A federal grand jury yesterday indicted the former publisher of the Chicago Sun-Times and prosecutors signaled that he is cooperating with a criminal investigation into alleged improper dealings by media tycoon Conrad M. Black.
F. David Radler, who was Black's second in command at Hollinger International Inc., is assisting the authorities and is expected to plead guilty to mail fraud and wire fraud in connection with deals that enriched him and other top executives by more than $32 million, prosecutors said.
The indictment charges that Radler, former top Hollinger lawyer Mark S. Kipnis and other, unidentified executives improperly profited from sales of media properties in an empire that included the Sun-Times, London's Daily Telegraph, the Jerusalem Post and scores of other newspapers.
Word that Radler, 63, is helping Chicago-based U.S. Attorney Patrick J. Fitzgerald is "extremely significant and clearly the worst possible news for Black," said Richard C. Breeden, a former chairman of the Securities and Exchange Commission who, on behalf of Hollinger's board of directors, has sued both men for allegedly looting the company.
The Canada-born Black, 60, famously renounced his citizenship to become a member of the British House of Lords. He was forced to resign from his holding company in November 2003 after reports that he accepted millions in unauthorized payments.
"Sadly, today's indictment charges that the insiders at Hollinger -- whose job it was to safeguard the shareholders -- made it their job to steal and conceal," Fitzgerald said in a prepared statement.
Prosecutors allege that Radler and others used Ravelston Corp., a Canadian company they led, to funnel $32 million from Hollinger to themselves from 1999 to 2001. In many of the transactions in which community newspapers were sold, the executives inserted language in contracts that promised Hollinger would not operate a rival newspaper in the same area, in exchange for millions of dollars in "noncompete" payments that they allegedly pocketed.
Those payments should have gone to publicly traded Hollinger and its shareholders -- not to individual executives, governance experts said.
Prosecutors suggested that one possible motive for the alleged scheme was that Canadian law did not require such payments to be taxed as personal income if they were structured as noncompete fees as opposed to bonuses, according to the indictment.
Radler negotiated many of the deals and Kipnis prepared documents related to the transactions, court papers said. Both men allegedly violated their fiduciary duty to negotiate the best price for Hollinger shareholders and to disclose to the company's board of directors the money they received.
Breeden, who prepared a report on the company's former managers, has called the alleged scheme a "corporate kleptocracy." Black used company money to purchase letters by Franklin D. Roosevelt, to refurbish his Rolls-Royce and to pay for a birthday party for his wife at New York's La Grenouille restaurant, according to the report. At the time, Black denied the allegations as "exaggerated claims laced with outright lies."
"Looting public companies is not legal in America," Breeden said yesterday in a telephone interview.
The prosecutors' statement said Radler's lawyers authorized them to disclose his cooperation and his expected guilty plea. Anton R. Valukas, Radler's lead attorney, was traveling and did not return calls yesterday. Radler's ties to Black date back more than three decades.
Ted S. Helwig, a lawyer for Kipnis, said, "We will enter a plea of not guilty and expect to be vindicated." Lawyers for Black declined to comment.
As of yesterday afternoon, a judge had not yet been assigned to hear the criminal case. Radler and Kipnis could appear in court as soon as next week, Assistant U.S. Attorney Eric H. Sussman said.
Each of the seven criminal charges carries a maximum penalty of five years in prison and a $250,000 fine. In exchange for his cooperation, Radler could win leniency in a sentencing.
Separately, a federal judge recently rejected an attempt to dismiss a civil lawsuit against Black and Radler filed by the Securities and Exchange Commission.
Both men, and former Hollinger board member and Defense Department official Richard N. Perle, also face a civil lawsuit filed by the company that seeks $500 million in damages. Black has countersued in that case.
Perle received more than $3 million for serving as a director of Hollinger and as the chief of its Internet investment subsidiary. Hollinger also invested in other business ventures operated by Perle, who has maintained that he acted properly and that the shareholder lawsuit is misleading.