Suit claims Lord Black used newspapers as 'cash cow'

Thursday, May 13, 2004

For seven years, top executives of the company that reportedly owns a forty percent interest in Cayman Free Press schemed to divert its money to themselves, looting most of its profits in the process, according to a lawsuit filed in federal court.

The suit -- an updated version of an earlier complaint filed by Hollinger International -- alleges former Chairman Conrad Black, his wife and key associates pocketed 72 percent of the company's profits, an unprecedented amount for top executives to take from a public company. In addition to Black, the suit names former Chicago Sun-Times Publisher David Radler, Black's wife Barbara Amiel, and former Hollinger officials Daniel Colson and John Boultbee as defendants.

"The Black group used Hollinger as a cash cow to be milked of every possible drop of cash," according to the suit.

Hollinger International owns the Chicago Sun-Times in addition to its interest in Cayman Free Press, plus the Jerusalem Post and London's Daily Telegraph. Black holds a controlling stake, but was ousted as chairman in a dispute with his own board of directors over disputed payments.

The revised lawsuit arises from an investigation led by Richard Breeden, a former chairman of the U.S. Securities and Exchange Commission. In staggering detail, it describes a variety of methods Black, Radler and others used to take money from the company.

Their primary method, according to the complaint, lay in charging "management fees" for their services as top executives. Since 1997, Hollinger International paid a Black-owned company called Ravelston $218 million for management services, an amount far in excess of what top executives typically would be paid, according to the suit.

For the $33.5 million Hollinger paid to management in 2003, the company could have hired the top five officers of the Washington Post, Dow Jones and Knight-Ridder and had $5 million to spare, the suit says.

Black, Radler and the others also took $88 million for agreeing not to compete with companies buying newspapers from Hollinger International.

In many instances, the payments were intended for Hollinger International, but Black and his aides earmarked the funds for themselves or other companies they controlled, the suit says.

In all, Hollinger International seeks damages totaling $1.25 billion.

Black denies the allegations in the suit, calling them "tabloid journalism masquerading as law." Radler spokesman Josh Pekarsky said the suit "is without merit and will be defended vigorously."

For all its detail, though, the suit exempts Hollinger International's board of directors from responsibility, even though the board approved most of the deals it describes. The board -- packed with luminaries like former Gov. James R. Thompson and former U.S. Secretary of State Henry Kissinger -- has come under fire from shareholders for failing to scrutinize Black's dealings.

"Everybody else in that boardroom had an obligation to shareholders too, and their inactivity is not excused by the allegations that they levied against Conrad," said Laura Jereski of Tweedy Browne LLC, an investment firm that owns 13 million shares in Hollinger International. Complaints by Tweedy Browne led to Breeden's inquiry and Black's ouster.

The revised lawsuit repeatedly says Black and his aides misled the board or withheld information on the deals involved. Still, it concedes that "the audit committee did not retain its own experts or financial advisers to provide independent data and analysis regarding the management fee, and thus it did not put itself in a position where it could negotiate with Black and Radler in a meaningful way."

The company alleges Black used company money to fund his lavish lifestyle, including household staff like chefs, butlers and chauffeurs. Black, a British lord, billed the company $90,000 to refurbish his 1958 Silver Wraith Rolls Royce, for example.

Amiel, meanwhile, charged Hollinger International for a tip she gave the doorman at Bergdorf-Goodman, a snazzy Manhattan store, according to the suit.

Amiel received $1.1 million in salary and bonus from the company for doing "little, if any, work" from 1999 through 2003, the suit says. She also got director's fees and stock options worth millions, and Hollinger International pledged $250,000 to charity on her behalf. The complaint also says Black, Amiel and Radler charged the company $4.6 to $6.5 million per year for corporate jet travel, though they used it to fly among their various houses.

By taking 72 percent of Hollinger International's profits, the suit alleges, Black's group kept an amount "wholly without precedent" in a public company. The top management of the New York Times Co., for example, got about 4.4 percent of profits during the same period, while the Washington Post's top brass got 1.8 percent.

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