The current owners of U.S.-based Mar-Lees Seafood are suing the company's founder and former owner, John Lees Jr., alleging Lees used his position with his former company to set up a racketeering and kickback scheme.
The owning company, Delaware-based Seafood Development, published detailed accounts of its allegations in a civil suit in U.S. District Court in Massachusetts on 25 October. In it, the suit named Lees, Mar-Lees Rhode-Island based attorney, Michael Sweeney, Massachusetts-based seafood company NorAtlantic 21 and New Jersey-based Blue Sea Products as co-conspirators.
Lees originally sold 80 percent of Mar-Lees to Harbinger Seafoods, which later became Seafood Development, in September of 2010. At issue in the lawsuit are what the suit called Lees' violations of the terms of that sale agreement. According to the suit, the agreement allowed Lees to retain 20 percent interest in the company through ML Holdings, Lees' holding company, and to stay on as the Mar-Lees' president and CEO.
As a condition of his employment, Lees had to agree to not conduct deals with competitors, or act in any other way contrary to Mar-Lees' best interests. This agreement was described in the court documents as "goodwill." The total sale to Harbinger amounted to USD 22 million, and, according to the suit, more than half of that money was paying for that goodwill.
"Lees and ML Holdings conducted and participated in the conduct of the affairs of the Mar-Lees Enterprise through a pattern of racketeering activity involving numerous acts of commercial bribery in violation of state law and federal wire and mail fraud in connection with multiple fraudulent schemes," the suit stated.
It also accused Sweeney, of the Rhode Island-based firm Duffy & Sweeney, of "doing the legal work to create and maintain the competing business entities while hiding Lees' involvement." The Defendants' attorney, David Bowles, of the New York law firm Di Santo Bruno, has not responded to a request for comment.
Mar-Lees acknowledged that Harbinger was aware of NorAtlantic 21 and Blue Sea at the time of the sale, but only on a mandatorily-disclosed list of companies Mar-Lees did business with.
"Those disclosure schedules listed Blue Sea and NorAtlantic 21 among the multitude of suppliers and customers, but nowhere did Lees disclose that either NorAtlantic 21 or Blue Sea were related to him in any way, or that Lees had invested in or had a financial relationship with those companies," the suit read.
But, the suit alleged, Lees did have a relationship. The suit cited an email Lees sent to his accountant on 7 December 2009, months before the Mar-Lees sale, stating that "I am forming another company called North Atlantic 21. The company will be owned 65 percent by me and 35 percent by Jamie Dwyer."
That company, according to the suit, later became NorAtlantic 21, and Dwyer is a longtime friend of Lees. The suit described NorAtlantic 21 as a seafood seller that operates as a competitor to Mar-Lees, but the suit alleged Lees would eventually invest USD 1 million (EUR 725,058) in the new company.
Not only did Lees not tell the new owners of Mar-Lees about this, but the suit claimed Lees made Harbinger pay for the legal costs of starting up NorAtlantic 21 by burying them in the large list of legal costs associated with the 2010 Mar-Lees sale.
The suit argued that Lees, while serving as Mar-Lees' CEO, then went on to divert several Mar-Lees customers' business to NorAtlantic 21, including lying to a Chinese supplier by saying that NorAtlantic 21 is "the import arm for Mar-Lees."
The suit also detailed a complex kickback scheme involving Lees, competitor Blue Sea, Zeke Shahin, whom the suit claims Lees knew through contacts in the industry, and Shahin's company, TAF Enterprises, which did business with Mar-Lees as a supplier. While the scheme was going on, the suit claimed Lees was also trying to get Mar-Lees to hire Shahin as an executive with the company. Shahin is now CEO of Mar-Lees.
According to the suit, Lees would buy tilapia from TAF through Blue Sea or another shell company, and keep it in storage for a month. Then, TAF would buy the tilapia back from Lees at a much higher price, with Lees taking 8 percent of that payment as a kickback. Finally, TAF would mark the tilapia up even further before actually selling it to Mar-Lees.
Along with the kickback scheme, the suit accused Lees, together with Shahin, of also forming yet another competitive seafood company, ZJM, and conspiring to steal away potential Mar-Lees customers with it.
The suit quoted various email messages between Lees and his co-conspirators, discussing detailed transactions worth hundreds of thousands of U.S. dollars. The suit claimed the alleged malfeasance violates federal law since it took place across state lines.
The lawsuit did not specify how much Mar-Lees is seeking in damages.
