SCIENCE

THE SECRET TO NOT LOSING YOUR MARBLES

LIANNE GEORGE April 9 2007
SCIENCE

THE SECRET TO NOT LOSING YOUR MARBLES

LIANNE GEORGE April 9 2007

THIS IS ONE VERY STRANGE CASE

Curiouser and curiouser testimony in week two of the Conrad Black trial

The unravelling of Conrad Black’s business empire began in November 2003 with what seem in hindsight the relatively modest conditions of his enforced “retirement” as chief executive of Hollinger International and

a requirement to reimburse the company of some US$7 million. But his removal in New York proved only the first bumpy stop on an

accelerating descent into an abyss with new torments from courts and regulators at every level, from his eviction from Hollinger Inc. in Toronto, through receivership for Ravelston, the parent company’s parent company, and eventually to a Chicago courtroom and a criminal trial for mail fraud, tax fraud and “racketeering.” All that stands between him and 101 years in jail are a jury panel patiently enduring hours of interminable nitpicking about “non-compete agreements”: some are alert, heads ping-ponging back and forth from counsel to witness like Centre Court spectators at Wimbledon; others stifle yawns, fidget, and glance at the clock.

No consolation there. It’s stopped. Injudge Amy St. Eve’s court on the 12th floor of the Everett Dirksen Federal building, time stands still. On Monday morning, as Michael Reed, former CFO of Community Newspaper Holdings Inc., was being led through page 29 of the 1999 Asset Exchange Agreement with Hollinger International, the clock slowed down, and shortly thereafter—during the CFO’s lawyer’s testimony—ground to a halt. Whether the ping-ponging heads or the stopped-clock-watchers are more sympathetic to the defendants, I leave to the professional jury analysts.

MARK STEYN

Lord Black is not, of course, a “racketeer.” And, while he no doubt admires the thuggish creativity of the charge, he’s presumably relieved the federal government didn’t toss

in prostitution and pedophilia. Indeed, given the catty digs by everyone from the Fleet Street “sluts” to his old paper the Chicago Sun-Times about his wife’s remarkable youthfulness, he’s lucky he wasn’t charged with transporting a minor across state lines. But, that said, as one bewildered Chicagoan put it to me at the end of a long day in court, ‘Where’s the crime?”

We’d sat through another long day of testimony in which the government’s line of argument took a most peculiar turn. Mr. Reed’s company bought half a billion dollars’ worth of newspapers from Hollinger International— small-town titles in places you’ve never heard of. And, as is routine, a “non-compete” was

part of the deal: after two weeks of testimony on the subject, my drooping eyelids are ready to sign a non-compete agreement with the cramps in my toes, but, for anyone who still doesn’t know, they’re a standard business practice. If you pay a gazillion dollars for a company, you don’t want the previous owners taking the money and opening up a rival across the street. So you require them to agree not to compete with you for a fixed

term in a fixed territory under fixed conditions—non-solicitation of employees, no investment in rival businesses, etc. Mr. Reed was there to declare that, while he’d wanted a standard non-compete agreement with Hollinger International, he’d never wanted one with its Canadian parent Hollinger Inc. and would never have dreamed of making it a condition of closing.

Unfortunately for him, the written contract between his old company, CNHI, and Hollinger states:

a) that CNHI requires a non-compete agreement with both Hollinger International and Hollinger Inc.; and

b) that the fellows CNHI borrowed $440,000 from—the state pension systems of Alabama— also require one; and furthermore

c) that, if they don’t get one, the deal’s off.

And at the bottom of it is Mr. Reed’s signature. The government’s position is that, oh well, CNHI didn’t really mean it. Nor, come to that, did the United States Department of Justice—i.e. the prosecutors’ colleagues—which approved the transaction. We’ve all been there—usually when we’re fresh off the boat and getting our first job,

and midway through the 12th page you ask about the bit about “the party of the first part shall be partly party to the party of the second part” and the guy says, oh, don’t bother with all that, just mark your X at the foot of page 237 and we can shake hands and have a cigar. But it’s still startling to hear the U.S. Attorney’s office building a case on the proposition that ex postfacto oral testimony eight years later can nullify the plain meaning of a written contract between two parties. As a point of law, the contract makes it a condition of closing regardless of what this guy now “feels.”

Still, like every other prosecution witness, he was asked: “Now you were dealing with a company called

Hollinger International. Had you ever heard of another company called Hollinger Inc.?” Like every other prosecution witness, he answered: “No.”

On the face of it, this is a stupid question. If you’re doing business with a company called “Hollinger International” and you’re asked about another company called “Hollinger Inc.,” it would seem safe to take a wild shot in the dark and guess that it was some sort

of related entity. If I was negotiating a contract with, say, the British company CocaCola Enterprises Ltd. and I was subsequently asked whether I’d heard of a U.S. company called the Coca-Cola Company, I think I would be reluctant to stand up in court and go, “Hmm. Coca-Cola Company. No, can’t say I have. Doesn’t ring a bell. Odd sort of name, etc.” for hours on end. “So you entered into negotiations with Citibank Canada. Had you ever heard of another company called Citibank?” “Er, lemme think. Do they make cars? Are they a hockey team?”

From the government witnesses, it was even less plausible. They were spending half-a-bil-

lion dollars of somebody else’s money buying a ton of newspapers from multiple subsidiaries of Hollinger International. I don’t know about you, but generally when I spend a ninefigure sum I like to check whether the guy I’m giving it to actually owns the assets he’s promised me. It’s pretty elemental “due diligence” to discover the name of the seller’s parent company and controlling shareholder. And, in this case, given that the contract Mr. Reed signed includes copious references to the seller “and its affiliates,” and helpfully provides a legal definition of “affiliates,” it seems silly to argue that he had no idea what this Hollinger Inc. stuff was about. Especially when at the time of the deal the head of the Ontario Secur-

ities Commission apparently had a conversation with him on that very subject.

The U.S. government’s position seems to be that there’s a Good Hollinger, publicly traded south of the border and owned by public shareholders (granny’s retirement savings, junior’s college fund) and a Bad Hollinger up in Toronto in the dark land of Noncompetistan controlled by a cabal of sinister Canadians. The problem with this argument is that the cabal of sinister Canadians also controlled, perfectly legally, the Good Hollinger, and the Bad Hollinger up in Noncompetistan is also a publicly traded company to whom Conrad Black and other offi-

cers also had, by law, a fiduciary duty. Maybe a parent holding company and a subsidiary operating company in separate jurisdictions should not have identical officers, but that’s not illegal and it’s the job of the audit committee of each entity to weigh conflicts of interests. Yet the government prosecutors

have given a huge pass to the Hollinger International Audit Committee, chaired in the most perfunctory and desultory fashion by Jim Thompson, who happens to be a predecessor of Patrick Fitzgerald as U.S. Attorney for the Northern District.

Hence, the peculiar whiff of Canadophobia to the government distinction between the Good Hollinger and the Bad Hollinger. The doughty courtroom observer who’d asked me “Where’s the crime?” eventually answered his own question: “They just think the fact that non-competes are tax-free in Canada is too cute.” Even so, trying to argue the case as a massive tax fraud is a bit of a stretch. Tom

Henson, CNHI’s lawyer, testified that as he “understood” it, allocating a portion of the non-compete fees to Hollinger Inc. “was a way for them to legally avoid certain tax in Canada.” Very possibly, but in a $450,000,000 deal, just $12 million was allocated to Hollinger Inc. If your cunning “tax fraud” only reduces your liability on less than four per cent of the loot, you probably need a new accountant.

After two weeks, this is a very strange case: it’s not Enron or WorldCom, with vast amounts of damning paperwork and ledgers. Instead, it’s mostly inference and impressions—and, as with this week’s testimony, often in explicit contradiction of the signed paperwork. I’m told that the government’s meta-message to the jury is: you know you don’t like this guy because he’s rich and lords it over everyone, so let’s find some technicality to hang Lord Snooty on. But Edward Genson’s strategy of portraying his client as “snotty,” “arrogant” and prone to highfalutin lingo that just grates on you like a squeaky blackboard chalk has, in effect, stolen the prosecution’s most effective pitch: if Conrad is an acquired taste, Mr. Genson is making sure he’s well acquired before the jury has to pronounce. And, as for the technicalities, they seem to get more elusive by the day: Gus Newman, the feisty Noo Yawky octogenarian who represents Jack Boultbee in this case, has been having great fun with the prosecution witnesses, and my sense is that so far the jury isn’t buying the government line. Either that, or they’re annoyed the clock’s stopped. M