April 28, 1999
The US Bankruptcy Court in San Diego, California, has ruled that Willis Carto, head of Liberty Lobby and publisher of The Barnes Review, diverted millions of dollars from the Legion for the Survival of Freedom, parent corporation of the Institute for Historical Review, wilfully and maliciously. This ruling marks an important step in the continuing battle by the Legion to force Carto to account for missing funds.
In November 1996, a California Superior Court judge awarded the Legion $6.43 million plus interest in a suit against Carto and Liberty Lobby. Rather than pay the judgment, negotiate a settlement, or even provide a court-ordered accounting for the money, Carto filed for bankruptcy in hopes of avoiding (discharging) the judgment entirely.
Now, however, the ruling of malice by Judge John J. Hargrove allows the Legion to continue to search for Carto’s assets. Financial documents already obtained show that Carto was involved in million-dollar gold stock transactions prior to the adverse judgment. Since the judgment, Carto has written himself thousands of dollars worth of Liberty Lobby checks made out to “Cash.” In his bankruptcy filings, Carto presents himself as a pauper, with virtually no investments and less than $500 cash on hand.
In reaching his ruling, Judge Hargrove relied on 11 USC 523(a)(6) of the bankruptcy code, which states in part, that no debtor may discharge any debt arising out of the “willful and malicious injury by the debtor to another entity or to the property of another entity.” Under 11 USC 523(a)(6), a non-dischargeable act is one that is wrongful, intentional, without just cause or excuse, and which necessarily causes injury. In a previous case, Hargrove noted, a court found that:
This four-part definition does not require a showing of biblical malice, i.e., personal hatred, spite, or ill-will. Nor does it require a showing of an intent to injure, but rather it requires only an intentional act which causes injury. Moreover, we held … that a court applying this test must take into consideration a policy that favors the victims of fraud over perpetrators.
With this in mind, Hargrove ruled:
In the  Statement of Decision [in Legion v. Carto, the underlying court case that gave rise to the judgment and subsequent bankruptcy], the superior court found that Debtors interfered with LSF’s property rights. The court further found that as to all Defendants, including Debtors, the interference was intentional and without any justification. The court found that the Defendants, including Debtors, converted $6,430,000 of LSF’s funds. Implicit in these findings is the fact that Debtors' acts necessarily caused harm to LSF. The Court finds that … all the elements under Section 523(a)(6) have been met in this case.