Scandal

BLACK’S TRAP

Forget the new charges, writes PETER C. NEWMAN. It’s old sins that may nail Conrad.

September 20 2004
Scandal

BLACK’S TRAP

Forget the new charges, writes PETER C. NEWMAN. It’s old sins that may nail Conrad.

September 20 2004

BLACK’S TRAP

Forget the new charges, writes PETER C. NEWMAN. It’s old sins that may nail Conrad.

Scandal

ALONG WITH IMPEACHABLE language that blames Conrad Black for every felony except unleashing a plague of locusts on Saskatchewan's canola crops, the 513-page report of Hollinger International's Breeden committee probing controversial management fees and non-compete payments has a hidden agenda. Instead of merely passing along its explosive report to the Chicago office of the Securities and Exchange Commission, which

is investigating the disgraced tycoon, one of the committee members confided to me that it has provided the SEC with its raw data, including transcripts of interviews with more than 60 witnesses plus almost 750,000 pages of potentially damaging documentation. This information will no doubt accelerate the SEC’s inquiry.

Even Black’s severest critics agree that should he be found guilty of the grotesque fiscal legerdemain (a good Conrad word meaning “sleight of hand”) itemized in the Breeden document, establishing that he acted with criminal intent may prove difficult, even impossible. But the authorities may have another way to pursue Black.

Two decades ago, Black found himself in a similar fix. He spent 20 hours over four days in the witness box of a Cleveland court, defending himself against an injunction brought by a U.S. mining company fearful of a takeover. Black’s bid also sparked an SEC complaint that he eventually settled by signing a “consent decree,” pledging never to violate the “anti-fraud, tender offer and shareholder ownership provisions” of the Securities Exchange Act. Such consent decrees are court orders that can carry a heavy sanction: breaching them is potentially a criminal offence, and could result in a jail term.

The issue now becomes whether, as has been alleged in chilling detail, Black and his partners trousered 95.2 per cent of Hollinger’s adjusted net income over the past seven years. If so, it’s hard to imagine that the SEC, sworn to defend shareholders’ rights, would sanction personal greed on such a bizarre scale. Combined with the 1982 consent decree, the case against Black would

be devastating. Relying on the consent decree rather than attempting to follow up every one of the committee’s tempting leads is a possible scenario.

In this context it’s worth recalling the Cleveland episode, since it foreshadowed the press Lord’s current, self-imposed predicament. Wishing to break out of Canada into the United States during the early 1980s, Black, then a wealthy entrepreneur looking to diversify, targeted the Hanna Mining Co., the world’s second largest iron ore producer. It was dominated by Cleveland’s Hanna family and run by a crusty mining engineer named Bob Anderson, a hard-rock Lutheran

THE Americans hired a cadre of 40 lawyers to throw the book at Black, accusing him of ‘a pattern of racketeering’

who locked his executive suite doors if his managers were a minute late. He spent four months vainly beating off Black’s attempts to become Hanna’s dominant shareholder. The corporate donnybrook was one of the bloodiest ever carried on across the 49th parallel, fought with knees to the groin by both sides. The Americans hired a cadre of 40 lawyers to throw the book at Black, accusing him, among other things, of “fraudulent and manipulative conduct” and “a pattem of racketeering,” which sounds hauntingly familiar.

During the injunction hearing, Hanna’s lawyers tried to break Conrad’s will, but he clawed back just as savagely, though he was bloodied in the process. Black told me at the time that if he had any doubts his grab for Hanna was challenging the very core of the American establishment, they were dispelled by the astonishing spectacle of five of Wall Street’s most prestigious investment bankers, including Morgan Stanley and Salomon Brothers, refusing his invitation to become financial advisers to Norcen Energy Resources, the Toronto company he controlled and was using as his takeover vehicle.

The Hanna dispute centred around the minutes of a Norcen management committee meeting on Sept. 9,1981. That meeting-attended by, among others, Black and Norcen president Ed Battle—became the central issue in Hanna’s legal assault on Black’s takeover bid. The minutes, in part, read: “Mr. Battle stated that the company, subsequent to telephone contact with the members of the executive committee, had initiated through stock market transactions the acquisition of a 4.9-per-cent stock interest in a U.S. company listed on the New York Stock Exchange with the ultimate purpose of acquiring a 51-per-cent interest at a later date.”

But the document that Norcen filed with the SEC on Nov. 9 claimed that the purpose of its share purchase was merely “to acquire

an investment position in Hanna.” This statement was drafted at least four times, following Black’s instructions to make the filing “as short and antiseptic as possible.” The tone of the Norcen declaration to the SEC had the effect of depressing Hanna’s stock on the New York Stock Exchange by US$8, to US$26, over the next five months. Having been officially informed that Black was content to treat Hanna as a passive holding, investors assumed there would be no takeover bid to drive share prices upward. Hanna lawyers later claimed this constituted deliberate misrepresentation.

When it became public that Norcen wanted to take over Hanna, Anderson stormed into the ring, denouncing the Canadian snowbirds as corporate vultures, claiming that Black and his associates “have demonstrated repeatedly and convincingly over recent years that their first interest is in serving themselves and not the remaining public

THE jackals and piranhas smelled blood,’ Black said. ‘They thought I was about to go up in a puff of smoke.’

stockholders.” More to the point, Anderson’s lawyers had been working through the night preparing to file suit in Cleveland’s federal district court for a restraining order against Norcen to prevent the Canadian firm from transmitting its offer to Hanna shareholders. The court quickly granted the injunction, ruling Norcen’s version of the facts “strained and unpersuasive.”

The SEC was also not amused. It charged that, among other things, Black and Norcen had “made untrue statements of material facts, omitted to state material facts necessary to make the statements made not misleading, and engaged in fraudulent, deceptive and manipulative acts and practices... and, accordingly, violated the tender offer anti-fraud provisions.”

Two weeks after Black signed the SEC consent decree, Norcen and Hanna settled their dispute. Black emerged with 20 per cent of the shares, more than half of which were bought for US$45 each. But the battle for hard-hearted Hanna came close to dinting Black’s reputation within the hallowed

circles of the Canadian establishment. “The jackals and piranhas smelled blood,” he said at the time. “They thought they had me, that I was about to go up the chimney in a puff of smoke. I’m speaking here not in any spirit of paranoia but in recognition of the mentality of our fellow citizens—the ghoulish fascination with presenting an agonizing replay of the supposed possibility that I had committed crimes and might be charged with them, that sort ofthing.

“I never had any fears how it was going to end up. It’s all atmospherics in the United States. They never believed a goddamn word

of all that bunk about racketeering. But some of our more credulous and Boy Scoutish locals sure believed it.”

At the time, Black completed his rant with some unintentional foreshadowing. “For years, I wondered what the difference between Canada and the United States really was—apart from the French Canadians and the monarchy,” he said. “Now I know. This is a very gentle place—and that’s a real hard league down there.” lil