.SEC Lancer receiver asks to drop Post suit, drops names
2003-09-03 18:56 ET - Street Wire
FIELD DAY
by Lee M. Webb
Marty Steinberg, the court-appointed receiver for the U.S. Securities and Exchange Commission (SEC) target Lancer Group, has filed a motion for authority to discontinue Lancer's libel action against the New York Post and columnist Christopher Byron. Appended to the Aug. 20 motion filed in the U.S. District Court for the Southern District of Florida is a potential bonanza for investigative journalists: the first public disclosure of all presently known Lancer creditors and investors.
The SEC shut down the purported $1-billion (U.S.) Lancer fund operation headed by Michael Lauer on July 10 of this year, exactly 10 months after the New York Post published the first of a series of articles by Mr. Byron raising serious questions about Lancer and its high-flying leader. In the wake of the scathing articles, Mr. Lauer and Lancer filed a libel suit against the New York Post and Mr. Byron on Feb. 14.
In a July 8 SEC civil complaint against Mr. Lauer and Lancer that led to a July 10 court order freezing the Lancer assets and appointing a receiver, the U.S. regulator corroborated much of what Mr. Byron had written and extensively fleshed out allegations of Lancer's fraudulent activities with more than 1,800 pages of supporting documentation.
(As first reported by Stockwatch, more than 18.7 million shares of Calgary-based Zi Corp., approximately 50 per cent of the company's outstanding shares, may be among the frozen Lancer assets. According to court documents, Lancer peeled off more than $97.6-million (all amounts in U.S. dollars) to sponge up the massive undisclosed Zi stake. Zi officials claim that they did not have a clue about Lancer's staggering stake in the company.)
Among other things, the SEC alleges that Mr. Lauer's Lancer operation engaged in fraudulent manipulative trading practices, rigging the month-end prices of a number of virtually worthless OTC Bulletin Board and pink sheet stocks, and used bogus valuation opinions on other stocks to fraudulently boost the reported value of the Lancer funds in order to draw new investors and keep existing investors from requesting redemptions. Long before the SEC action, Mr. Byron raised similar concerns about Mr. Lauer and Lancer in his articles.
As noted in the Lancer receiver's recently filed motion to discontinue the libel action against the paper and Mr. Byron, in a Sept. 10, 2002, article the New York Post columnist "alleged that Lauer greatly overstated the value of assets under management" in the two principal Lancer funds "and asserted that Lauer appointed acquaintances with tainted reputations to management positions with the funds' investments."
On Jan. 13, 2003, the paper published another article in which Mr. Byron restated his earlier allegations and "detailed more alleged links between reputed criminals and Lauer's investment strategies." He also "derided" Mr. Lauer's flagship funds, Lancer Partners LP and Lancer Offshore Inc., "as 'penny-stock' funds."
In a Jan. 27 article published less than three weeks before Lancer filed its libel suit, "Byron stated that Lauer and his funds were in 'financial hot water' and compared an alleged recent spate of redemption requests to a depression-style bank run."
On April 3, the New York Post and Mr. Byron filed a notice of motion in response to the Feb. 14 Lancer lawsuit indicating that they intended to seek dismissal of the action or a summary judgment in their favour. According to the defendants, "the complained of statements were substantially true, the Defendants were not grossly irresponsible in publishing the statements, and the statements are protected opinion."
As noted by the Lancer receiver, Mr. Byron filed an extensive affidavit in support of the April 3 motion. "In the Byron Affidavit, Byron provides testimony detailing his investigation of Lauer and provides substantial detail regarding the research and reporting performed in support of the Articles," the receiver states.
"The Receiver has determined, after a careful review of the pleadings and testimony and a thorough analysis by media law specialists, that the Libel Action on behalf of the Lancer Entities lacks sufficient merit to justify its anticipated cost and should be discontinued," the Lancer receiver continues.
Deeper into the Aug. 20 motion, the receiver explicitly claims that, based on the merits of the libel action, the lawsuit "lacks any real prospect for success." The Lancer receiver goes on to sketch some of the difficulties that would be encountered in the libel action. Given the legal context, some of the receiver's specific reasons for wanting to abandon the libel case amount to a very favourable assessment of Mr. Byron's research and reporting.
First, the receiver acknowledges that Mr. Lauer and the Lancer entities likely qualify as "public figures" due to their wide solicitation of investments in controversial areas and publicity prior to the publication of Mr. Byron's articles. That being so, the plaintiff would "bear the high burden" of proving that any false or defamatory statements in the articles were published with actual malice.
In order to satisfy that standard, the plaintiff would have to prove that Mr. Byron and the New York Post actually knew the statements were false or acted with reckless disregard for the truth. "The Byron Affidavit provides extensive documentation of Byron's apparent regard for the truth of his reporting; refutation of Byron's detailed testimony will at the very least require extensive, expensive and voluminous discovery," the receiver states.
Even if Mr. Lauer and Lancer did not qualify as public figures, the receiver claims that the probability of success in the action would still be very low. In order to succeed, the plaintiff would have to prove the defendants acted with gross irresponsibility. To satisfy that standard, the plaintiff would have to prove by a preponderance of evidence that any false statements in the articles were published without considering the standards of information gathering and dissemination ordinarily followed by responsible journalists and newspapers.
"The Byron Affidavit appears to prima facie refute any claim of 'gross irresponsibility'; refutation thereof will be difficult, costly and time-consuming for the Receiver," the Aug. 20 motion claims.
According to the receiver, the libel defence for opinion combined with the requirement that the plaintiff prove falsity presents another difficulty that makes the probability of success very low.
"The Post and Byron have asserted that the statements contained in the Articles were not substantially false and that any substantially false statements contained in the Articles were opinions based on facts or hyperbole," the receiver states. "The Byron Affidavit provides evidence in support of this contention."
A fourth difficulty outlined by the Lancer receiver concerns "the typically uncompromising and combative approach taken by news organizations in opposition to libel suits" and, apparently, specifically the New York Post.
"The Receiver will have to prosecute the Libel Action into the teeth of a vociferous, highly motivated, and very skilled opponent," the Aug. 20 motion states. "Media defendants such as the Post rarely settle libel claims because of the potential threat of such a settlement to the integrity of the organization and its journalists."
In the conclusion to the motion to abandon the suit, the Lancer receiver offers a more general assessment of a U.S. libel action. "The Libel Action is no mere tort suit; it requires the Receiver to surmount difficult hurdles set up to protect constitutional interests and it implicates the integrity of a news organization in such a way as to render settlement highly unlikely," the receiver claims.
As some journalists know, Canadian libel law is significantly different from U.S. libel law. Indeed, some Canadian journalists marvel at the protection, including constitutional protection, available to their U.S. counterparts. As it happens, Mr. Byron has some firsthand knowledge of the differences between Canadian and U.S. libel law.
After Stockwatch had published approximately 20 articles about Vancouver-based Imagis Technologies Inc., Mr. Byron, then a contributing editor to U.S.-based Red Herring magazine, weighed in with his own story about the company and some of its intriguing players. Red Herring first published Mr. Byron's Imagis article on the Internet last August and then republished it in the September 2002 print edition of the magazine.
On Sept. 10, 2002, Imagis filed a libel suit against California-headquartered Red Herring and Connecticut-based Mr. Byron in the Supreme Court of British Columbia. While that case has been gathering dust for some time, the early flurry of legal activity provided Mr. Byron with a possibly less than palatable taste of Canadian libel law.
Meanwhile, the Aug. 20 motion by the Lancer receiver to abandon the U.S. libel suit against Mr. Byron and the New York Post following on the heels of the disclosure of the SEC investigation into the allegedly fraudulent Lancer operation is certainly a further vindication of the investigative journalist's work.
The Aug. 20 motion filed by the Lancer receiver may also be of significant interest to other investigative journalists. Appended to the motion is a list of all known Lancer creditors, investors and other parties in interest. Indeed, the 186 names on that list, the vast majority of them previously undisclosed, may provide journalists who have been following Lancer and associated companies with an absolute field day of leads.
Comments regarding this article may be sent to lwebb@stockwatch.com. |
