Conrad Black: The inside story of a titan's fall

STEVE MAICH July 30 2007

Conrad Black: The inside story of a titan's fall

STEVE MAICH July 30 2007

Conrad Black: The inside story of a titan's fall




There are no more indignities that can be heaped upon the onceproud name of Conrad Moffat Black. Already labelled a kleptocrat, a self-delusional fantasist, a windbag, charlatan and a bore, the former chairman, chief executive and architect of the crumbled Hollinger media empire has now been branded with the most devastating mark of all—convicted felon.

Never mind that 12 of the 16 charges against the Hollinger insiders collapsed at trial. Forget the fact that the jury rejected the central allegation in the case—that Hollinger operated as an elaborate scheme to enrich insiders at the expense of public shareholders. And don’t dwell on the fact that Black was acquitted of the most vivid accusation—that he abused his Hollinger expense account to the tune of hundreds of thousands of dollars, to finance expensive parties, gifts and vacations abroad. None of that matters now.

As the prosecutors knew all too well, they

needed a conviction on only one criminal count to exact the retribution they sought. They got four for good measure. After 11 days of gruelling deliberations, poring over thousands of pages of documents and parsing the testimony of 50 witnesses, a jury of nine women and three men—hairdressers, truck drivers and office clerks—convicted Black of three counts of fraud related to payments, so-called “non-competes,” collected illegally from two separate buyers of Hollinger newspapers, and one Hollinger subsidiary. Black’s co-accused, vice-presidents Peter Atkinson and Jack Boultbee, as well as corporate counsel Mark Kipnis, were found guilty on the same counts. Total proceeds of the illegal transfers—roughly US$7 million. Black was convicted on the additional charge of obstructing justice, related to his improper removal of 13 boxes of documents from his Toronto office during the criminal investigation, in the early evening of May 20, 2005.

TABLE OF CONTENTS The mogul’s fatal flaw 19

Mark Steyn on the battle behind the scenes 24

Dissecting the deals that did him in 34

The man beyond the myth 36

The forgotten felons 39

A heavy toll taken, in pictures 40

The next fight begins 42

White-collar prison: the ugly truth 44

How justice is done in America 46

In the final analysis, Black is guilty of padding his pay through three modest deals in the late 1990s and of one disastrous office relocation. It wasn’t the dastardly master plan prosecutors alleged, not by a long shot. But in the eyes of U.S. justice it was a crime nonetheless, one that carries a penalty more harsh than most murderers face in Canada.

In the aftermath of the verdict, Black still found the chutzpah to keep fighting, and to boldly predict vindication on appeal. There are many rounds yet to be fought—motions and appeals, and petitions for leniency. But Black’s place in the U.S. federal prison system is now all but sealed. The only thing left to determine is how long he will serve behind bars among drug lords and thugs—three to five years as his lawyers hope, or upwards of 15 years as the prosecution will request from Judge Amy St. Eve.

That question will be resolved on Nov. 30. But others may linger forever, and this one most of all: how could he let it happen?

ALMOST FOUR YEARS AGO, when Black was still CEO and chairman of his newspaper empire and the shareholder uprising against him was still a minor insurgency, an old friend made a dire prediction.

Hal Jackman had been a confidant to Black for more than 20 years. Both charter members of Canada’s social and political elite, they were kindred conservatives and cultural benefactors who shared a deep interest in military history. But in the summer of2003, Jackman broke form and gave a blunt and none-tooflattering assessment of his old friend’s fatal flaw. And he did it in public.

“I just think he has a death wish,” Jackman said in an interview. “He’s just always trying to push the envelope... ‘What can I get away with.’ ” He said that Black had managed to escape tight spots in business for decades because of his remarkable intelligence and charm, but, with regret, he concluded “sooner or later reality sets in. You can pull things off a couple of times, but then people start to get realistic about you... and then the charisma doesn’t work anymore.”

Black was furious at what he saw as a betrayal by a friend. But in the furor that followed, the point of Jackman’s words got lost. He was not saying that Conrad Black’s critics and antagonists were right, he was saying that they were going to win. It was a lament from someone who’d grown frustrated watching an old friend-a student of history with a brilliant mind for business—continually underestimating the strength of his enemies while overestimating his own. Like a gambler who only sees the size of the pot, but can’t evaluate the cards in his hand, Black chronically exposed himself to undue risk. And Jackman

sensed that this time, the consequences would be disastrous.

Black didn’t hear that warning. Instead, he carried on as always, fighting fire with fire until everything he’d built was in flames.

The first sparks had appeared quietly in 2001, when New York investment firm Tweedy Browne sent Black a sharply worded letter insisting on answers about his compensation. Tweedy is a firm of straitlaced governance purists and these sorts of demands were

becoming commonplace, as powerful investors sought to rein in corporate boardrooms seen as out of touch and greedy.

Normally, when a public company CEO is attacked by shareholders, a relatively simple script is followed: acknowledge the complaints; make a brief, simple statement of contrition; and spell out a detailed plan for winning back the confidence of the market and getting the share price onto an upward trajectory. But Black opted for his customary “no retreat, no surrender” approach. He shot back with a letter scolding Tweedy for its “righteous” and “self-pitying” complaints.

When challenged, he derided his opponents as “zealots” and “terrorists”—a particularly ill-advised comparison in the wake of 9/11. It wouldn’t be the last time Black’s words would backfire. He dismissed corporate governance reform as a “fad”—not realizing that fads can be deadly serious matters. Witch hunts were a short-lived fad in Salem, Mass., around 1692, but when the local authorities decided to kill Giles Corey by piling boulders on top of him, it didn’t do much good to point out it was all just a passing fancy.

The forces aligning against Black were far more powerful and determined than he real-

ized, and soon even the staunch loyalists he recruited onto his board of directors would turn against him. Black sought to quell the shareholder complaints by appointing a special committee to investigate and make recommendations. But within months, the special committee had become another wildfire. It turned up evidence of improperly disclosed payments, shoddy record-keeping and a company that seemed to be run like a private fief. It brought in Richard Breeden, a tough-talk-

ing, politically connected former head of the SEC, to delve deeper into Hollinger’s inner workings. Soon, meetings of Black’s handpicked board devolved into vicious acrimony, with threats lobbed from all sides.

Ugly details of the board’s inquiry dripped into the press. Black was ousted as CEO, and the board of directors set about dismantling what remained of Hollinger’s newspaper holdings. Black was shut out of the sale process, but remained as combative and defiant as ever. The day after he was forced to resign as CEO, with the hornet’s nest in full frenzy,


he showed up at a Toronto bookstore and bragged about his money while blithely stumping for his new book. “I made 50 million bucks yesterday,” he boasted. “That’s a flameout I could get used to.” It was another example of Black’s tendency to talk himself into trouble. For a man of such obvious intellect, he often displayed a total lack of self-awareness, and the consequences were frequently dire.

Soon he was dumped as chairman, and

again he went on the offensive, trying to undermine the dissident board and to strike his own deal for the sale of the company’s crown jewel, London’s Daily Telegraph. Hollinger sued him, and in February 2004, in a Delaware courtroom, Black complained that he was simply trying to assert his rights as controlling shareholder, and that he’d been “horribly defamed and stigmatized as an embezzler.” But he hadn’t seen anything yet. The judge all but called him a liar, concluded that he had “persistently and seriously” breached his fiduciary duty, and stripped him of all his power over Hollinger.

That summer, the seriousness of the situation and the resolve of Black’s enemies finally came into sharp focus. On Aug. 31, Breeden released his now-infamous report on the controversy, which branded the company a “cor-

porate kleptocracy.” Over 500 pages in length, and loaded with caustic asides, the report painted Hollinger as a thoroughly corrupt organization. “Behind a constant stream of bombast... Black and [David] Radler made it their business to line their pockets at the expense of Hollinger almost every day, in almost every way they could devise.”

It was not written in the dry legal prose of most corporate reports, but more like a

crime novel, brimming with juicy details of outrageous spending by Black and his wife Barbara Amiel. According to Breeden, it all amounted to the “selfrighteous and aggressive looting of Hollinger,” to the tune of close to US$400 million in illicit proceeds. The report was practically a screaming open letter demanding action from U.S. authorities, and they would waste no time in responding.

THE INK ON the Breeden report was barely dry when the U.S. Securities and Exchange Commission brought civil charges against Black and his top lieutenant David Radler. Saying they “cheated and defrauded” shareholders out of millions of dollars, SEC enforcement director Stephen Cutler sought millions in restitution and to bar them from the public markets for life.

By way of response, Black fired off libel claims—against members of Hollinger’s board, against Richard Breeden, and against the

various media outlets delighting in his downfall. In one such lawsuit, he complained that the wildly inflammatory allegations had transformed him into a “social leper” and bemoaned that people who had once eagerly accepted his hospitality now shunned him. But the greatest betrayal was yet to come.

When David Radler agreed to plead guilty to fraud in September 2005, and to co-operate with U.S. authorities in their ongoing criminal investigation, Black lost far more than a friend and business partner. Radler represented a gaping breach in the wall of solidarity that protected Hollinger’s insiders from prosecution. Long-rumoured criminal charges now seemed inevitable, and sure enough, they were.

In November, the U.S. Department of Justice announced that Black and three top associates, as well as Black’s private holding company Ravelston, were charged with more than a dozen criminal counts, including mail and wire fraud, racketeering, and in Black’s case, obstruction of justice. The government had, in essence, said Black was the kingpin of a criminal organization. What had been a fight for his business legacy and his personal fortune was now a fight for his freedom.

The press, meanwhile, gleefully shredded what was left of Black’s personal reputation. Countless mocking editorials were just the beginning. The Globe and Mail ran a story, ostensibly about public honesty, in which a reporter threw a wallet over the garden wall of Black’s Toronto home and waited to see if he would call the owner to return it. When the reporter never received a call, it was presented as yet more evidence of Black’s moral corruption. Toronto Life magazine published a piece of satire that imagined Black upon his arrival in hell (they later apologized).

But nothing captures the sense of churlish joy at Black’s ordeal quite like British author Tom Bower’s book, Lord and Lady Black: Dancing on the Edge. Aside from its lurid and largely unattributed rehashing of Barbara Amiel’s alleged sexual history, most of its pages are given over to amateur psychoanalysis, advancing the theory that Black was an amoral bully and virulent narcissist from the time he was a boy, and that his present difficulties stem from those central defects in his character. Black is called a “self-delusional fantasist” who endured a “loveless” childhood with his “vengeful,” alcohol-abusing father and “ineffectual” mother. It was a brutal character assassination, and when Black sued for libel he enumerated dozens of errors, omissions and apparent fabrications. Luckily for Bower, once the jury declared Black a criminal, libel claims became irrelevant. He has no reputation left to protect.

Still, the public onslaught never failed to

spark Black’s fury. He accused Breeden and others of orchestrating “a massive smear job from A to Z,” and he railed against the “usurper regime” that sold offHollinger piece by piece, and failed to create any value for shareholders. But all the verbal fireworks merely set the stage and heightened the anticipation for the coming confrontation in Chicago, in the 12th-floor courtroom of Judge Amy St. Eve.

WINTER WAS STILL in the air last March when assistant U.S. attorney Jeffrey Cramer stood before the jury box and distilled thousands of pages of corporate documents and testimony into a scenario as simple as a Hollywood heist film. As the fast-talking New York

native explained it, Conrad Black was not just a bad CEO of an underperforming public company. He wasn’t merely bombastic or arrogant, and his co-accused weren’t just hapless underlings. They were common thieves, every one of them. “You’re sitting in a room with four men who stole US$60 million,” Cramer said. “We all know what street crime looks like—a man knocks you down and takes your money. This is what crime looks like in corporate law.”

Over four months, as winter gave way to spring and finally to an oppressive July heat wave, the theme remained the same. The non-compete agreements were “a bold money grab.” Black’s explanations were “lies.” And everything about the way he operated Hollinger was a “scheme” designed to let the boss live like a billionaire, on a millionaire’s salary. Members of the Hollinger special committee, the board of directors, accountants, outside lawyers, and of course, Radler, all trudged to the stand and pointed the finger squarely at Black. He dreamt up a plan to

collect tax-free bonuses from the sale of newspapers and to slip it by the board. And when caught, tried to cover it up.

The prosecution case was hardly airtight. There were gaps in the paper trail, glaring contradictions in the testimony, and the star witness was an admitted liar. Still, Black couldn’t resist the temptation to publicly denounce his opponents, despite his lawyers’ repeated admonitions against it. At one point, he was quoted comparing the prosecutors to Nazis and saying the case hung “around their necks like a toilet seat.”

Black didn’t know it, but he was digging himself deeper again. The crack about the Nazis cut members of the prosecution team

to the very bone. All four of the young lawyers who argued against Black are Jewish, and all paid a high personal price for the case—allnight stretches at the office; weeks on the road, living out of a suitcase, missing recitals, ball games, birthday dinners; life’s most precious relationships frayed, some beyond repair. And now to have this swaggering son of wealth and privilege comparing them to jackbooted Gestapo officers—it was too much to swallow. “Let’s just ask this—whose ancestors were more likely to be turning on the gas, and whose ancestors were more likely to have breathed it in?” one person close to the prosecution team growled, still fuming from the attack weeks later. Black would get not an ounce of compassion or leniency from them. They would nail him as hard as they possibly could, and years from now the memory of it will make them smile.

ON THE DAY the jury rendered its verdict, Conrad Black came into the courtroom impeccably dressed as always, in a tan suit, light blue shirt, and dark blue tie. Barbara Amiel wore a long, flowing silk blouse and sat in the front row next to Black’s daughter Alana. As Judge St. Eve read the jury’s verdict, there was not a sound in the room apart from her clear, youthful Sally Field voice. The word “guilty” came four times for Black, and three times for each of his co-defendants.

Black’s expression didn’t budge—he sat with his features locked in that familiar, pensive glare. Everyone in the room tried to get used to the words “Conrad Black, convicted felon.” The prosecution team struggled against the impulse to smile. Their case had fallen apart. They hadn’t exactly won. But Conrad Black lost. And in practical terms that is all that matters.

Black put on a brave face, telling reporters that he will be vindicated on appeal. That confidence seems unfounded. It would take an act of God to keep Conrad Black out of

prison now. But then, maybe that’s precisely what Black is counting on.

Before the trial began, I asked the embattled lord what he would do if he were acquitted. He refused to consider any other possibility. “Breeden orchestrated this assault and gambled that they could knock me out by attrition, financial strangulation, defamation, and confected moral outrage. They failed on all counts,” he wrote in an email. “If you will pardon a line from the Scriptures ‘God of Vengeance, show Thyself.’ He will.”

The Old Testament God of Vengeance is everywhere in the story of Conrad Black. Now His work is done, and Black must direct his prayers in a new direction—to the New Testament God of Mercy. M —with Colin Campbell and John Intini