Investment Scandal Focus of Libel Trial : Courts: A Beverly Hills businessman says a Santa Barbara paper defamed him in describing his legal battles and past association with a swindler. Defense lawyers say he has no case because the articles were true.

A tale of alleged extortion and financial skulduggery will be revived this week in a Los Angeles courtroom in a libel trial involving news reports on the turbulent career of wealthy Beverly Hills attorney-businessman Leonard M. Ross.

Ross is seeking damages of more than $20 million from the Santa Barbara News-Press and its owner, the New York Times Co., saying they defamed him in articles describing his numerous court battles and past association with convicted swindler Barry S. Marlin.

The trial of the lawsuit, also filed against reporter Kathleen Sharp and editor David McCumber, is scheduled to start today in Los Angeles Superior Court.

The bitterly fought, 4-year-old case has produced an avalanche of court papers and huge legal bills on both sides. Although he would not give figures, George Freeman, assistant general counsel for the New York Times Co., called it one of the most expensive libel defenses in the paper’s history.

The disputed reports--an in-depth article in the News-Press in November, 1988, and follow-up story in February, 1989--profiled the man who had become the largest shareholder in Santa Barbara Savings and Loan, then the city’s largest financial institution.

Ross contends that several statements in the articles falsely linked him to the misdeeds of his former partner Marlin. According to Ross, those false statements and the articles’ defamatory “tenor and tone” have ruined his reputation and caused him emotional distress and stress-induced physical injuries.

Defense lawyers say Ross has no case because the articles were true.

The suit has exhumed a colorful chapter in the annals of white-collar crime, including allegations about Ross that appear in FBI reports, grand jury transcripts and other exhibits in the case.

Why Ross wants the articles “reviewed at this point in time in a public forum strikes me as strange, but that’s up to him, I guess,” Freeman said.

But Ross got a boost Thursday when Judge Harvey A. Schneider refused to dismiss the case, ruling that defense lawyers had not proven that three disputed statements were “literally or substantially true.”

Ross, who will be 49 this week, has extensive real estate interests and is a millionaire. He once put his Beverly Hills mansion--the former home of film star Marion Davies--on the market for $25 million. His name is well known in Los Angeles legal circles because of his extensive involvement in civil litigation.

Ross contends that the News-Press falsely stated that he was a target of two federal criminal investigations during the 1970s. The truth, he says, is that he was a target of one investigation.

As detailed in the articles, Ross grew up in a poor neighborhood of New York, graduated first in his class from UCLA Law School in 1968 and joined forces with Marlin, a lawyer and financial adviser, the next year.

They became heavily involved in real estate syndication, putting together groups of investors to buy apartments, hotels and shopping malls. Their partnership ended after two years when Ross, then 26, discovered that Marlin had diverted investor funds to personal ventures. Marlin admitted that this was true but claimed that Ross had diverted funds as well.

With help from his older brother, Al Ross, and two strong-arm associates, Ross allegedly abducted Marlin, held him overnight, and forced him to sign documents transferring his assets to Ross and taking sole responsibility for any loss of investor funds, according to court documents, including an FBI report that is an exhibit in the case.

According to the FBI report, Marlin also was beaten by one of Ross’ heavies--a man described by a former FBI agent as “a known criminal with a real wild reputation. . . . He was allegedly a killer.”

Later, at Ross’ direction, Marlin bought out Ross’ interest in the business, signing a promissory note requiring him to pay Ross more than $4 million, according to the report and other documents.

Straining under the debt, Marlin hired an alleged mobster to pressure Ross to reduce the debt. But the man told Marlin that he was unsuccessful because “Ross had ‘reached out’ all over the country for protection” from other organized crime figures, the FBI report said.

The FBI and Justice Department’s Organized Crime Strike Force heard of these events and called many witnesses before a federal grand jury--including Marlin, the Ross brothers and their two helpers.

Appearing before the grand jury in 1973, Leonard and Al Ross refused to answer many questions, invoking their 5th Amendment right to avoid self-incrimination. Al Ross even took the 5th when asked if he knew his brother.

A strike force attorney decided to charge the Rosses and their associates with extortion. Among the exhibits in the libel case is a copy of the proposed indictment. But Justice Department officials did not approve the prosecution.

In a deposition six weeks ago, Richard P. Crane Jr., former strike force director for the western states, said his “best recollection was I did not feel there was sufficient organized crime tie-in in the case and it therefore did not properly belong in the strike force.”

While proclaiming his innocence, Ross admits in court papers that the newspaper was correct in stating he was investigated for extortion. But he claims that the paper defamed him by falsely saying that he was later investigated with Marlin for investor fraud.

After the breakup with Ross, Marlin carried on the investment business. But it collapsed in 1975, when clients and investigators discovered the disappearance of funds. Prosecutors called it the largest Ponzi scheme in U.S. history, involving more than 1,000 investors and losses of more than $30 million.

Marlin was indicted, pleaded guilty and went to prison in 1978.

The News-Press said Ross also was investigated, but not charged, for investor fraud. Ross claims that he was never investigated. His lawyers have filed sworn statements from two former federal officials who had key roles in the case saying they investigated only Marlin.

Defense lawyers say the news stories were accurate--pointing out that investors told investigators that Ross’ financial demands on Marlin played a role in the loss of their funds.

Both Ross and Marlin were accused of investor fraud in civil lawsuits filed when Marlin went to prison. But as the articles pointed out, Ross emerged from these lawsuits a far richer man, amassing a fortune in the course of defending himself.

Many insurance companies that sold coverage to the Marlin-Ross ventures refused to pay for Ross’ legal defense. Ross sued them for breach of contract and bad faith, ultimately collecting settlements and judgments of about $20 million.