DLR'sCock
09-06-2004, 12:49 PM
http://www.nytimes.com/2004/09/01/business/media/01conrad.html
Hollinger Files Stinging Report on Ex-Officials
By Geraldine Fabrikant
The New York Times
Wednesday 01 September 2004
In a 513-page report shot through with sarcasm and disgust, a special committee of the publishing company Hollinger International Inc. concluded that the former officials Conrad M. Black and F. David Radler ran a "corporate kleptocracy,'' diverting to themselves virtually all the company's $400 million in earnings over seven years.
The report, which was filed as part of a Hollinger lawsuit seeking to recover $1.25 billion from Lord Black and others, also criticized certain directors as being "ineffective and careless'' in stopping the "systematic looting'' of the company. And it reserved some of its harshest criticism for Richard N. Perle, the former Reagan administration official and current board member, calling on him to return $5.4 million in pay after "putting his own interests above those of Hollinger's shareholders.''
"Behind a constant stream of bombast regarding their accomplishments as self-described 'proprietors,' Black and Radler made it their business to line their pockets at the expense of Hollinger almost every day, in almost every way they could devise," said the report, prepared by the committee and its adviser, Richard C. Breeden, a former chairman of the Securities and Exchange Commission.
It cites, among other examples, Lord Black's use of the corporate plane for a 10-day vacation to Bora Bora at a cost to the company of more than $250,000, while expensing the $90,000 refurbishing of his Rolls-Royce. Lord Black also charged Hollinger International for a $42,870 birthday party for his wife, Barbara Amiel Black, at the Manhattan restaurant La Grenouille, with a guest list that included Barbara Walters, Peter Jennings and Charlie Rose; "summer drinks that cost $24,950; and 80 percent, or $28,480, of the cost of three dinners for Henry A. Kissinger and his wife, Nancy. (Mr. Kissinger was a Hollinger board member.)
In a statement yesterday, the Ravelston Corporation, the holding company of Lord Black and Mr. Radler that effectively controls Hollinger International, dismissed the report as trafficking in recycled "exaggerated claims laced with outright lies.''
"Mr. Breeden and the special committee,'' the statement added, "have squandered more than $25 million of shareholders' money in a futile 14-month investigation that paralyzed Hollinger International, eroded the value of its assets, and persecuted and defamed the men and women who created the value they are now vandalizing. The report is full of so many factual and tainting misrepresentations and inaccuracies that it is not practical to address them in their entirety here. These issues will ultimately be resolved in courts of justice where the facts and the evidence will exonerate the men and women who are being attacked in this report.''
Mr. Perle was traveling in Europe and was not available for comment, according to his assistant.
Last fall, Lord Black resigned as Hollinger International's chief executive and Mr. Radler resigned as president and chief operating officer when the company charged that they and other officials received $32 million of unauthorized payments. Since then, Lord Black and Hollinger International have been locked in legal combat, fighting over claims by shareholders for compensation for the purportedly improper payments to former executives.
Hollinger International, which owns The Chicago Sun-Times and The Jerusalem Post among other papers, has a particularly complex corporate structure. Lord Black controls Hollinger International through his holding company, Ravelston, which owns 78 percent of the stock of the Canadian company Hollinger Inc., which in turn controls 68 percent of the voting shares of Hollinger International.
After Lord Black tried to sell his stake in Hollinger Inc. to the Barclay brothers, the Delaware Chancery Court barred Lord Black from interfering in Hollinger's strategic process of selling some of its assets. Hollinger International last month sold the Britain-based Telegraph group, home to The Daily Telegraph, to the Barclays for about $1.3 billion. The investigation of the special committee began in May 2003 after complaints from shareholders, led by the New York investment firm Tweedy Brown. And the resulting report minces few words.
"At Hollinger,'' the report said, "Black as both C.E.O. and controlling shareholder, together with his associates, created an entity in which ethical corruption was a defining characteristic of the leadership team.''
The report lays out several ways its says Lord Black and Mr. Radler arranged millions in unjustified payments from Hollinger International to companies they controlled.
According to the report, Hollinger paid Ravelston "management fees" of $226 million from 1996 to 2003, a total that "far exceeded Ravelston's costs of providing services to Hollinger."
Hollinger International also paid companies controlled by Ravelston as well as Hollinger Inc. a series of "noncompete" fees from the proceeds of sales of various Hollinger newspapers. Those totaled $90 million from 1990 to 2001.
In a number of cases, Hollinger sold newspapers to entities controlled by Lord Black and his associates for prices far below their market value. For example, The Mammoth Times, in Mammoth Lakes, Calif., carried a sale price of $1.
Some of the newest details made public in the Hollinger case, the Blacks, as well as Mr. Radler, used the corporate coffers to support their personal lifestyles, the report found.
The report says that the company spent over $23 million from 2000 to 2003 to lease and operate aircraft that were used "indiscriminately" to fly the Blacks to their various "collections of homes,'' including New York; Palm Beach, Fla.; London; and Toronto.
The special committee acknowledged that some use of corporate planes and other perks is permissible, but at Hollinger, it said, the cost of these perks was "prohibitive" and that often the perks were only for personal use. For example, Hollinger leased a G-IV for Lord Black's use and bought a $11.6 million Challenger for Mr. Radler's use.
Jets were not the only travel luxury the Blacks enjoyed. From 2000 to 2003, Hollinger paid roughly $390,000 to lease and repair various automobiles, including a Bentley, a Rolls-Royce and a Mercedes.
Then there were the apartments. Hollinger International acquired a cooperative apartment for the pair at 635 Park Avenue in Manhattan for $3 million in 1994. At the same time the Blacks themselves bought a smaller apartment in the same building for $499,000.
When the couple decided to buy the larger apartment six years later, the real estate market had soared and the apartment was worth an estimated $5.4 million. But the Blacks paid only $3 million for it, and were able to use as part of the payment the smaller apartment, valued at $850,000.
Between 1996 and 2003, Hollinger International and its subsidiaries donated at least $6.5 million to hundreds of charities in the United States, Canada, Britain and Israel, but often the company was not given the public credit - it went instead to the Blacks or the Radlers.
Hollinger International also made donations to organizations to benefit Lord Black and other Hollinger directors. Hollinger pledged $40,000 to the Museum of Modern Art where Marie-Josee Kravis, a board member at the time, was co-chairwoman of the annual corporate lunch; $52,000 to the Museum of Television and Radio, where Mr. Kissinger was a trustee; and $1.475 million to the foreign policy journal National Interest Inc., where Lord Black, Mr. Kissinger and Mr. Perle all had posts.
Not only did Lord Black and his top associates take money from the company's coffers for their own use, but they arranged for Hollinger to hire family members for exorbitant salaries.
For example, Hollinger International paid Lady Black $1.1 million a year for a corporate post that did not require her to do anything. The report added that a post at The Jerusalem Post was also found for Mr. Radler's daughter, Melissa. She started as a New York correspondent at a salary of $38,000, but was later given a raise to $62,000 only because Mr. Radler sought it, Tom Rose, the Post's former publisher, told the committee.
While the report was careful to insist that Lord Black and Mr. Radler were the "primary offenders, the consistent inaction of the Hollinger board also resulted in squandering opportunities for stopping abusive acts before the damage was too great.''
Members of the audit committee come under particular fire. Its members - Ms. Kravis, an economist and wife of the financier Henry Kravis; the former Illinois governor, James Thompson; and Richard Burt, a former ambassador to Germany, were "ineffective and careless,'' the report stated. Of Mr. Thompson, the chairman of the audit committee, the report said, "He failed to apply the critical part of former President Reagan's famous dictum to 'Trust, but Verify.' ''
A spokeswoman said that Mrs. Kravis was traveling and could not be reached for comment. Mr. Burt said he did not agree with the committee's findings on the board and the audit committee in particular. Mr. Thompson also said he disagreed with some of the criticism of the audit committee but agreed with most of the committee's conclusions.
The board was only slightly critical of two independent directors, Mr. Kissinger and Shmuel Meitar, vice chairman of Aurec Ltd., saying they could have done more in reviewing transactions, but that their "reliance on the audit committee was reasonable.''
But its most scathing comments about a board member are aimed at Mr. Perle, singling him out for his "flagrant abdication of duty'' as a board member. It said Mr. Perle, who headed Hollinger Digital, a unit of the parent company, while he was a board member, rubber-stamped a large number of deals that benefited Lord Black and others at the expense of Hollinger.
According to the report, Mr. Perle admitted to the committee that he never read many of the documents or understood the underlying transactions before signing off on them.
For example in 1997, Hollinger International lent its Canadian parent $42.5 million on terms that were "unfair" to Hollinger, in part because the interest on the loan was only 1.25 percent, the report said. Mr. Perle told the special committee that "he did not remember anything about the loan or the consent he signed authorizing it. "
The report particularly criticizes a bonus plan related to various investments by Hollinger Digital that let Mr. Perle earn $3.1 million, even though the investments overall lost $49 million.
"He should have resigned from the executive committee or the board should have replaced him,'' the report said.
Mr. Perle resigned last year as chairman of the Defense Policy Fund, which advises Defense Secretary Donald H. Rumsfeld, after his link to Global Crossing Ltd., as an unpaid adviser, came to light.
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Jump to TO Features for Sunday September 5, 2004
Hollinger Files Stinging Report on Ex-Officials
By Geraldine Fabrikant
The New York Times
Wednesday 01 September 2004
In a 513-page report shot through with sarcasm and disgust, a special committee of the publishing company Hollinger International Inc. concluded that the former officials Conrad M. Black and F. David Radler ran a "corporate kleptocracy,'' diverting to themselves virtually all the company's $400 million in earnings over seven years.
The report, which was filed as part of a Hollinger lawsuit seeking to recover $1.25 billion from Lord Black and others, also criticized certain directors as being "ineffective and careless'' in stopping the "systematic looting'' of the company. And it reserved some of its harshest criticism for Richard N. Perle, the former Reagan administration official and current board member, calling on him to return $5.4 million in pay after "putting his own interests above those of Hollinger's shareholders.''
"Behind a constant stream of bombast regarding their accomplishments as self-described 'proprietors,' Black and Radler made it their business to line their pockets at the expense of Hollinger almost every day, in almost every way they could devise," said the report, prepared by the committee and its adviser, Richard C. Breeden, a former chairman of the Securities and Exchange Commission.
It cites, among other examples, Lord Black's use of the corporate plane for a 10-day vacation to Bora Bora at a cost to the company of more than $250,000, while expensing the $90,000 refurbishing of his Rolls-Royce. Lord Black also charged Hollinger International for a $42,870 birthday party for his wife, Barbara Amiel Black, at the Manhattan restaurant La Grenouille, with a guest list that included Barbara Walters, Peter Jennings and Charlie Rose; "summer drinks that cost $24,950; and 80 percent, or $28,480, of the cost of three dinners for Henry A. Kissinger and his wife, Nancy. (Mr. Kissinger was a Hollinger board member.)
In a statement yesterday, the Ravelston Corporation, the holding company of Lord Black and Mr. Radler that effectively controls Hollinger International, dismissed the report as trafficking in recycled "exaggerated claims laced with outright lies.''
"Mr. Breeden and the special committee,'' the statement added, "have squandered more than $25 million of shareholders' money in a futile 14-month investigation that paralyzed Hollinger International, eroded the value of its assets, and persecuted and defamed the men and women who created the value they are now vandalizing. The report is full of so many factual and tainting misrepresentations and inaccuracies that it is not practical to address them in their entirety here. These issues will ultimately be resolved in courts of justice where the facts and the evidence will exonerate the men and women who are being attacked in this report.''
Mr. Perle was traveling in Europe and was not available for comment, according to his assistant.
Last fall, Lord Black resigned as Hollinger International's chief executive and Mr. Radler resigned as president and chief operating officer when the company charged that they and other officials received $32 million of unauthorized payments. Since then, Lord Black and Hollinger International have been locked in legal combat, fighting over claims by shareholders for compensation for the purportedly improper payments to former executives.
Hollinger International, which owns The Chicago Sun-Times and The Jerusalem Post among other papers, has a particularly complex corporate structure. Lord Black controls Hollinger International through his holding company, Ravelston, which owns 78 percent of the stock of the Canadian company Hollinger Inc., which in turn controls 68 percent of the voting shares of Hollinger International.
After Lord Black tried to sell his stake in Hollinger Inc. to the Barclay brothers, the Delaware Chancery Court barred Lord Black from interfering in Hollinger's strategic process of selling some of its assets. Hollinger International last month sold the Britain-based Telegraph group, home to The Daily Telegraph, to the Barclays for about $1.3 billion. The investigation of the special committee began in May 2003 after complaints from shareholders, led by the New York investment firm Tweedy Brown. And the resulting report minces few words.
"At Hollinger,'' the report said, "Black as both C.E.O. and controlling shareholder, together with his associates, created an entity in which ethical corruption was a defining characteristic of the leadership team.''
The report lays out several ways its says Lord Black and Mr. Radler arranged millions in unjustified payments from Hollinger International to companies they controlled.
According to the report, Hollinger paid Ravelston "management fees" of $226 million from 1996 to 2003, a total that "far exceeded Ravelston's costs of providing services to Hollinger."
Hollinger International also paid companies controlled by Ravelston as well as Hollinger Inc. a series of "noncompete" fees from the proceeds of sales of various Hollinger newspapers. Those totaled $90 million from 1990 to 2001.
In a number of cases, Hollinger sold newspapers to entities controlled by Lord Black and his associates for prices far below their market value. For example, The Mammoth Times, in Mammoth Lakes, Calif., carried a sale price of $1.
Some of the newest details made public in the Hollinger case, the Blacks, as well as Mr. Radler, used the corporate coffers to support their personal lifestyles, the report found.
The report says that the company spent over $23 million from 2000 to 2003 to lease and operate aircraft that were used "indiscriminately" to fly the Blacks to their various "collections of homes,'' including New York; Palm Beach, Fla.; London; and Toronto.
The special committee acknowledged that some use of corporate planes and other perks is permissible, but at Hollinger, it said, the cost of these perks was "prohibitive" and that often the perks were only for personal use. For example, Hollinger leased a G-IV for Lord Black's use and bought a $11.6 million Challenger for Mr. Radler's use.
Jets were not the only travel luxury the Blacks enjoyed. From 2000 to 2003, Hollinger paid roughly $390,000 to lease and repair various automobiles, including a Bentley, a Rolls-Royce and a Mercedes.
Then there were the apartments. Hollinger International acquired a cooperative apartment for the pair at 635 Park Avenue in Manhattan for $3 million in 1994. At the same time the Blacks themselves bought a smaller apartment in the same building for $499,000.
When the couple decided to buy the larger apartment six years later, the real estate market had soared and the apartment was worth an estimated $5.4 million. But the Blacks paid only $3 million for it, and were able to use as part of the payment the smaller apartment, valued at $850,000.
Between 1996 and 2003, Hollinger International and its subsidiaries donated at least $6.5 million to hundreds of charities in the United States, Canada, Britain and Israel, but often the company was not given the public credit - it went instead to the Blacks or the Radlers.
Hollinger International also made donations to organizations to benefit Lord Black and other Hollinger directors. Hollinger pledged $40,000 to the Museum of Modern Art where Marie-Josee Kravis, a board member at the time, was co-chairwoman of the annual corporate lunch; $52,000 to the Museum of Television and Radio, where Mr. Kissinger was a trustee; and $1.475 million to the foreign policy journal National Interest Inc., where Lord Black, Mr. Kissinger and Mr. Perle all had posts.
Not only did Lord Black and his top associates take money from the company's coffers for their own use, but they arranged for Hollinger to hire family members for exorbitant salaries.
For example, Hollinger International paid Lady Black $1.1 million a year for a corporate post that did not require her to do anything. The report added that a post at The Jerusalem Post was also found for Mr. Radler's daughter, Melissa. She started as a New York correspondent at a salary of $38,000, but was later given a raise to $62,000 only because Mr. Radler sought it, Tom Rose, the Post's former publisher, told the committee.
While the report was careful to insist that Lord Black and Mr. Radler were the "primary offenders, the consistent inaction of the Hollinger board also resulted in squandering opportunities for stopping abusive acts before the damage was too great.''
Members of the audit committee come under particular fire. Its members - Ms. Kravis, an economist and wife of the financier Henry Kravis; the former Illinois governor, James Thompson; and Richard Burt, a former ambassador to Germany, were "ineffective and careless,'' the report stated. Of Mr. Thompson, the chairman of the audit committee, the report said, "He failed to apply the critical part of former President Reagan's famous dictum to 'Trust, but Verify.' ''
A spokeswoman said that Mrs. Kravis was traveling and could not be reached for comment. Mr. Burt said he did not agree with the committee's findings on the board and the audit committee in particular. Mr. Thompson also said he disagreed with some of the criticism of the audit committee but agreed with most of the committee's conclusions.
The board was only slightly critical of two independent directors, Mr. Kissinger and Shmuel Meitar, vice chairman of Aurec Ltd., saying they could have done more in reviewing transactions, but that their "reliance on the audit committee was reasonable.''
But its most scathing comments about a board member are aimed at Mr. Perle, singling him out for his "flagrant abdication of duty'' as a board member. It said Mr. Perle, who headed Hollinger Digital, a unit of the parent company, while he was a board member, rubber-stamped a large number of deals that benefited Lord Black and others at the expense of Hollinger.
According to the report, Mr. Perle admitted to the committee that he never read many of the documents or understood the underlying transactions before signing off on them.
For example in 1997, Hollinger International lent its Canadian parent $42.5 million on terms that were "unfair" to Hollinger, in part because the interest on the loan was only 1.25 percent, the report said. Mr. Perle told the special committee that "he did not remember anything about the loan or the consent he signed authorizing it. "
The report particularly criticizes a bonus plan related to various investments by Hollinger Digital that let Mr. Perle earn $3.1 million, even though the investments overall lost $49 million.
"He should have resigned from the executive committee or the board should have replaced him,'' the report said.
Mr. Perle resigned last year as chairman of the Defense Policy Fund, which advises Defense Secretary Donald H. Rumsfeld, after his link to Global Crossing Ltd., as an unpaid adviser, came to light.
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Jump to TO Features for Sunday September 5, 2004