Risk Management

SEC Charges Hollinger, Two Executives

Conrad Black and David Radler ''abused their control of a public company and treated it as their personal piggy bank,'' according to the commission.
Stephen TaubNovember 16, 2004

The Securities and Exchange Commission filed a fraud complaint on Monday against Hollinger International Inc. former chairman and chief executive officer Conrad M. Black, former deputy chairman and chief operating officer F. David Radler, and Hollinger Inc., the parent company that Black had controlled.

The regulator alleged that from 1999 through 2003, Black, Radler, and Hollinger Inc. illegally diverted cash and assets from U.S.-based Hollinger International and concealed their self-dealing from the subsidiary’s shareholders.

“Black and Radler abused their control of a public company and treated it as their personal piggy bank,” said Stephen M. Cutler, director of the commission’s Division of Enforcement, in a statement. “Instead of carrying out their responsibilities to protect the interest of public shareholders, the defendants cheated and defrauded these shareholders through a series of deceptive schemes and misstatements.”

The SEC complaint alleged that Black, Radler, and Hollinger Inc. engaged in a scheme to defraud Hollinger International shareholders through a series of related-party transactions by which Black and Radler diverted to themselves, other corporate insiders, and Hollinger Inc. roughly $85 million of the proceeds from Hollinger International’s sale of newspaper publications through purported “non-competition” payments.

The commission also charged that Black and Radler defrauded shareholders by orchestrating the sale of several Hollinger International newspapers at below-market prices to another privately held company owned and controlled by Black and Radler — including the sale of one publication for just $1.

The SEC asserted that Black, without obtaining the necessary approval from Hollinger International’s audit committee, authorized the investment of $2.5 million of the subsidiary’s money in a venture capital fund with which Black and two other directors of Hollinger International were affiliated.

Black and Radler misled Hollinger International’s audit committee and board of directors concerning the related-party transactions, added the commission, and they misrepresented and omitted to state material facts regarding these transactions in SEC filings and during shareholder meetings.

Among its requests, the SEC wants Black and Radler to “disgorge their ill-gotten gains,” pay pre-judgment interest and civil penalties, and be barred from serving as an officer or director of a public company.

Merri Jo Gillette, an SEC regional director, stressed that the commission is continuing its investigation.

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