Investigating ‘corporate kleptocracy’ is clearly the racket to be in
SOUNDS BORING BUT BOY, IS IT LUCRATIVE
Investigating ‘corporate kleptocracy’ is clearly the racket to be in
Paul Healy, dapper as ever but looking chubbier than when I saw him last, took the witness stand and was led through the usual biographical warm-up by prosecuting counsel: what’s your name? Where did you go to
school? When did you join Hollinger International? 1995When did you leave? 2005. And then: “Why did you leave Hollinger International?”
“The company was winding down,” said Mr. Healy, explaining why he felt it was time to go.
Well, that’s one way of putting it. The company wasn’t winding down so much as being wound up, by the events Paul Healy and a handful of others had set in motion. By 2005, the Telegraph Group in Britain had been sold, the Jerusalem Post had gone, and all that was left of a global press empire was the Chicago Sun-Times and a few other local papers on the outskirts of the Windy City. Mr. Healy was Hollinger’s vice-president of investor relations and what remained of the group didn’t have a lot of investors left for him to relate to.
It was a casual formulation and the pros-
ecution passed on to livelier terrain—Conrad Black’s use of a luxurious corporate apartment on Park Avenue, Barbara Amiel’s spending habits, etc.—but the phrase encapsulated a great truth. The choice for aggrieved shareholders was never between Black’s Hollinger and a post-Black Hollinger run by squeaky-clean corporate-governance angels, but only between Black’s Hollinger and no Hollinger at all. Christopher Browne of Tweedy Browne, the disaffected minority shareholder and one of those storied New York names whose storiedness you can never quite see the reason for, still doesn’t get it. “The natives are getting restless,” he said a few weeks ago, as if there was anyone left to be fired or sued or charged with a century of jail time just so the stock price he thought was too low at 20 bucks can be airlifted out of its current abyss of five.
He doesn’t seem to understand that Conrad Black and a handful of associates were the only reason the company existed, and once they’d gone there was no raison d’être for Hollinger International. Even the “winding down” was only managed through Black’s good (or, rather, bad) offices: the Telegraph titles went to the Barclay brothers, the reclusive identical twin knights who live on a private island in the English Channel (yes, I know: I saw that Bond movie, too) and whom Conrad had lined up as buyers. A judge in Delaware forbade Black from going through with the sale, and a few months later the post-
Black Hollinger went ahead with it, selling the papers to Conrad’s purchaser on Conrad’s terms. The only reason the Sun-Times wasn’t sold off is that nobody wanted to buy it. As last week’s paper headlined a report on the post-Black usurper regime’s strategy: “SunTimes Parent Seeks Patience, Time.” They’re unlikely to get either.
Two months into this prosecution, there remain undoubtedly large numbers of Canadians, including many Maclean’s readers, who would like to see Lord Black jailed for a century and aren’t too fussy about the pretext: judging from my mailbag, his peerage, his wife and his vocabulary are all indictable offences. But, if you have to sit here on the 12th floor of the Everett Dirksen Courthouse every day following the only “crimes” he’s been charged with, it’s harder and harder to see any merit in the process. Paul Healy is on the witness stand in Chicago pursuant to a court order of immunity: that’s to say, to get him to testify, the U.S. government had to cut a deal. Mr. Healy is only the latest to get his. The celebrity directors who made up the Hollinger International audit committee—Governor Jim (The Skim) Thompson, Ambassador Richard Burt and brainy gal Marie-Josée Kravis—were served “Wells Notices” by the Securities and Exchange Commission threatening enforcement proceedings against them. Hollinger’s outside law firm, Torys, paid the biggest such settlement ever paid by Canadian lawyers just to disentangle themselves from the case, but part of the deal required them to co-operate with the U.S. Attorney’s office. And, of course, the star witness, David Radler, agreed to squeal in return for a sentence of 29 months, which in reality means he’ll serve six months in a British Columbia country club enjoying golf and community theatre. If he and the rest of the gang had done their
summer-stock stint beforehand, their performance on the stand might have been a lot more credible.
As it is, to modify Pirandello, they’re six characters in search of a plot: the U.S. government signed up the cast and has spent the last two months trying to construct a narrative that absolves all its witnesses while leaving the blame with Conrad Black and his co-defendants.
By the way, after he left Hollinger International in 2005, who did Paul Healy go to work for? Why, for Richard Breeden. The former head of the SEC and now America’s first corporate-governance billionaire,
Mr. Breeden was the outside investigator whose luridly written “special report” led to this criminal case. So Mr. Healy not only has an immunity agreement from the U.S. government but he was also signed up and put on the payroll by the man who destroyed Black. Minutes before the witness took the stand, Edward Genson, the lead defence counsel, requested Healy’s compensation details from both Hollinger and Richard Breeden. “I consider it a bribe,” he told the judge, “and I think it’s relevant how big the bribe is.”
Indeed. One way or another—immunity deals, decades shaved off prison sentences, the termination of enforcement proceedings—virtually every witness has been in some significant way rewarded for testifying against Black. And, even if one were to take a more benign view of the less than subtle pressure applied by the authorities, one is confronted by an awkward fact: that the cost of investigating what Breeden called Black’s “corporate kleptocracy” has been far more spectacularly kleptocratic. If you’re a compulsive kleptocrat, investigating the kleptocracy of others is the racket to be in. Mr. Breeden is a famous man, so his $800 per hour is fairly well-known: after four years on the Hollinger payroll, that adds up. But this week the jury enjoyed the testimony of a comparatively unknown witness, Jonathan Rosenberg of O’Melveny & Myers, the law firm retained by Hollinger’s special committee to investigate the non-compete payments. Mr. Rosenberg specializes in “breach of fiduciary duty litigation” and “internal investigations,” which sounds boring but boy, you can really clean up. Of the over $200 million Hollinger has spent investigating Black’s “crimes,” some
75 per cent of the dough is estimated to have gone to O’Melveny. Mr. Rosenberg’s colleagues are crawling all over the courtroom. O’Melveny lawyers are not just witnesses in the case, but they’re also lawyers for half the other witnesses. They loom in all directions, and on busy days annex half the media benches. I wouldn’t mind, but they never ask. And you wouldn’t either if you had a nine-figure interest in the case.
Just to get these numbers in perspective: Conrad and his three fellow defendants are charged with “stealing”
$60 million from Hollinger shareholders in various noncompete fees and other dubious transactions. But O’Melveny & Myers have earned 2Vi times as much from Hollinger (and its shareholders) just for “investigating” this $60 million “crime.” Hollinger paid $42,870 for Barbara Amiel’s birthday party at La Grenouille in New York. But Richard Breeden earned that much from the company in his first week investigating the birthday party.
And on and on it goes.
Pace Conrad, “corporate governance” is not a fad. It’s been around a while. Had he started the National Post 200 years ago, he wouldn’t have needed independent directors, and audit committees, and auditors, and securities lawyers, all of whom to one degree or another are in the business of corporate governance: they’re there, at great expense, to keep the buccaneering capitalists from excessive buccaneering. And what does it get you? Hollinger paid millions to auditors and lawyers, and hundreds of thousands to powerhouse celebrity directors. And when it all winds up in court the lawyers say they’re not experts in tax law or securities law or Canad-
ian law or whatever branch of law you happen to be asking them about at any given moment; they’re just experts in send-us-acheque-for-a-zillion-dollars-and-we’ll-writea-favourable-legal-opinion type law. And the auditors say whoa, steady on, they’re just signing off on the numbers they’re given by the company. And the “independent directors” say it would be unreasonable to expect them to read the legal documents they signed. So much for “corporate governance.” You might as well do your accounts in crayon and keep them under the bed.
But the government says: oh, no, just because all the above corporate governance didn’t work only means we need even more of it. So Congress passes the characteristically slapdash Sarbanes-Oxley laws, and the U.S. government gets even more aggressive in criminalizing the vicissitudes of the cor-
porate life. This week, the government led us through the transaction for Hollinger’s apartment on Park Avenue: the company had paid $3 million for it in 1995, and sold it to Black five years later, also for $3 million. Suspicious, no? But he’d spent $2 million of his own money on remodelling it. Hollinger was contractually obliged to pay for the construction, but Paul Healy thought the minority shareholders might get a bit twitchy and so Conrad said, okay, I’ll stump up for it myself. Did Black “steal” from Hollinger shareholders in any material sense? Or is it just a wash? One of those transactions where neither party comes out ahead but does just about okay? And is the vast amount of time and money the U.S. government is devoting to criminalizing the compromise in the interests of either Hollinger shareholders in particular or American capitalism in general?
The answer to that seems clearer with every passing day. M
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