- The Washington Times - Monday, September 6, 2004

NEW YORK — The tone of the report detailing financial self-dealing by Conrad Black and his top lieutenant at Hollinger International Inc. is blistering even in the context of outrage against corporate malfeasance:

“A corporate kleptocracy.” “Flagrant abdication of duty” by a director, who also happens to be a former assistant U.S. secretary of defense. “Aggressive looting.”

However, putting Mr. Black behind bars or recovering the $400 million that investigators say he and others looted from the company is another matter. For one thing, proving criminal intent beyond a reasonable doubt in cases of financial fraud is tough.

What’s more, much of the money Mr. Black reputedly looted went to a private Canadian company he controls, and unlike publicly held companies, it has no obligation to discuss its affairs.

The accusations laid out in the 500-page report, released last week by a special committee of Hollinger’s board, clearly suggest that Mr. Black and others committed serious crimes. Among them: violating federal rules on financial disclosures and breaching fiduciary duties to shareholders.

Hollinger International owns the Chicago Sun-Times and the Jerusalem Post, and, until recently, it owned the Daily Telegraph of London.

Whether prosecutors have enough hard evidence to make a solid case is not clear, legal scholars and former prosecutors say. The Justice Department has declined to comment, and Mr. Black has denied any wrongdoing.

“As explosive as these charges are, the prosecutors still have work to do to put together a criminal case that’s ultimately going to stick,” said Robert Mintz, a former federal prosecutor who now heads up the securities litigation practice at the McCarter & English law firm in Newark, N.J. “The central question is going to be the extent to which these transactions were fully disclosed to the board.”

The sheer scale of the investigation at Hollinger International was daunting. The group of three outside directors, under the guidance of Richard Breeden, a former chairman of the Securities and Exchange Commission, wrote in their report that they interviewed 60 witnesses and reviewed nearly 750,000 pages of documents over 14 months.

Before spending all that time, money and effort, prosecutors would want to make sure that their case has a good chance of winning. Just two months ago, a jury acquitted Mark Belnick, a former attorney for Tyco International Ltd., of charges that he stole millions of dollars by accepting an illegal bonus and abusing company loan programs. A trial of former Tyco chief Dennis Kozlowski ended in mistrial.

Richard W. Painter, a professor of law at the University of Illinois at Urbana-Champaign, says regulators and shareholders may bring civil cases charging breaches of fiduciary duty by Mr. Black and others to the company’s shareholders. In those cases, guilt need not be proved beyond a reasonable doubt, merely that negligence occurred. One major shareholder, Cardinal Value Equity Partners, already is suing Hollinger, and others may follow.

The committee of Hollinger’s board that prepared the massive report already is pursuing a case of its own against Mr. Black and his associates, seeking the return of money reputedly siphoned away, plus interest and treble damages under federal racketeering laws, for a grand total of $1.25 billion.

Yet in the report, investigators acknowledged that the damages being sought may well outstrip the defendants’ net worth, in which case they would seek other “appropriate equitable remedies” that would prevent Mr. Black and others from interfering with the committee’s efforts to recover funds.

The committee, formed last year at the urging of concerned shareholders, will continue to work amid the looming presence of Mr. Black. He has been stripped of his titles of chief executive and chairman of the company, but remains the controlling shareholder, though even those powers have been severely limited by the courts.

Because of Hollinger International’s convoluted control structure, it is hard to tell where all the money went. Together with his top lieutenant, David Radler, Mr. Black owns Ravelston Corp., a privately held Canadian company, which in turn owns Hollinger Inc., a publicly held Canadian company whose main asset is ownership of voting stock in Hollinger International.

More than half of the money Mr. Black is accused of taking went to Ravelston in the form of what the investigators called grossly inflated fees for management services. The report claims that most of it went to line the pockets of Mr. Black, Mr. Radler and their associates.

Mr. Black, who is fond of glamorous social events and gave up his Canadian citizenship to become a British lord, is one of the most colorful figures in the newspaper business. He befriended many former public officials, some of whom he named to his board: former Secretary of State Henry Kissinger; former Assistant Defense Secretary Richard Perle; and former Illinois Gov. James Thompson.

In their report, the investigators say Hollinger’s board “functioned more like a social club or public policy association than as the board of a major corporation, enjoying extremely short meetings followed by a good lunch and discussion of world affairs.”

Though the report takes the board to task, saying it was asleep at the switch, it reserves most of the blame for Mr. Black and Mr. Radler.

However, knowing that getting money out of Mr. Black may be tough, some investors are hoping that board members, who are bound to be covered by directors’ and officers’ insurance, may also be brought to task. The committee says it is in mediation with the independent board members over their conduct, but declined to be more specific.

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