilley was also the equivalent of
the Chief Operating Officer of The Harris Organization. Dilley was therefore in
a position to have intimate knowledge of the financial status of the Hams
Organization, as well as its various operations and financial flows. 16.
Dilley provided corroborative information to Marchant, including internal
financial and management documentation. 17.
Marchant learned from Dilley that financial record-keeping at The Harris
Organization was in a state of extreme disorganization, and was not subject to
any form of independent or objective oversight, such as through regular
independent auditing of financial
records. This conclusion was verified by internal memos provided by Dilley
winch described the accounting system at The Harris Organization as “completely
chaotic.”[1] Important documents went missing, and
accounting procedures were haphazard, including arbitrary adjustments to
financial records without any authorizing documentation. This state of affairs
led one internal observer to remark as late as March 1997 that “[a] first-year
accounting student from a US university would have known better than to make
these tribes,” and “[c]learly the definition of ‘CPA’ does not carry the
validity in [Panama] as it does in the USA.”[2] [*5] 18.
Within The Harris Organization, this frolic and detour from accounting norms
was rationalized by Harris in the following mariner: Rather than focusing on the strict legal
concept of accounting, we have focused our accounting system on real economic
processes and credit risks. Had we focused our accounting system by legal
process, we would not be able to provide a clear identification of credit or
liquidity risks.[3] 19.
Despite such claims, Marchant was given additional evidence which revealed that
the apparent chaos in the accounting system at The Harris Organization was
deliberate, and not the innovative product of Harris’s accounting genius, or
even charitably, incompetence. Specifically, there was a serious on-going
dispute within The Harris Organization between Harris and several officers and
managers, including Dilley and Messrs Derek Sambrook and Robin Bailey, the
President and Vice President, respectively, of Trust Services, S A., a Harris
Organization entity. In numerous memos, they aired their concerns regarding the
commingling and unauthorized use of clients trust finds arid the susceptibility
of The Harris Organization’s accounting system to abuse.[4] 20.
Marchant learned from Dilley that according to financial records available to
him, including The Harris Organization’s “Consolidated Financial Statements”[5] and the “Trustco Balance Sheet,”[6] The Harris Organization had a net equity
deficit of at least $25 million as of November 1996. [*6] 21.
Marchant learned from Dilley the mechanism by which The Harris Organization
commingled the funds and assets in clients’ trust accounts. Funds in client
accounts were held in a common “pool account” called the Third Word Trust
Company (“Trustee), along with funds from entities and persons affiliated with
The Harris Organization, including Harris, the founder and majority shareholder
of Marc M. Harris et Cie, S A, and Larry Abraham (“Abraham”), a minority
shareholder. It appeared to Marchant from an examination of the documents and
discussions with Dilley that entities and persons affiliated with The Harris
Organization were arbitrarily crediting amounts to their accounts with Trustco
without disclosing these credits or transactions to clients. In sum, persons and entities affiliated with The Harris Organization were “borrowing” client funds that should have been kept in segregated accounts, using those funds without paying interest to the clients, and exposing those clients to the risk of illiquidity. 22.
Marchant learned from Dilley that entities and persons affiliated with The
Harris Organization were billing each other, and ultimately clients, so-called
administrative and management fees that were not in fact correlated in any
meaningful way with actual services rendered. 23.
Marchant learned from Dilley that approximately $500,000 in clients’ money had
been transferred to accounts in Chile belonging to Harris and Abraham. This was
done by simply crediting Harris’s and Abraham’s accounts within Trustco, and
then transferring the funds to bank accounts in Chile that were purportedly for
investment in the “Infra-fit” project. The Intra-fit project was supposed to
develop and produce exercise bicycles in Chile, but apparently failed without
ever having produced a single bicycle. The funds were never recovered. 24.
Marchant leaned from Juicy that principals in the Harris Organization,
including Harris and Abraham, purchased land in Argentina, and then promptly
turned around and sold the land at an arbitrarily inflated price to the Latin
American Real Estate (“L.A.R.E.”) fluid, an [*7] Organization-affiliated entity, in an
interested transaction without disclosing their prior interest to investors. 25.
Marchant also learned from Dilley that the value of the lard owned by L.A.R.E.
was subsequently marked up on its financial statements, even though no substantial
improvements had been made on the land, there were squatters on the properties
who needed to be removed and the otherwise presented a threat of possible
claims on the property, and the land—essentially arid scrubland—had
little apparent potential for generating positive returns. 26.
Marchant learned from Dilley that The Harris Organization had issued $20
million in preferred shares that were not supported by corresponding
contributions of capital. Dilley’s information was supported by internal memoranda
which showed that managers within The Harris Organization had refused to
cooperate in the issuance of these preferred shares because
Organization-affiliated assets that were being transferred in exchange for the
shares were over-valued.[7] 27.
Marchant learned from Dilley that Messrs. Wallace Stull, James Sommerville,
Joseph Vigna, and Bill Amos were either clients, shareholders, and/or directors
of The Harris Organization. Marchant had previously learned from other sources
that these individuals had been convicted of various criminal offenses,
including drug trafficking. 28.
Marchant learned from independent research that The Harris Organization
maintained substantial links, either directly or indirectly, with persons and
entities known variously as “PT Shamrock”, “Peter Trevellian.” and “Adam
Starchild,” that advocated in print and on the Internet offshore mechanisms for
evading the payment of taxes, judgments, and other debts in the United States.
That is, Marchant had reason to believe that The Harris Organization [*8] was both directly and indirectly
advertising its services for, in essence, tax evasion and fraudulent conveyance
of funds to offshore locations. 29.
Marchant also learned from internal materials provided by Dilley that The
Harris Organization offered products and services that could reasonably be
interpreted as mechanisms for tax evasion and fraudulent conveyances.
Specifically, the so-called “Harris Matrix,”[8] an internal document discussing the
products offered by The Harris Organization, included numerous references to
“black holes”; in the context of strategies for avoiding payment of taxes to
the IRS, or to judgments and other debts n the United States. Dilley told
Marchant that a “black hole” was a term used within the Harris Organization to
describe dummy offshore corporations that were set up to go out of business,
permitting the shareholders to claim bogus capital losses to offset capital
gains. 30. In
March 1998, Marchant decided to write an article in Offshore Alert discussing
the financial and fiduciary irregularities at The Harris Organization. 31.
Before publishing the article, however, Marchant extended an opportunity for
The Harris Organization to present its version of the situation. Or March 22,
1998, Marchant delivered to Chris Davy, a member of the management within The
Harris Organization, a detailed and specific list of the improprieties at
issue.[9] He further arranged to meet Harris and
other senior officers of The Hams Organization in Nassau, the Bahamas, on March
25, 1998, to discuss these issues. 32. At
the Bahamas meeting, the representatives of The Harris Organization denied the
various allegations. They did not provide any evidence to support their
denials. For an [*9]
organization that claimed to administer over $1 billion in assets, they
provided no documentation or financial information to address the issues raised
by Marchant, 33. On
March 31, 1998, Marchant published an article in Offshore Alert titled “We
Expose The Harris Organization’s Multi-Million Dollar Ponzi Scheme.”[10] 34.
This article made a number of factual allegations, which substantively accused
The Harris Organization of defrauding its clients and misappropriating clients’
hinds, Those allegations specifically at issue are: a.
That The Harris Organization operates as a “Ponzi” scheme. b.
That The Harris Organization was insolvent by $25 million. c.
That Harris used client funds to invest in the Infra-fit venture d.
That The Harris Organization inflated the land value of the LARE investment in
their financial statements. e.
That the properties held by the LARE investment were worthless. f.
That LARE might not have proper and enforceable title to the land in question
due to
the presence of squatters. g.
That The Harris Organization might be laundering the proceeds of crime. [*10] h.
That The Harris Organization had issued $20 million of worthless preference
shares. 35.
Marchant subsequently published additional articles regarding The Harris
Organization, essentially repeating the allegations of the original March 1998
article.[11] 36.
The Harris Organization has demanded, and continues to demand, either a
correction or retraction of the alleged inaccuracies printed in the articles.
Defendants have to date refused the demand. 37.
The Harris Organization did not provide any materials to rebut the allegations
to Marchant until the institution of the present action and in the course of
discovery. 38. Of
the rebuttal materials generated to date, Plaintiffs have relied to a great
extent on a letter of solvency and financial statements produced by Panamanian
auditors for The Harris Organization for 1997 and 1998. Plaintiffs argue that
in light of such evidence, Marchant should have corrected or retracted the
alleged inaccuracies. 39.
Luis Ovidia Rodriguez Brandao (“Rodriguez”), the head of this firm of auditors,
Servicios Profesionales Asociades, S.A (“Servicios”), gave testimony to the
effect that Servicios first began providing accounting services, including
internal audits, to The Harris Organization in the early 1990s. 40. No
record of such audits was ever produced by Plaintiffs to Marchant. Furthermore,
if such accounting services were provided to The Harris Organization, they
occurred at the same time that financial record-keeping at The Harris
Organization was in a state of extreme disorganization. [*11] 41.
Servicios was not engaged to conduct an independent audit of The Harris
Organization until after Defendents published their Offshore Alert in
March 1998. 42. On
August 26, 1998, Servicios issued a letter of solvency stating that after a
review of The Harris Organization’s financial statements, the Organization was
solvent as of March 31, 1998. 43.
However. Servicios did not complete its consolidated audit of The Harris
Organization and issue its consolidated financial statements for the year ended
December 31, 1997 until November 12, 1998. 44.
Plaintiffs argue that it is customary accounting practice for an accounting
firm to issue letters of solvency without performing a prior audit. While that
may be true and acceptable for companies that maintain adequate and acceptable
financial records, it was a questionable practice in the comet of The Harris
Organization’s notoriously poor financial record-keeping system. 45.
The validity of the letter of solvency is further questionable in light of the
fact that Servicios must have been aware of the unreliability of the
information upon which the letter was based. Servicios had provided prior
accounting services for The Harris Organization. At trial, Rodriguez himself
gave testimony to the effect that until 1997, the financial record-keeping at
The Harris Organization was “sloppy”, and that Servicios had to “reconstruct”
financial records for 1996. 46.
The 1997 consolidated financial statements prepared by Servicios were also of
questionable validity. They included an opinion letter whose language deviated
substantially from the language normally used in an independent auditor’s
opinion letter. Servicios did not simply state that the financial statements
were a fair and material representation of the financial [*12] position of The Harris Organization, and
that there was a reasonable basis for this opinion. Instead, Servicios opined
rather unusually that the financial statements “present adequate solvency and
equity that demonstrate the financial solidity” of The Harris Organization.[12] 45. [sic] In addition, the 1997 financial statements
may not provide a completely accurate picture of the financial situation at The
Harris Organization, since the audit did not include an audit of the numerous
mutual hinds and special projects managed by The Harris Organization. These
mutual fluids invest in The Harris Organization, and vice versa, in
transactions that are not entirely transparent. [*13] CONCLUSIONS
OF LAW 1. A
plaintiff seeking recovery under a claim Lot libel must show that: (a) the
defendant published a false statement; (b) the statement was communicated to a
third party; and (e) the plaintiff suffered damages as a result.[13] 2. In
addition to proving these traditional elements of a libel cause of action, the
plaintiff must also prove actual malice on the part of the defendant if the
plaintiff is a public figure or a limited public figure and the defendant is a
member of the media.[14] 3. If
the plaintiff is not a public figure or a limited public figure, the plaintiff
need not prove actual malice. However, he must still prove negligence as a
necessary clement of the libel claim.[15] 4. The
parties have stipulated that Defendants Marchant and OBN&R are members of
the media.[16] 5. The
Court has already determined as a matter of law that Plaintiffs are not
limited-purpose public figures).[17] They are private figures. [*14] 6.
Therefore, Plaintiffs must prove by a preponderance of the evidence that Defendants
were negligent in publishing and failing to retract the disputed statements in
their articles, 7.
Negligence in the context of a libel claim has beer defined as publishing the
allegedly libelous statements “without reasonable care as to whether the
alleged false and defamatory statements
were actually true or false.[18] 8. From
the time he published the initial article to the present. Marchant had evidence
which provided persuasive support for the truth of each of the allegations at
issue.[19] He spoke with numerous inside sources,
including Dilley, and outside sources such as Shockey, who appeared credible
and knowledgeable about Harris, The Harris Organization, and the financial
situation within The Organization. Marchant was privy to internal financial and
management documentation which supported the information learned from his
sources. 9. At
the March 1998 meeting in the Bahamas, Marchant provided Harris and the other
senior officers of The Hams Organization with a full and fair opportunity to
address the issues raised in his articles. Plaintiffs’ representatives failed
to take advantage of this opportunity. Plaintiffs’ representatives offered no
substantive information or explanation to rebut the allegations, apart from
unsupported denials and claims of innocence. 10.
Marchant was justified in discounting those explanations that Plaintiffs did
provide in light of the fact that: (a) Plaintiffs finances were in a state of
complete disorganization during the relevant period: (b) Plaintiffs, through
and including the de facto head Marc M. Harris, had been implicated in
fraudulent and criminal activity in the past, and had a continuing association
with persons and entities that had been involved in or advocated criminal
activity, (c) plaintiff’s [*15] advertised
products and services that were euphemistically referred to as “asset
protection.” but which could reasonably be interpreted as vehicles for tax
evasion and fraudulent conveyance of funds out of the United States; and (d)
Plaintiffs never produced any documentation or evidence to support their
denials. 11.
Marchant was justified in continuing to discount the validity of the
information subsequently provided by Plaintiffs, including the letter of
solvency and the 1997 audited financial statement, due to circumstances which
reasonably cast doubt on their independence objectivity, and comprehensiveness 12.
Plaintiffs have failed to prove by a preponderance of the evidence that
Defendant Marchant did not act with reasonable care in determining whether the
statements made in the articles were true or false, in light of the information
known to him at the tune of the original publication in March 1998 to the
present Defendants were therefore not negligent in publishing the disputed
statements, and subsequently refusing to correct or retract them. 13.
Because Plaintiffs have been unable to demonstrate that Defendants were
negligent in publishing the disputed statements, their claim for libel must
fail, and it is unnecessary to address the other elements of the claim, i.e.,
that (1) defendant published a false statement; (2) the statement was
communicated to a third party; and (3) the plaintiff suffered damages as a
result. 14. As
Plaintiffs have failed to prove the element of negligence in the context of their
claim for libel, they have also failed to prove theft claim for common law
negligence. 15. As
Plaintiffs are unable to prevail on their claims for libel and negligence,
their claim for punitive damages is moot. [*16] CONCLUSION Accordingly,
upon due consideration of the evidence presented at trial, the arguments of
counsel, the pertinent portions of the record, and being otherwise filly
advised in the premises, it is ORDERED
AND ADJUDGED as follows: 1.
Final judgment is entered in favor of Defendants David E. Marchant and Offshore
Business News & Research, Inc. and against Plaintiffs Marc M. Harris et
Cie., S.A., The Firm of Marc M. Harris, Inc., and Marc Harris Trust Company,
Ltd. The Court will enter a separate final judgment in accordance with this
Order. 2. All
pending motions not otherwise ruled on are DENIED AS MOOT. DONE
AND ORDERED in Chambers at Miami Florida, this 10th day of August, 1999. K.
Michael Moore U.S.
District Judge [1] Defs’ Impeach. Ex. A. [2] Id. [3] Defs’ Ex. 38. [4] See
Defs’ Ex. 5, 6. [5] Defs’ Ex. 2. [6] Defs’ Ex. 3. [7] See
Defs’ Ex. 8. [8] Defs’ Ex. 9. [9] See
Defs’ Ex. 31. [10] Plf’s Ex. 1. [11] Plf’s Ex. 2. [12] See Plf’s
Ex. 4. [13] See Parsons v. Nationwide Mutual Ins.
Co., 889 F. Supp. 465, 469
(M.D. Fla. 1995) (citing Axelrod v. Califano, 357 So. 2d 1048 (Fla. Dist. Ct. App. 1978)). [14] See Silvester v. American Broadcasting Cos., 839 F.2d 1491, 1493 (11th Cir. 1988)
(citing New York Times Co. v. Sullivan, 376 U.S. 254 (1964)). [15] See Miami Herald Publ’g Co. v. Ane, 458 So.2d 239, 242 (Fla. 1984). [16] See
Notice of Filing Pretrial Stipulation ¶ 5(e) (DE #64). [17] See
Omnibus Order of May 19, 1999 (DE #74). [18] Miami Herald Publ’g Co., 423 So.2d at 378. [19] See supra Findings
of Fact ¶ 34. |