COVER

The Law and Conrad Black

Ian Austen,Linda McQuaig February 21 1983
COVER

The Law and Conrad Black

Ian Austen,Linda McQuaig February 21 1983

The Law and Conrad Black

COVER

By Ian Austen and Linda McQuaig

The elegant two-storey building on a discreet downtown side street houses much more than just another business empire. Behind the neoclassical facade at 10 Toronto St., Conrad Black has become almost a mythical figure at the pinnacle of the Canadian corporate establishment. Since he seized control of Argus Corp. seven years ago, Black’s dramatic, if not always successful, manoeuvres have secured his title as Canada’s leading corporate knight. From Toronto Street and his winter retreat in Palm Beach, Fla., the stocky financier has—along with his brother, Montegu—achieved some form of control over at least 17 corporations. He has acquired power largely through a series of daring takeovers. The boldest stroke of all took place last spring, when Black squared off with a formidable foe who fought back with a vengeance—the Hanna Mining Co.

What is more, the actions he took while moving against the Cleveland-based mining giant opened his empire to an exhaustive police probe in Canada to determine whether a criminal act had occurred: making a false document with the intent that other people would rely on it.

The 38-year-old Black, who usually does things his way, has not taken the police probe lightly. He has strongly protested his innocence, maintaining that the investigation is groundless. “There is no evidence,” Black told Maclean’s. “There is nothing. There is absolutely nothing.” Within hours of learning about the police activity last May, the sometimes volatile financier sought—and immediately obtained—a meeting with Ontario Attorney General Roy McMurtry and two of his most senior officials. Black also took his complaints about “this tawdry little episode” to Paul Godfrey, the chairman of Metropolitan Toronto, and to Jack Ackroyd, the chief of the Metro Toronto

police force. Black’s appeals to Godfrey and Ackroyd did not have any impact. But the gathering in the attorney general’s office in May set off a long chain of events. Following the meeting, the Crown attorney working on the investigation was pulled from the case, although officials deny that there was a connection between the developments. But more important, there apparently were continuing suggestions by senior officials in the attorney general’s ministry to the police that they reduce their criminal investigation to a probe of a less serious charge under the Ontario Securities Act. It appears that the police resisted the pressure, but what started as a relatively routine investigation by the fraud squad has become a sensitive case that has dragged on for 10 months. It is still under way with no end in sight.

The tale unfolds in two parts. First, there is the failed takeover bid for Hanna by Black-controlled Norcen Energy Resources Ltd. Black’s pursuit of

Hanna took place over a three-year period and included jaunts in his private jets to exclusive clubs, corporate boardrooms and a Manhattan society ball—much of it aimed at wooing the heirs of one of the oldest family fortunes in the United States. In the end, Black landed in a bitter Cleveland courtroom drama. Some of the facts have been well documented in various publications, including The Financial Post and Peter C. Newman’s bestselling biography, The Establishment Man. But Maclean’s has reconstructed the story from an examination of thousands of pages of courtroom testimony and documents, which shed light on the subsequent Ontario police investigation and a tense confrontation between Black and the attorney general. Maclean’s explored the twists and turns in hours of interviews with those involved, including Conrad Black and Roy McMurtry.

The investigation of Black’s takeover bid for Hanna revolves around a relatively simple question—when did Black and his principal resource company, Norcen, form an intention to take over the U.S. mining giant? Black says the decision was not made until the eve of a 51-per-cent tender offer for Hanna shares made by Norcen on April 5,1982. But a key piece of evidence introduced in a Cleveland district court suggests that it might have been taken seven months earlier. The minutes of a meeting of Norcen’s executive committee on Sept. 9, 1981, indicate that President Edward Battle announced that Norcen had started to buy a 4.9-per-cent interest in an unidentified U.S. company “with the ultimate purpose of acquiring a 51-per-cent interest at a later date.” In subsequent testimony, both Black and Battle acknowledged that the unnamed U.S. company involved was Hanna Mining. There was little discussion at the Sept. 9 meeting following Battle’s description of the “target company,” and the matter rated only a paragraph in the minutes. But months later that passing reference would come back to haunt Black.

The question of when the takeover intention was formed is crucial. If it was as early as September, 1981, then Black and Norcen may have violated U.S. securities law—by making false disclosures—and opened themselves up to Canadian criminal charges. For his part, when he was asked under oath in a Cleveland court if the minutes of the meeting did not prove that his intention was formed long before the spring of 1982, Black snapped, “It would be entirely possible to derive that erroneous

COVER_

impression, yes.” Black has maintained throughout that the ultimate aim of acquiring 51 per cent of Hanna—apparently alluded to in the controversial minutes—was “only a hypothetical, long-range possibility.” He has denied that the reference in any way confirms a takeover intention on Norcen’s part.

Whatever his intentions were at that September meeting, Black acknowledges that he had had his eye on assetrich Hanna for some time. The crisis in the U.S. steel industry—Hanna’s primary customer—led to a sharp drop in the mining company’s profits. Indeed, the firm’s 1981 annual report contains the sobering statement: “The bottom line is survival!”

But that had not always been the case. Founded by political power broker Mark Hanna in 1852, the company’s rich iron ore fields in Minnesota and northern Michigan generated enormous financial and political power. Hanna totally dominated the Republican party in the late 1800s. His wealth and influence enabled him to engineer the presidential election of William McKinley in 1896 and later to buy his way into a Senate seat.

Today Hanna’s heirs—the Humphrey clan—control one of the United States’ oldest industrial family fortunes. While the Humphreys hold only an estimated 20 per cent of Hanna’s shares, their influence and power over the company is greatly amplified by friendly ties to other major stockholders. Among them: the Mellons, the Bechtels and the Graces. In short, to a large degree the Humphreys called the shots, and their support could be crucial in any bid to take over Hanna.

Not strangers: Black began dropping hints about his interest in Hanna to the Humphreys as early as January, 1979. At that time he met in the prestigious Union Club in downtown Cleveland with the last heir to head up the mining company—G.W. (Bud) Humphrey. Black and Bud Humphrey were not strangers. Not only was Humphrey a director of Massey-Ferguson Ltd. at the time that Black was chairman of the beleaguered farm equipment firm, but Hanna also had major interests in many of Black’s key holdings, among them the Iron Ore Co. of Canada Ltd., Labrador Mining and Exploration Co. Ltd. and Hollinger North Shore Exploration Co. Ltd. Joining the two businessmen at the January, 1979, meeting

were two of Hanna’s senior executives, Robert Anderson and Carl Nickels. During the discussion Black asked about “amplifying” or “making... more reciprocal” the long-standing relationship between Hanna and Hollinger. Black and Humphrey talked about the deal again later at a board meeting and during a telephone conversation, but the results were inconclusive. In June, 1979, Bud Humphrey died suddenly after a round of golf, and Anderson took over as the first “nonfamily” chief executive of Hanna.

A year after Bud Humphrey’s death, his son, George, sat in his 26th-floor office at Hanna awaiting a lunch, when Conrad Black suddenly appeared in the doorway. The date was June 27, 1980, and Black was in the building for a board meeting of the Iron Ore Co. Black wasted little time getting to the point: it appeared to him that the new management had shunted George and the other members of the Humphrey family out of the mainstream of Hanna’s operations. In fact, George Humphrey was disturbed about the direction of Hanna, and he listened to Black with some interest. The two men agreed to meet later.

In August Black went to dinner at George Humphrey’s home in Gates Mills, Ohio. Black again suggested— this time he gave more details—that he wanted to form some sort of alliance with Hanna. The evening ended, as Humphrey later put it, with both men agreeing to “mull over our respective positions.”

Black’s next approach to a member of the Humphrey family was eight months later at an unlikely locale. The scene was a glittering tribute to Canada held in Manhattan’s Lincoln Center Metropolitan Opera House on April 4, 1981. The gala, as Black recalled, “was a rather picturesque setting with men in white ties and ladies in long dresses.” Prime Minister Pierre Trudeau was among the guests, and seated next to Black during dinner was the elegant Louise (Lulu) Humphrey, matriarch of the family and widow of Bud. As they dined, Louise Humphrey told Black that she was concerned about her sons’ careers. Again Black raised the subject of buying into Hanna. He says that Louise Humphrey reacted positively when he “very gingerly” floated the suggestion.

Black was encouraged. In August, 1981, Black and Norcen president Battle discussed the value of Hanna’s shares. The two telephoned members of Norcen’s executive committee with word that the Humphreys seemed favorable toward a Norcen investment in Hanna. As a result, Black and Battle wanted a go-ahead to buy up to 4.9 per cent of Hanna’s stock—the maximum they could obtain without having to reveal

any long-term intentions under U.S. securities law. The Norcen committee approved the plan by telephone, and the acquisition program began.

At roughly the same time that Norcen started buying Hanna shares, George Humphrey was at the family vacation compound in Maine. He took an early Saturday evening phone call from Conrad Black. Black declared that he was “keener than ever.” But Humphrey was no longer enthusiastic. He had recently become a director of Hanna and, he explained, had completely changed his position since he had entertained Black at dinner in Ohio the previous year. Humphrey insisted that he now firmly backed Hanna’s management. To pre-empt a long talk with Black, Humphrey ended the discussion by asking for some time to think things over. He later said, “I didn’t want to spend all night on the phone with Conrad Black.” The next day Humphrey sought out the advice of another guest at the compound, his uncle and fellow Hanna director R.L. (Tim) Ireland III. On Monday Humphrey telephoned Black back with a firm rejection. But he suggested that if Black still wanted to pursue an alliance with Hanna, he should do it through company president Anderson. Humphrey asked Black to leave him out of any future dealings. “I didn’t want anything more to do with it,” Humphrey later explained.

Black evidently was not fazed by Humphrey’s rebuff. Within four days of the rejection, Norcen wrote S.A.K. Herbertson, the Canadian Imperial Bank of Commerce’s senior corporate manager, requesting a separate $20-million line of credit. The money was to be used to start buying up the first lot of Hanna shares. In the letter to Herbertson, a copy of which Maclean's has obtained, Norcen requested complete secrecy: bank statements were not to be delivered to Norcen’s office, the number of bank employees who knew about the transaction was to be kept to a minimum, and the stock was to be bought by using only an account number.

Note of secrecy: When the Norcen executive committee gathered on Sept. 9, 1981, for its first face-to-face meeting since being polled by telephone in August, a similar note of secrecy surrounded the Hanna purchase. The minutes that record the September meeting contain a paragraph about plans to purchase 4.9 per cent of the stock of a “U.S. company listed on the New York Stock Exchange with the ultimate purpose of acquiring a 51-per-cent position at a later date.” There was no mention of Hanna in the minutes. But the six men who gathered in Norcen’s Calgary offices that September morning openly discussed Hanna and the desirability of purchasing its stock. Indeed, they were

told that as of that day Norcen had already spent $2 million (U.S.) to acquire 55,000 Hanna shares, or about two per cent, of the company. After hearing the pros and cons, the committee ratified the 4.9-per-cent stock acquisition program. That decision and the minutes that recorded it would later be a key piece of evidence in the bitter U.S. court battle to stop the takeover, as well as in the Canadian police investigation.

Future intentions: When the full board assembled in Calgary the following month, on Oct. 16, Black and Battle, while reviewing the executive committee’s activities, put forward the case for buying into Hanna. But the board also took action on another matter that Canadian investigators would later examine. The directors decided that Norcen would buy up some of its own shares—to a total of 4.9 per cent. To that end they approved a draft of a notice that was to be mailed out to all of Norcen’s stockholders. The noticeknown as an issuer bid circular—served two functions: it invited investors to sell their shares and, as is required by Ontario securities laws, it outlined Norcen’s future intentions. (One of the main

functions of securities regulations is to ensure that investors, big and small, obtain all the information they need before making up their minds about their investment plans. A company’s future intentions can drastically alter the value of its stock—a plan to take over another firm, for example, may sharply boost share prices. There sometimes is the potential for unfair manipulation of share prices if information is withheld or falsified.) Included in the information in the Norcen circular, approved on Oct. 16, was a statement to the effect that Norcen planned no major changes.

The secrecy surrounding the first purchase of Hanna’s shares was such that Hanna executives were unaware that Norcen had moved. Nonetheless, on Oct. 28 Black received a surprising telephone call from James Connacher, president of Toronto-based Gordon Securities, offering him a huge block of Hanna shares. But the purchase would take Norcen well above its 4.9-per-cent target. Black was noncommital. Shortly after the call, Black took the news of the development to his brother Montegu and toBattle.The three decided on a new plan: Norcen would buy Connacher’s

COVER

580,000 shares, making them one of the U.S. mining firm’s major shareholders, with an 8.8-per-cent interest.

As soon as Black moved, an electronic stock quotation machine in Hanna’s head office alerted the firm to the fact that trading in company shares was rapidly accelerating. Word quickly came from Wall Street that a purchase order for more than 500,000 Hanna shares had been opened by a Canadian securities company. Vice-President Carl Nickels, who was running Hanna while Anderson was on a trip to Brazil, was anxious to find out who in Canada was behind the flurry of trading.

Nickels placed a call to Brian Mulroney, Iron Ore’s Montrealbased president, a Hanna director and a former—and perhaps future— Progressive Conservative leadership candidate. In the middle of the chat with Mulroney, Nickels’ secretary entered his office with a note saying that Conrad Black was holding on another line. Nickels immediately assumed that Black must be the mystery buyer. Nickels cut Mulroney off and decided to take “a shot in the dark” with Black. He came on the line with the curt question: “What the hell are you doing, Conrad?” Apparently taken aback, Black tried to assure the Hanna executive, as Nickels later recalled, that he had “no sinister intentions.” But Nickels was not moved. He demanded that Black not buy any more stock until the executives of both firms could meet face-to-face.

Frenetic reaction: Nickels’ initial reaction, however, was mild compared to the reception Black received seven days later when he flew to Cleveland with Battle in hopes of calming Hanna’s fears. Black assured the executives that as a major shareholder he simply wanted to cooperate with Hanna’s management. But when Black and Battle met Anderson and Nickels in the Sheraton Hopkins airport hotel, Black was stunned by what he later termed an “antagonistic, hostile, even frenetic reaction.” Indeed, Anderson demanded that Black “peel off” the Hanna shares Norcen had bought—that is, sell them off in small lots. Hanna’s resistance went beyond mere words. The company had already paid a $50,000 retainer to New York’s prestigious Goldman Sachs investment bank for information on Black and how to deal with him. The fight was on.

If Anderson’s volcanic reaction put a

damper on Black’s intentions to buy more shares, even temporarily, Black had not entirely abandoned his longterm interest in Hanna. He once again resumed his pursuit of the Humphrey family members, tracking Louise Humphrey down by telephone on the American Thanksgiving weekend at her winter home near Tallahassee, Fla. This time, however, Bud Humphrey’s widow quickly referred Black to her son and financial adviser, G. Watts Humphrey, who was visiting his mother that weekend. Over dinner, the Humphreys

agreed that Watts would talk to Black.

Four days before Christmas Conrad and Montegu Black, along with Battle, went to Watts Humphrey’s home in the tony Pittsburgh suburb of Sewickley. The three Canadians had already determined to try, as Battle later put it, to “join hands” with some of the Humphreys and increase their Hanna holdings, possibly through a tender offer. Watts Humphrey, vice-president of the Hanna-linked National Steel Corp., not only controlled his mother’s holdings but was himself a major Hanna shareholder. When the meeting at his house

with the Norcen executives got under way, the visitors raised the idea of a joint tender offer—that is, a formal offer to shareholders to buy their stock at a price higher than that listed on the market. Humphrey seemed intrigued by the idea. “Perhaps we should go for 51 per cent,” Humphrey suggested, raising the prospect that the new partnership could obtain outright control of Hanna.

Norcen’s search for willing agents in Manhattan proved difficult. Battle and three other Norcen executives visited First Boston Corp., an investment bank, to scout the firm as a consultant in the move on Hanna. But the bankers balked. They feared that Hanna’s board might regard the offer as hostile and First Boston wanted to continue its Hanna association. As a result of First Boston’s rejection, Norcen Corporate Secretary William Kilbourne interviewed at least seven other investment bankers before Norcen picked Lehman Brothers Kuhn Loeb Inc.

Those efforts soon proved fruitful. When the Blacks and Battle returned from suburban Sewickley encouraged by their chat with Watts Humphrey, Kilbourne began drawing up tender offers. Still, secrecy was the order of the day. The first drafts of the tender offer outlined a joint venture with a family “Z.” Kilbourne later acknowledged in testimony that the unnamed family was, in fact, the Humphreys.

Angry confrontations: Watts Humphrey’s initial enthusiasm, meanwhile, began to fade. Throughout January, 1982, Humphrey refused to take any of Battle’s calls or to return any messages. When Montegu Black and Battle finally arranged to ^ meet him on Feb. 5, Humphrey I was distinctly cool. The d luncheon meeting at Sewickley’s “ Edgewood Club had barely begun when Battle quickly moved the conversation to the tender offer. As Humphrey recalled it, Battle said that Norcen was “ready to go” and, indeed, had already started to prepare for an offer. However, Norcen’s enthusiasm slowly turned to frustration when it became apparent to Black and Battle that Humphrey did not share their sense of urgency. That weekend Watts Humphrey spoke with his brother George. Later he called Montegu Black and reported that he too, like his brother, was opposed to any deals with Norcen. Norcen had failed in its second bid to form an alliance with the Humphreys.

Events rapidly built to a climax as the volatile Anderson made his final push to oust Norcen from the ranks of Hanna’s shareholders. In two angry confrontations, the Hanna chief presented Black with options to swap Black’s Hanna shares for Hanna’s holdings in two Black-controlled companies. Still,

Norcen apparently was not deterred by Anderson’s strongly worded offers. In Toronto Norcen decided to make a bold bid. The company arranged another special line of credit with the Bank of Commerce—this time for $400 million. Finally, on Friday, April 2,

1982, Norcen officials informed Hanna during a meeting in a Cleveland hotel room of their plans for a big move. Norcen proposed to acquire a 30per-cent stock position and effective veto power over the decisions of Hanna’s board. In exchange, Hanna would get cash and a commitment that Norcen would not buy any more of its stock. The other option was that two days later, on Monday morning,

Norcen would confront Hanna with a tender offer for 51 per cent of Hanna’s stock. Norcen demanded a prompt response. Shortly after the Friday meeting began at 5 p.m., Norcen officials announced that their private jet, parked at the airport just across the street, would return to Toronto at 7:15 p.m.—giving Hanna only two hours to decide. Recalls Hanna Vice-President Nickels: “The implication was clear that a gun was to our head.”

Bitter battle: In the end Hanna rejected the Norcen deal. After Norcen announced plans for the tender offer, Hanna’s board of directors called an emergency weekend session in hopes of fending off the bid. That decision led to the most difficult takeover battle that Black had ever fought.

Hanna immediately took its case to the courts. From the beginning, Hanna’s attempt to get a court order to stop Black and Norcen resembled a military operation. The company retained the Cleveland-based law firm Jones, Day, Reavis & Pogue, which dispatched 37 lawyers to document the details of Norcen’s every Hanna-related move.

The effort took only 11 days, and, for its part, Norcen had to co-operate—or effectively forfeit the case. While some members of Jones, Day’s team worked around the clock poring over documents turned over by Norcen, other lawyers fanned out across the continent to take sworn testimony from Norcen’s top brass. Two lawyers descended on Black in Palm Beach, the enclave of the wealthy, where he winters. With three of Black’s own lawyers sitting in, the two Hanna representatives grilled Black for a gruelling IIV2 hours. Near the end beleaguered lawyers from both sides snapped at each other over the most trivial matters. At one point a Hanna lawyer roared: “Don’t

shout at me, pal.

I offered you lunch and you refused it.”

Black interjected, “No-

body mentioned lunch.”

The subsequent court battle was bitter. After seven days of hearings in Cleveland’s ornate U.S. district courthouse, Judge John Manos rendered a firm decision on June 11 that granted a preliminary injunction against Norcen—a decision Norcen immediately appealed. In his ruling the judge sharply rejected Norcen’s argument that it did not intend to take over Hanna until the eve of the tender offer. Wrote Manos: “[Norcen’s] construction of the record is strained and unpersuasive.” Indeed, Manos concluded that the evidence in the case “establishes conclusively” that Norcen contemplated a takeover as early as Nov. 9, 1981, “if not earlier.”

The U.S. court battle had immediate repercussions in Canada. The

COVER

Metropolitan Toronto Police Department’s fraud squad apparently read press reports of the case. Of particular interest was how the allegations in the United States related to the issuer bid circular that Norcen had mailed out to its shareholders the previous October. In the U.S. court case Hanna charged that Norcen had misrepresented its intentions in documents filed with the U.S. Securities and Exchange Commission. The Canadian issuer bid was circulated about the same time as the U.S. documents and it also said that Norcen planned no major changes. From what had already surfaced in the press, it was known in Toronto that the major thrust of Hanna’s heavily documented Cleveland court case was that Black and Norcen had many months earlier secretly formed their intention to take over Hanna—a move which, by almost any standard, represented a major change.

If that was indeed the case, then the issuer bid might have been false. If so, Norcen was presenting its shareholders with incorrect information—information on which the shareholders might make decisions about their stock. (Knowledge of major changes, such as a takeover bid, usually causes stockholders to demand a higher price for their stock.) The Toronto police suspected that the issuer bid may have been a

forgery as defined by the Criminal Code, since it might be a false document on which other people might rely. Two sergeants from the fraud squad, Robert Barbour and Robert Greig, drew up three warrants with the help of Crown Attorney Brian Johnston, listing forgery and uttering as the suspected offence.

That was the beginning of what Black calls an “Orwellian drama.” He insists that the police officers investigating him are out of control. “The actual legal case is too fatuous and preposterous for me to talk about any more,” Black told Maclean’s. “The whole thing is just a charade that should have ended months ago.”

Serving the warrants took the police onto unfamiliar terrain: the

world of high-powered Bay Street law firms.

The officers apparently suspected that copies of the material they wanted would be in the files of the Toronto law offices of the two feuding companies. Armed with search warrants, the police went to the premises of Norcen’s lawyers, Osier, Hoskin and Harcourt, and to Hanna’s two law firms, Outerbridge Barristers & Solicitors and Davies Ward and Beck.

On May 13 an angry Black telephoned the office of Attorney General McMurtry. Norcen’s lawyer, Fred Huycke, a longtime acquaintance of McMurtry, also put in a call. Both requested an urgent meeting with McMurtry himself, charging that someone in his ministry was interfering with the U.S. court case. McMurtry took the unusual step of granting a meeting that same day.

The attorney general is adamant that the Black case has been handled like any other. “What has concerned me” he says, “is the suggestion . . . that Conrad Black, because of his prominence, would be able to influence the course of any police investigation that is within our jurisdiction. The hint that that could take place I find quite offensive, because the integrity of the criminal justice process to me has to be a number 1 priority.” De-

spite McMurtry’s insistence that the Black case was treated in the usual manner, some of those familiar with the investigation contend that it was not. They charge that the May 13 meeting between Black and McMurtry was the first in a series of unusual events, including the abrupt removal of Crown Attorney Johnston from the case; what was interpreted as pressure on the police from the ministry to change the

course they were following; and unusual efforts to keep the proceedings secret.

If those claims are true, they are all the more surprising in view of Ontario’s strong tradition of independence for Crown attorneys and police officers. The tradition is based on the principle that only by guaranteeing both the freedom to conduct investigations and prosecutions without interference can politics be kept out of the criminal justice system. McMurtry himself backs this concept: “Our view is that the

police should have this degree of independence from the ministry of the attorney general, which is

headed by a cabinet minister.”

It was late Thursday afternoon, May 13, when Black and lawyer Huycke were ushered into McMurtry’s 18th-floor office just around the corner from 10 Toronto St. Black and his lawyer confronted McMurtry with accusations that Norcen’s court battle in the United States was being improperly influenced by the police investigation in Canada. McMurtry was surprised. It was the

first time he had even heard that a Canadian criminal investigation of Black was in progress. In fact, he had not even asked an official from the criminal branch of his ministry to attend the meeting. Instead he had requested that Blenus Wright, the head of the civil section, attend with deputy minister Rendall Dick. McMurtry was even more surprised when Black claimed that Johnston had phoned Judge Manos when he was in the midst of preparing his ruling on the takeover bid, and that Manos had been given a copy of one of the Canadian search warrants. This was all done, Black said later, “in such a way as to make it look like

we’re routinely regarded as criminals in our home jurisdiction.”

McMurtry told Maclean's that he never would have met Black had he known the financier was under police investigation. “If I had known there was an ongoing criminal investigation, it’s highly unlikely—in fact I’m certain—the meeting would not have taken place,” the attorney general said. “I’ve always avoided meetings with people when ... there’s an ongoing criminal investigation.” However, McMurtry did not immediately end his meeting with Black when he learned that Black was under investigation. He listened to Black protest his innocence and complain about being the victim of a “groundless investigation.” In addition, McMurtry told Maclean 's that at that meeting he examined a search warrant that was handed to him by one of Black’s lawyers.

Indeed, McMurtry insists that the handling of the investigation was not at all influenced by the fact that it dealt with Conrad Black, one of the country’s most prominent businessmen. Nevertheless, McMurtry concedes that following his meeting with Black he ordered a two-part review of the case. First, he decided his ministry would have to probe Black’s allegations that there was an attempt to influence the U.S. judge. Then he ordered his officials to review whether there was any offence at all and, if so, what kind. McMurtry acknowledges that from the outset he and his senior officials considered the possibility that the Black matter should not be investigated as a criminal offence, but rather as a lesser violation of securities regulations. Said McMurtry: “From the beginning, I was aware... of the fact that one of the issues was ... if there had been any impropriety, one of the decisions that would have to be made, obviously, is ... whether it was a breach of securities legislation or of the criminal code. That’s been an issue from the beginning. There’s no doubt in my mind about that.”

The difference is significant. A criminal offence brings an accused before the

courts where, upon conviction, there is a real prospect of going to prison. A securities conviction carries far less risk of a jail sentence and frequently results in only a small fine.

McMurtry says that after telling his officials to review the matter, he left the decision to them. But he acknowledges that he offered one opinion to his deputy, Dick—one that apparently trickled down the chain of command. That opinion related to the suspected forgery charge listed on the search warrant. Says McMurtry: “I think my senior criminal law advisers agreed with my preliminary view that if an offence had been committed, that was not the offence.”

In the days following Black’s visit to McMurtry’s office, Crown Attorney Johnston was grilled in several long sessions by deputy attorney general Dick, and by Rod McLeod, then head of the ministry’s criminal division. At the end of the sessions McLeod pulled Johnston from the case. He concedes that the removal of a Crown attorney from a case is an unusual step. And certainly Johnston’s departure later stirred a great deal of controversy and speculation.

Varying accounts: In the attorney general’s ministry there are varying accounts of the reason for Johnston’s removal. McLeod will only say that he was not satisfied with the work Johnston did. Dick emphasized that Johnston, an expert securities lawyer, was not as experienced in criminal prosecutions.

Howard Morton, director of the branch that handles commercial crimes, says that the fact that Johnston did not report the case to his superiors may have been enough to spark the removal. In any event the issue was not Manos’ telephone call. It became clear that, despite Black’s charges, Johnston had done nothing to attempt to influence the U.S. court. In fact, it was Manos who placed a call to Johnston. Says McMurtry: “Brian

Johnston can’t prevent a judge from phoning him.”

With Johnston off the case, the two police sergeants, along with their supervisor, Staff Insp.

Mark Dodson, were summoned to McLeod’s office. He told them not to deal with Johnston, that he had been replaced by a new team of three of the ministry’s most senior people. Besides McLeod, the new lineup included Morton, of commercial crime, and McLeod’s assistant director, Harry Black.

In any case, McLeod was now in control.

Known as a tough, ambitious prosecutor from his role in the lengthy Hamilton harbor dredging case, McLeod was a commanding presence in the room. With the group assembled around him, he explained that his complaint with Johnston centred around the search warrant: the suspected forgery charge listed on it was too inflammatory. He indicated that McMurtry had been embarrassed by meeting with Black without knowing a criminal investigation was under way. McLeod also had a special request: he wanted to be told in advance of any action the police planned to take in the Black case. By the end of the one-hour meeting, McLeod had painted a picture of how he saw the new team and the police working together—hand in glove.

McLeod soon brought in officials of the Ontario Securities Commission, and a clear theme emerged at subsequent meetings. McLeod wanted the police, at least for the time being, to consider pursuing their investigation as a lesser

COVER

securities offence. McLeod said his main concern was for the “little [Norcen] shareholder in Smiths Falls” who could see the value of shares drop with any newspaper account linking Norcen to a criminal probe.

But McLeod’s suggestion had the potential to jeopardize the entire investigation. The potential problem was related to the search warrants. The warrants already executed indicated that the police were gathering material for a suspected criminal charge. But what if the police were to downgrade the suspected wrongdoing in a subsequent warrant to just a securities violation? And what if, later, they determined that there indeed was evidence for a criminal charge? It could then be argued that they had lied, in swearing on the later warrant, that they were merely investigating a securities matter. Evidence gathered with the later warrant could well be thrown out of court.

Eventually McLeod bowed out, and Morton’s assistant, Harry Black, took

over the day-to-day handling of the case. But suggestions to change the charge continued as the investigators tried to draft a search warrant for Norcen’s office. The impasse lasted for several weeks, until the police relented and agreed to list a suspected securities violation on the warrant. Just before the Canada Day weekend, the police reluctantly told Harry Black that they would agree.

But within a week the police changed their minds again. Apparently fearing that they were putting the investigation in jeopardy, they returned to insist that the warrant should list a criminal charge. Several days later the ministry agreed. But there was a wrinkle: steps were to be taken to keep the warrant secret. Because of a recent Supreme Court of Canada decision, search warrants are now available for public—and press—scrutiny. However, there are some provisions for keeping them temporarily secret—usually at the request of the police when they feel an investi-

gation would be hindered by disclosure. The police ultimately agreed to the secrecy request.

It was now late July, 1982, and the police had been trying for roughly two months to get a routine search warrant. Now, when the document seemed within reach, it became unnecessary. The attorney general’s ministry had negotiated a deal with Conrad Black’s lawyer, Peter Atkinson. Under the terms, Conrad Black and Norcen agreed to supply voluntarily any materials the police needed, thus eliminating the need for a search warrant. The police accepted the offer, and the warrant never appeared.

About this time, Hanna and Norcen settled their feud in the United States out of court. In exchange for $90 million, Norcen got 20 per cent of Hanna’s stock and became the mining company’s largest shareholder.

Personal protests: But in Toronto the Canadian investigation continued, and Conrad Black’s impatience mounted. The no-search-warrant agreement almost fell apart in October when the police asked for documents relating to Black’s takeover of Norcen in 1979. Black balked, and his lawyer, Atkinson, wrote Harry Black charging that it seemed that the police were involved in “an unwarranted fishing expedition.” Black, Atkinson, Norcen’s Kilbourne and Huycke of the Osier law firm decided that they would no longer co-operate. If the police wanted the material, they would have to use warrants—warrants that Conrad Black and Norcen would challenge in court. But the agreement was restored in early November amid indications that the investigation would shortly be finished.

Conrad Black also continued his personal protests against the investigation. Black maintains, however, that his anger was not directed at McMurtry’s ministry. “My quarrel in this matter has never been with the attorney general’s department,” Black told Maclean ’s. “They very promptly removed Johnston from the case,” he added. His protest, rather, was directed at the police. And Black used several opportunities to make his case known. In a letter last July to McMurtry that began “Dear Roy,” Black wrote that he had taken his complaints to police officials: “I have requested from [Metro Toronto Chairman] Paul Godfrey, in his role as a member of the Police Commission, a clarification of these matters, and Paul and Chief Ackroyd are now exploring the subject together.” (Godfrey refused to comment. Ackroyd acknowledged that Black approached him, but he took

no action at all as a result.)

After his spring meeting with McMurtry, Black took his complaints on his private rounds. At an Ontario government luncheon for former U.S. secretary of state Alexander Haig last November Black complained to McMurtry in colorful language about the length of the investigation.

Throughout, Black has maintained that his principal motivation in attacking the investigation was altruistic. Said Black, in a taped interview: “I’m not worried for myself or our company because we can take care of ourselves. I know—serene in the absolute certainty of our total innocence—that eventually this smear job will come to the inglorious end it deserves . . . and that’s fine

for us. But ... I am concerned about some... social issues, and one of them is what happens to somebody who doesn’t have the means of self-defence that Norcen does.”

In fact, the whole affair has left almost everyone connected with it unhappy. Those involved in the investigation have watched it drag on with no immediate end in sight. The attorney general is disturbed that Black’s “imaginings” have harmed the reputation of the justice system he administers. He wonders what fuels Black’s imagination. “Maybe,” McMurtry muses, “we should all try it, because obviously his imagination has produced some degree of financial success.” Says McMurtry: “I find this not only highly unusual, bizarre, peculiar, I find it absolutely inexplicable that a man in [Black’s] position would not deal with any concerns he had through normal channels as opposed to debating the issue through the media.” Black asks, “Wouldn’t you say it’s become more of a carnival than a legal [investigation]?”

Carnival or not, the drama is still unfolding. From a red-brick building at 590 Jarvis St., the police seem determined to pull together the remaining pieces of the investigation. About a mile south, behind the Ionic columns of 10 Toronto St., Conrad Black denounces the developments as a saga of monumental social injustice. Around the corner, at 18 King St. E., those protestations have been difficult for McMurtry to ignore, a problem made more unsettling by the minister’s duty to treat everyone equally and to be seen to be doing so. In the Conrad Black affair, the need for McMurtry to uphold the ideals he espouses could hardly be more acute.

Ann Finlayson