At the trial of Lord Conrad Black, prosecutors began tightening the noose this week. And members of the board of directors of Black’s own company, Hollinger International, acted as the surrogate hangmen.
Black, as you may recall, is the Canadian press magnate on trial in a Chicago federal court for diverting $60 million in profits from Hollinger’s sale of hundreds of small newspapers into personal accounts for himself, longtime partner David Radler, and two other Hollinger executives, Jack Boultbee and Peter Atkinson. The prosecution’s theory is that Black and Radler saw their income dwindling as Hollinger sold off properties and so inserted personal noncompete clauses into each sale to compensate themselves at the expense of stockholders.
On Wednesday, Richard Burt became the first Hollinger board member to take the stand. Burt’s testimony is important because he is the first of Black’s socialite friends to step forward and accuse the dethroned CEO of defrauding the company. A former American ambassador to Germany and chief U.S. negotiator in the SALT talks with Russia, Burt is an imposing witness. (He comes back for cross-examination today.) He looks the part in a pinstriped suit with flowing gray hair. Indeed, Black recruited Burt to the Hollinger’s board when it became a publicly traded corporation in 1995 because he thought his friend would add gravitas. And now he does—for the prosecution.
Burt stated—unequivocally—that he was never told that Black, Radler, or other Hollinger executives were personally profiting from Hollinger’s decision in the late ‘90s to sell off its smaller newspaper assets. But the noncompete agreements came to his attention in July 2000, when Hollinger began negotiating the sale of Canada’s National Post * and a chain of other large metropolitan dailies to a rival conglomerate, CanWest. The $2.4 billion deal (U.S.) was the largest media transaction in Canadian history.
As a condition of the sale, Burt says, Black told the Hollinger board that CanWest had demanded that he, Radler, and Ravelston, the management company they used to run the newspapers, were required to personally sign noncompete clauses with an estimated value of $53 million. The agreements barred them from starting new media operations in Canada for three years.
As a member of the Hollinger board’s audit committee, Burt approved the agreements. He said he considered the arrangement novel but was told “several times” that a failure to secure Black and Radler’s personal noncompete agreements was “a deal-breaker.”
Burt tried to protect himself, however, by saying he understood the CanWest sale to be “an isolated incident.” He was not told, he said, that four days later, Black and Radler—and Richard Perle of Bush administration fame, who also sat on the Hollinger board’s executive committee—approved the sale of newspaper chains with hundreds of small community papers, in three deals that included similar personal noncompete agreements. Burt also said he wasn’t told when Hollinger International sold another newspaper chain, American Publishing Company, to itself and $5.5 million of the sale price was funneled to Black and Radler in noncompete agreements. He pointed out that this “was a noncompete agreement between two parts of the same company, which would be an agreement not to compete with yourself, which would be nonsensical.”
Burt is the first in a line of celebrity Hollinger board members scheduled to appear. Marie-Josée Kravis, an economist and the wife of Wall Street deal maker Henry Kravis, is next up. She’ll be followed by former Illinois Gov. James R. Thompson, the former chairman of Hollinger’s audit committee, who made a name for himself as a 29-year-old U.S. attorney prosecuting corruption in this same federal courthouse. Also on the witness list is Henry Kissinger, the former secretary of state, who also served on the Hollinger International board.
What’s becoming clear is that the big names with whom Black stocked his board of directors knew nothing about the newspaper business. Most of the board members participated by telephone in key management meetings. Some were absent at critical board meetings. They are expected to profess, as Burt did, their ignorance of Black and Radler’s dealings. “We relied on the assurance of management,” as Burt put it.
Burt’s testimony also offered a glimpse into the prosecution’s theory about why Black, once a rival to Rupert Murdoch for the world’s most prominent media mogul, decided to milk Hollinger International for cash on a series of small deals. In 1998, Black told the board of directors he wanted to sell off all the small community newspapers to focus on his premiere properties, chiefly London’s Daily Telegraph. * As the smaller holdings were sold off, Black and Radler, his partner for 38 years, realized their income from the management company Ravelston would drop. So, according to the prosecution, they compensated themselves by taking a small piece of every sale on a newspaper chain.
Radler has struck a deal with prosecutors, agreeing to plead guilty to one count of fraud that will require him to serve 29 months in prison. (Black faces up to 95 years on 14 counts.) Radler will also pay a $92 million settlement, $29 million to settle an SEC complaint, and $63 million to the Sun Times Media Group (the new name for Hollinger International).
Black’s attorneys argued in their opening statement that Radler was the rogue partner who had operating responsibility for all of the disputed sales. But Burt’s testimony didn’t help them on that score. “They were a team,” Burt said about Black and Radler’s presentations to the board. “It was sort of seamless in the sense that each of them knew the topic, knew the subject at hand.” In all, not a good day for the old titan.
Correction, April 26, 2007: This article originally misidentified the National Post as the Canadian Post. ( Return to the corrected sentence.)
Correction, May 3, 2007: This article originally misstated the name of the Daily Telegraph. (Return to the corrected sentence.)
