Risk & Compliance

‘Corporate Kleptocracy’ at Hollinger

The company allegedly paid for personal perks that included corporate jets, a $42,000 birthday party, and the refurbishment of a Rolls Royce.
Ed ZwirnSeptember 1, 2004

Conrad Black, Hollinger International’s former chief executive officer, David Radler, its former chief operating officer, and other controlling shareholders and associates constituted a “corporate kleptocracy” which systematically looted the company of more than $400 million, according to a report issued Tuesday.

The 513-page report, filed in a Chicago court by a special committee of Hollinger’s board that is probing financial improprieties at the company, alleges that the group stole what amounted to 95.2 percent of Hollinger’s adjusted net income from 1997 to 2003.

Soon after becoming a public company a decade ago, “Hollinger went from being an expanding business to becoming a company whose sole preoccupation was generating current cash for the controlling shareholders, with no concern for building future enterprise value or wealth for all shareholders,” according to the report.

The investigation that produced the report was launched in May 2003 at the urging of shareholders led by New York investment firm Tweedy Browne Co., which owns an 18 percent stake in the publisher. Hollinger publishes The Jerusalem Post and the Chicago Sun-Times.

The committee “knows of few parallels to Black and Radler’s brand of self-righteous, and aggressive looting of Hollinger to the exclusion of all other concerns or interests, and irrespective of whether their actions were remotely fair to shareholders,” the report stated.

The company “was used as a piggy bank for the Blacks,” according to the committee, which reported that shareholders paid for the purchase of a Challenger aircraft ($11.6 million) for Radler, and lease of a Gulfstream IV jet (at a cost of $3 million to $4 million per year) for Black.

A much more unusual corporate “expense” was allegedly paid in 2000, when Black and his wife, Barbara Amiel Black, “swapped” Park Avenue apartments with the company. The apartment owned by the Blacks (which they had bought for $499,000 two years earlier) was priced in the swap by crediting it with 70 percent appreciation from its acquisition cost, according to the report. The apartment owned by Hollinger (which it had bought for $3 million six years earlier) that the Blacks acquired was “priced” in the swap by crediting it with zero appreciation. Both apartments were in the same building.

Apartments weren’t the only deal the Blacks cut for themselves in living expenses, according to the report. Conrad Black’s corporate expense reports charge the company for items such as handbags for his wife ($2,463), exercise equipment ($2,083), a “T. Anthony Ltd. Leather Briefcase” ($2,057), opera tickets ($2,785), “silverware for Blacks’ corporate jet” ($3,530) “Summer Drinks” ($24,950), a “Happy Birthday, Barbara” dinner party at New York’s La Grenouille Restaurant ($42,870), and $90,000 to refurbish a Rolls Royce for his personal transportation.

Conrad Black and Radler controlled Hollinger Inc., the parent company of Hollinger International, via their private holding company Ravelston Corp., Reuters reported. Ravelston asserted that the report was “laced with outright lies” and defended the publisher’s board of directors, according to the news service.

“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,” Ravelston reportedly said in a statement. The company vowed to take the matter to court, according to Reuters.

Gordon Paris, Hollinger’s interim chairman and CEO, said the committee, led by former SEC Chairman Richard Breeden, will continue its work until litigation based on the investigation is concluded.