MCDERMOTT COLUMN: Tug-of-war erupts over JK Harris & Co.’s confidential client data

Shown in 2005, John K. Harris was founder and CEO of J.K. Harris & Co. The defunct firm had a policy of putting alll personal financial informaiton from clients into a computer data-base. It destroyed the hard copies. (Staff/File)

A year after JK Harris & Co. went bankrupt, the fallen tax giant’s customers finally may be able to reclaim a prized possession: their personal financial information.

It’s been a messy and litigious process, much like the collapse of the controversial company.

At issue is a vast computerized trove of confidential data that an estimated 274,000 delinquent taxpayers gave JK Harris as they sought out the firm’s services.

Some of the encrypted facts and figures aren’t top-secret material.

Others are private and highly sensitive, such as Social Security numbers, tax filings and employment records.

There’s “all kinds of stuff that shouldn’t be floating around somewhere,” said Columbia bankruptcy attorney Barbara George Barton.

Barton represents Myrtle Beach lawyer Michelle Vieira, a court-appointed trustee responsible for tracking down and selling JK Harris’ assets to help pay some of its bills.

The privacy question landed on the front burner and in front of a U.S. Bankruptcy Court judge amid a growing dispute over the late company’s most valuable legacy.

JK Harris at its peak was a nationwide gun-for-hire, catering to delinquent taxpayers by offering to settle their IRS debts at deep discounts. It generated much of its business through late-night TV ads all over the country.

The Goose Creek-based firm sought bankruptcy protection on Oct. 7, 2011, worn down by years of costly litigation and mounting financial problems.

When founder and CEO John Harris wasn’t able to line up a buyer or new backer, he liquidated. Most of the assets, including a huge customer database, were sold in February to Resolute Tax Services LLC, which has offices in Mount Pleasant.

The deal gave the buyer undisputed access to client names, addresses and telephone numbers.

As for the more detailed personal details, that was another issue. Vieira wanted to obliterate the information. Resolute Tax pressed to save it, partly because JK Harris routinely destroyed hard copies as part of its privacy policy.

“Even though clients were instructed not to send original documents, they quite often did,” Resolute Tax attorney Mark W. McKnight wrote in a Sept. 17 court filing.

He argued that the database ought to be saved because it contains “the only copy there is if the client is audited, etc.”

The rub is that Resolute Tax had agreed to a 180-day “opt-in” provision requiring it to contact all former JK Harris customers by Aug. 11. The clients, in turn, had to approve the transfer of their confidential data to the firm. Otherwise, the information would be destroyed.

It proved to be a tall order. A mass mailing was too costly, McKnight said. An e-mail campaign reached only a fraction of the clients.

As the Aug. 11 data-destruction date approached, Vieira was losing patience. She felt Resolute Tax hadn’t tried hard enough to reach the masses of JK Harris clients, yet the firm was seeking more time to complete the task.

Sign up for our new business newsletter

We're starting a weekly newsletter about the business stories that are shaping Charleston and South Carolina. Get ahead with us - it's free.

Then a dispute flared up over whether the company had made an unauthorized copy of the database.

The slow simmer came to a rapid boil a few weeks ago when a former JK Harris client contacted the trustee. He asked how he should respond to “her most recent e-mail.” She had no idea what he meant and requested a copy of the original message. It contained what Barton, Vieira’s lawyer, described as “a lot of misleading information.”

The sender, for example, was identified as the “United States Bankruptcy Trustee.” Vieira said the e-mail went out to “thousands” of former JK Harris customers” and originated from Resolute Tax.

McKnight acknowledged that a company official made a serious mistake by sending the message.

“Shouldn’t have done it, no question about that, without getting it preapproved,” he said Friday.

With tensions between the two sides mounting, U.S. Bankruptcy Court Judge John Waites held an emergency hearing Oct. 4 to determine either to approve a six-month extension for the firm or side with Vieira and deny the request.

Both sides darted in and out of the courtroom several times to negotiate a compromise. The agreement gives Resolute Tax until Oct. 25 to contact all former JK Harris customers and ask what to do with their private information. McKnight said the company plans to use an automated phone calling service. The original data will be destroyed regardless on Nov. 15.

For her part, Vieira agreed to preserve in a locked safe one backup copy, confidential information and all. For how long is anyone’s guess, said Barton, her attorney.

“I’m sure it’s going to stay there for a good long time,” she said.

Reach John McDermott at 937-5572.