Press tycoon Conrad M. Black and other top Hollinger International Inc. officials pocketed more than $400 million in company money over seven years and Black's handpicked board of directors passively approved many of the transactions, a company investigation concluded.
A report by a special board committee singled out director Richard N. Perle, a former Defense Department official, who received $5.4 million in bonuses and compensation. The report said Perle should return the money to the Chicago company.
The report also criticized the board's audit committee, which includes former Illinois governor James R. Thompson and former ambassador Richard R. Burt, for failing to question Black's large management fees. It said it was reasonable for former secretary of state Henry Kissinger, another independent director, to rely on the audit committee.
Black's holding company said the report was filled with "outright lies."
Black resigned in November after an internal investigation showed that he and associates, mainly chief operating officer F. David Radler, received money that the company should have kept. Hollinger International is suing Black -- a native of Canada who is now a British citizen -- and others for $1.25 billion in damages for their alleged pillaging of the company, which owns the Chicago Sun-Times, the Jerusalem Post and other newspapers. It recently sold London's Daily Telegraph.
The new report, filed with the Securities and Exchange Commission late Monday, added details of what it called the "corporate kleptocracy" Black and Radler created at Hollinger. It said they treated the company as a "piggybank" and fashion accessory, with Black using the prestige of the newspapers to gain access to the wealthy, powerful and royal.
For example, the report said Black and his wife, Barbara Amiel Black, treated the Hollinger corporate jet as a private shuttle between cities such as Chicago and Toronto and vacation spots. They took frequent trips to Palm Springs and one 33-hour round trip to Bora Bora, which cost the company $530,000, the report said. It also said Black charged the company $90,000 to refurbish a Rolls-Royce and used $8 million in company money to buy memorabilia of President Franklin D. Roosevelt, about whom Black wrote a book.
From 1997 to 2003, the report said, Black, Radler and other controlling shareholders steered 95.2 percent of Hollinger's adjusted net income into their personal accounts. Black's Hollinger Inc. has 68 percent voting control of Hollinger International and 18.2 percent equity interest.
"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 Richard C. Breeden, a former SEC chairman. "At Hollinger, Black as both [chief executive] and controlling shareholder, together with his associates, created an entity in which ethical corruption was a defining characteristic of the leadership team."
Ravelston Corp. Ltd., Black's holding company, disputed the findings. "The special committee's report is recycling the same exaggerated claims laced with outright lies that have been peddled in leaks to the media and over-reaching lawsuits since Richard Breeden first began his campaign against the founders of Hollinger International," Ravelston said in a written statement. Black filed a defamation suit against Breeden in February. "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."
The report said Perle "breached his fiduciary duties" as a member of the board's executive committee, signing documents without evaluating or, sometimes, reading them, including those that allowed Black and Radler to evade audit committee scrutiny. Perle received more than $3 million in bonuses and hundreds of thousands of dollars more in compensation from a Hollinger subsidiary that invested in new media companies during the dot-com boom. The report said Hollinger International put $63.6 million into 11 companies Perle recommended and lost nearly $50 million. "Perle was a faithless fiduciary . . . and . . . should not be allowed to retain any of his Hollinger compensation," the report said.
Perle did not return a call to his office and e-mails asking for comment yesterday. He said in an interview in May that any suggestion "that actions or decisions taken by me involved a quid pro quo for compensation I received . . . is absolutely false."
The report said Black and others diverted Hollinger money through Ravelston, which charged management fees when Hollinger sold properties. The audit committee, for example, approved $52 million for Ravelston when Hollinger completed its sale of Canada's National Post newspaper to CanWest Global Communications Corp. in 2001.
Members of the company's audit committee either didn't know or didn't care what Black and Radler were doing, probably because they were too close to Black, the report said. "Black named every member of the board, and the board's membership was largely composed of individuals with whom Black had longstanding social, business or political ties," the report said. "The board Black selected functioned more like a social club or public policy association than as the board of a major corporation, enjoying extremely short meetings followed by a good lunch and discussion of world affairs."
Black said the board's audit committee signed off on his decisions. The report said the audit committee should have pushed Black and Radler for more information.
Laura Jereski, an analyst with minority shareholder Tweedy, Browne Co., which spurred the creation of the special committee, said yesterday's report is "a step in the right direction."
The report is inconclusive about the directors, she said, as it withholds its opinion on how much blame they should receive for the actions of Black and others. "So much money left this company," she said. "The special committee is fully empowered to seek all remedies. We just want our money back."
The report contains e-mails from Black to other company officials about Perle, whom Black called a "trimmer and a sharper" who was profiting from Hollinger's name in establishing his own venture fund.
"I have been exposed to Richard's full repertoire of histrionics, cajolery, and utilization of fine print," Black wrote. "He hasn't been disingenuous exactly, but I understand how he finessed the Russians out of deployed missiles in exchange for non-eventual-deployment of half the number of missiles of unproven design." Perle was an assistant secretary of defense in the Reagan administration.
The report also contains some unexpected humor. When detailing the "Happy Birthday, Barbara" dinner party that Black threw for his wife at New York's La Grenouille restaurant ($42,870), the authors noted: "At least Black's choice of venue for his wife's birthday was less expensive than Dennis Kozlowski's party for his wife on Sardinia that was charged in part to Tyco."