November 16, 2004|By BLOOMBERG NEWS
CHICAGO - Conrad Black, the former chairman of Hollinger International Inc., was accused yesterday of looting the company he created of $85 million in a federal lawsuit that seeks to block him from keeping control of it.
The Securities and Exchange Commission's civil fraud suit also names David Radler, the company's ex-president, and Hollinger Inc., the Canadian company Black uses to control Chicago-based newspaper publisher Hollinger International. The Chicago Sun-Times and Jerusalem Post are among its holdings.
The lawsuit seeks to bar Black and Radler from serving as officers or directors of a public company and demands unspecified penalties. The agency also wants to force Black to place his Hollinger International shares in a trust, the first time in 16 years that the SEC has taken action to try to strip a controlling shareholder of voting authority.
SEC flexes muscle
"This is so aggressive it's virtually unprecedented," said Christopher Bebel, a former SEC lawyer who is in private practice in Houston. "It manifests the SEC's willingness to flex its muscle like never before."
Black, 60, and Radler, 61, diverted to themselves $85 million in proceeds from Hollinger International's sale of newspaper publications through so-called noncompetition payments. They also tried to conceal the "self-dealing" from board members and public shareholders, the SEC alleged.
The suit also linked Hollinger board members Richard Perle, a former senior Pentagon official, and Henry A. Kissinger, a former U.S. secretary of state, to some transactions without naming them as defendants.
Black's spokesman, James Badenhausen, declined to comment. Black's lawyer, Gregory Craig, didn't return a call seeking comment. Anton Valukas, an attorney for Radler, didn't return a call seeking comment.
Perle's lawyer, Dennis Block, said he hadn't seen the lawsuit and wouldn't comment. Spokeswoman Jesse Incao said Kissinger was unavailable.
Publication sold for $1
Black and Radler orchestrated the sale of some Hollinger International publications at below-market prices to another closely held company that they owned, according to the suit, which was filed in federal court in Chicago. One publication was sold for a dollar.
In September 2000, Hollinger International entered into an agreement to sell publications to Newspaper Holdings Inc. for about $90 million, according to the suit. Black, Radler and two other executives received up to $9.5 million in non-competition payments in the transaction. Newspaper Holdings never sought a noncompetition agreement from the executives, and no such agreement was required for the deal, the SEC alleged.
The agency also alleged that Black authorized a $2.5 million Hollinger International investment in a venture-capital fund with which he was affiliated.
The lawsuit also contended that Black and Radler misled Hollinger International's board about the related-party transactions and failed to disclose these transactions in public filings.
Perle, former chairman of the Pentagon's advisory Defense Policy Board under President Bush, was a member of Hollinger International's three-member executive committee, along with Black and Radler.
That board committee approved "noncompetition" payments of $7.6 million to Black, Radler and Hollinger as part of $238 million in asset sales to four closely held companies, the suit claimed.
The SEC is continuing its investigation. That inquiry includes "other individuals and potentially other entities that may have engaged in transactions with the defendants," said Merri Jo Gillette, who oversees the agency's Chicago office.
Hollinger International's Class A shares rose 36 cents to close at $18.16 yesterday on the New York Stock Exchange.
