GateHouse CEO testified in Conrad Black trial

StoryImage( ‘/Images/Story//Auto-img-118598911220515.jpg’, ”, ‘Conrad Black‘);
StoryImage( ‘/Images/Story//Auto-img-118598913424033.jpg’, ”, ‘Michael E. Reed‘);

GateHouse Media, Inc., CEO Michael E. Reed testified in the trial of media tycoon Conrad Black, who, along with three of his former media executives at Hollinger International, Inc., were convicted July 13 of illegally siphoning money off non-compete clauses that was to go to stockholders.

Black, 62, was convicted of three counts of mail fraud and one count of obstruction of justice, with a maximum sentence of 35 years in prison and a maximum penalty of $1 million. He was acquitted of nine other counts that included racketeering and misuse of corporate perks.

Black’s co-defendants—former Hollinger International vice presidents John Boultbee, 64, of Vancouver, and Peter Y. Atkinson, 60, of Toronto, and attorney Mark Kipnis, 59, of Chicago—also were found guilty of three counts of mail fraud, and face up to 15 years in prison and fines up to $750,000.

The case centered on a sell-off starting in 1998 of Hollinger community papers published across the United States and Canada. Companies that bought newspapers in seven of those deals paid millions to Hollinger International, with headquarters in Chicago, in return for promises Hollinger would not go into competition with the new owners. Black was charged with illegally diverting millions in alleged non-compete payments to himself, Boultbee, Atkinson and longtime No. 2 Hollinger man F. David Radler.

Hollinger International once owned community newspapers across the United States and Canada, including the Chicago Sun-Times, Toronto’s National Post, London’s Daily Telegraph and Israel’s Jerusalem Post. The Sun-Times was the only large paper remaining in the company, which had switched its name to Sun-Times News Group.

Radler pleaded guilty to fraud and agreed to testify as the star witness against Black in return for a reduced jail sentence of 29 months and a $250,000 fine.

As reported by the Associated Press July 13: “Black was convicted on three counts of those allegations made by prosecutors. The obstruction of justice charge was considered the most likely of all to net a conviction because Black was captured on videotape removing 13 boxes of documents from his Toronto offices, despite a court ban on taking away potential evidence.

“Some of the non-compete payments also went to a smaller Toronto corporation, Hollinger Inc., which was controlled by Black and in turn owned a controlling interest in Chicago-based Hollinger International.”

Reed, now head of Rockford Register Star parent company GateHouse, was chief executive of Alabama firm Community Newspaper Holdings, Inc. (CNHI), in 1999 and 2000 when the company made two separate purchases from Hollinger. The first purchase in 1999 was for $433.8 million and included $50 million for non-compete payments ($12 million of which was to go to Hollinger Inc.) and the second in 2000 was for $93 million with $3 million for non-compete payments ($750,000 of which was to go to Hollinger Inc.).

As reported by the Associated Press March 26: “Such agreements are not unusual in the industry, but prosecutors say the money should have gone to Hollinger International shareholders—not into Black’s pocket.

“Both men [Reed and former CNHI attorney Thomas Barnes Henson] said they had no interest in getting a promise from the Canadian company not to compete against them. They said the money would have been part of the deal anyway whether all of it went to Hollinger International or—as happened—a portion of it went to Hollinger Inc.

“‘It couldn’t hurt us,’ Henson told federal prosecutor Edward Siskel.

“Reed testified that in completing the second deal, Hollinger International insisted on specifying that Black and Hollinger executives John Boultbee and Peter Atkinson also were agreeing that they would not compete with the papers.

“Reed said that at the last minute Hollinger International proposed having $9 million in non-compete money wired to Black and his fellow executives. But he said he refused to do that because it wasn’t in the contract.

“‘It didn’t seem like the right thing to do,’ he said.

“While Hollinger International was headquartered in Chicago, the company was founded decades ago in Canada and built into a media giant by Black and his longtime associate F. David Radler. …

“Under cross examination, Reed acknowledged that the deals were negotiated by Radler and defendant Mark Kipnis, a Hollinger attorney. Reed said he never met Black during the negotiations.”

Regarding the last-minute request made by Black for the $9 million wire, Henson testified, “At the end of the day, I did not feel comfortable wiring money from this closing to individuals, two of whom I did not know from Adam’s house cat.”

As reported in the July 13 Associated Press article: “Jacob Frenkel, a former federal prosecutor and Securities and Exchange Commission enforcement lawyer, called the jury’s decision a ‘stunning victory’ for the government after a slow start in the trial. He also called a split verdict the best possible outcome for the prosecution.

“‘It highlights for the appellate court that the jury was very thoughtful and thorough in its deliberations, separating the wheat from the chaff, identifying those counts in which the government met its burden of proof and those in which it failed to do so,’ he said.”

Also following his conviction, Britain’s Conservative Party said Black was no longer allowed to sit as a Tory in the House of Lords.

As reported in a July 13 CBC article: “Black renounced his Canadian citizenship in 2001 in order to accept a peerage to the British House of Lords after former prime minister Jean Chrétien opposed his nomination. Chrétien cited the 1919 Nickle Revolution, which ruled that foreign governments could not grant Canadians honours that carry a title or privilege.

“Black was inducted into the House of Lords as Lord Black of Corssharbour on Oct. 31, 2001. Although Black fought hard for the peerage, his attendance records are among the worst in the house. Of a possible 767 days since he was named a lord, Black has only appeared 19 times.”

Black surrendered his British passport by order of the court, and his application for Canadian citizenship may be moot, if he is not exonerated by his planned appeal of his felony convictions.

Free on bail and ordered to stay in northern Illinois, Black posted his $20 million bond with his Palm Beach, Fla., estate as surety, with sentencing likely in November, reported the Chicago Sun-Times.

He may lose that estate and even more in fines, damages and civil lawsuits resulting from his convictions.

from the Aug 1-7, 2007, issue

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