Red Ice Membership

Conrad Black, cronies "looted" company of 400 million
2004 09 01

WASHINGTON (AFP) - Media tycoon Conrad Black and his allies looted the company he created to manage a global publishing empire of more than 400 million dollars since 1997, a report prepared for US court and regulators showed

A scathing report submitted to the Securities and Exchange Commission (news - web sites) and a federal court for a lawsuit against Black and his associates painted a bleak picture of Black, who until last year was chief executive of Hollinger International, and the firm's chief operating officer, David Radler.

But the report also blamed high-profile members of the company's board of directors for rubber-stamping Black's efforts and failing to question dubious payments being made.

"This story is about how Hollinger was systematically manipulated and used by its controlling shareholders for their sole benefit, and in a manner that violated every concept of fiduciary duty," said the report prepared by a committee headed by Richard Breeden, a former SEC chairman.

"Not once or twice, but on dozens of occasions Hollinger was victimized by its controlling shareholders as they transferred to themselves and their affiliates more than 400 million dollars in the last seven years. The aggregate cash taken by Hollingers former CEO Conrad M. Black and its former COO F. David Radler and their associates represented 95.2 percent of Hollinger's entire adjusted net income during 1997-2003."

The report went on to say that Hollinger went from being an expanding business -- which at the time controlled Britain's Daily Telegraph as well as the Jersualem Post and Chicago Sun-Times -- "to becoming a company whose sole preoccupation was generating current cash for the controlling shareholders, with no concern for building future enterprise value or wealth for all shareholders."

The committee "knows of few parallels to Black and Radler's brand of self-righteous, and aggressive looting of Hollinger to the exclusion of all other concerns or interests, and irrespective of whether their actions were remotely fair to shareholders."

The media empire created by Black has been in turmoil for the past year, since Chicago-based Hollinger International dumped him as chief executive and later removed him from the board in January 2004.

Among the many lawsuits in the dispute, the US-based board is suing Black for 1.25 billion dollars for taking improper payments and for failing in his fiduciary duties to other shareholders.

The board succeeded in blocking Black's attempt to sell his stake in the holding company, and then worked out a deal to sell the Telegraph Group of Britain.

The committee report said that since the US operating firm was established as public firm in 1994, Black manipulated it through a "layered control pyramid" involving his private finance company, Ravelston, which in turn controlled the Canadian holding company, Hollinger Inc.

"Hollinger wasn't a company where isolated improper and abusive acts took place. Rather, Hollinger was a company where abusive practices were inextricably linked to every major development or action," the Breeden report said.

"At Hollinger, Black as both CEO and controlling shareholder, together with his associates, created an entity in which ethical corruption was a defining characteristic of the leadership team."

But the report does not let other board members off the hook, and even suggests they could be open to liability.

The report had harsh words for members of the board's audit committee, especially Richard Perle, a former Pentagon (news - web sites) official who has also headed the Defense Policy Board, an advisory group to the US military.

"It is difficult to imagine a more flagrant abdication of duty than a director rubber-stamping transactions that directly benefit a controlling shareholder without any thought, comprehension or analysis," the report said.

"In fact, many of the consents that Perle signed as an Executive Committee member approved related-party transactions that unfairly benefited Black and Radler, and cost Hollinger millions."

But the report treads more lightly on other board members including former US secretary of state Henry Kissinger.

The report concludes that Kissinger and others "were acting reasonably in relying on the reports of the Audit Committee."

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