This article is the subject of a legal complaint
THE entry of Marie-Josée Kravis, the Queen of Manhattan’s social Alist, into
Lord Black’s fraud trial was not observed by his wife, Barbara Amiel, last
Friday. Rather than face the ordeal, Amiel stayed in her hotel room. That
also saved her seeing Black's pained expression. He would have surely
recalled that while most of his media empire was sold, he spent millions on
mansions, jets, couture clothes and jewellery to maintain Lady Black’s
membership of Kravis’s aristocratic club.
Until four years ago, the Blacks and the Kravises enjoyed cosy dinners in
Manhattan. Regularly Kravis, a Canadian economist and wife of the
private-equity financier Henry Kravis, and Amiel exchanged girly intimacies.
The Kravises’ fondness for the Blacks encouraged Marie-Josée Kravis to
become in 1996 a director of Hollinger International, Black’s US media
company. More important, she became a member of Hollinger’s audit committee,
which explains her rare public appearance in Chicago. Black’s alleged $60m
(£30m) frauds not only escaped Kravis’s attention but were partly ratified
by her signature on documents submitted by Hollinger to shareholders and the
Securities and Exchanges Commission (SEC).
Kravis’s appearance confirmed a turning point in the six-week trial. She
systematically contradicted Black’s defence and her shortest answers were
the most damning.
Contrary to Black’s assertion, she testified that she had never approved his
use of Hollinger’s corporate jet for personal use “on security grounds”.
Black is accused of using the Gulfstream to holiday in Tahiti at a cost of
$560,000. Next, Kravis contradicted Black’s assertion that the 60th birthday
party for Amiel at La Grenouille in Manhattan costing $62,000, mostly
charged to Hollinger, was a business meeting. “I did not see it as a
business event,” Kravis told the court. “It was not presented to or approved
by the audit committee.”
Black is accused of taking $60m in noncompete payments from the sales between
1998 and 2001 of Hollinger International’s newspapers. According to the
prosecution, he took the money without the approval of Hollinger’s
directors. “Were you told,” Kravis was asked seven times about seven sales,
“about the noncompete payments going to anyone other than the company?”
“No,” she replied seven times. But Kravis had in 2001 signed the US regulatory
10K form disclosing that she had approved the noncompete payments. “Was that
true?” she was asked. “Not true,” she replied. “We had not approved those
payments.” Despite reading the form, she “missed” seeing the payments, she
said. And then she added damningly: “It would have been important for the
whole board to know what was going on.” She added: “All that money belonged
to the company.”
Her condemnation of Black echoed the previous witness, Richard Burt, a former
US ambassador. By drawing the hitherto disparate strands of the alleged
fraud together, Burt had earlier electrified the trial.
He testified that he had joined Kravis and Governor Jim Thompson on
Hollinger’s audit committee – the shareholders’ vigilan-tes. “To do the
job,” Burt told the jury, “you had to rely on the good faith and getting
true information from the executive directors.” As Hollinger’s chairman,
chief executive and a major shareholder, said Burt, Black “asked us to
ratify his decisions”. There was no reason, he said, not to trust Black’s
representations. Like Kravis, Burt was largely unaware until 2003 that Black
and David Radler, his partner for 36 years, had jointly pocketed at least
$100m in noncompete payments.
The prosecution alleges that the payments were a ruse to take unapproved
bonuses. Burt and Kravis have testified that neither had approved “a pattern
of payments” worth $60m. “I knew nothing about those payments,” Burt said.
Four executives who bought Hollinger’s American newspapers explained to the
jury the background to the alleged fraud. To their surprise, Radler asked
for the inclusion in the sales’ contracts of noncompete agreements with
Black and Hollinger Inc, a Canadian shell company controlled by Black.
“We couldn’t care less about Hollinger Inc,” testified Thomas Henson. “The
deal was with Hollinger International,” testified Michael Reed, of an
Alabama newspaper group. Reed refused to wire $9.5m from a $92m sale
directly to Black, Radler and Hollinger Inc: “It just didn’t seem like the
right thing to do.”
Radler has pleaded guilty to fraud and will testify against Black. Black’s
defence is that Radler is to blame for any illegality because he acted alone.
Among the 14 charges is Black’s receipt of $5.5m for a noncompete agreement
with the American Publishing Company, a subsidiary of Hollinger itself. “An
agreement not to compete with yourself,” Burt told the jury, “is
nonsensical.” Black took the money, said Burt, without the directors’
approval. Black claims that the payments were approved by the company’s
directors, lawyers and accountants – and some evidence supports that
contention. Yet in testimony by lawyers and an accountant, the jury was told
that the disclosures were late and not brought to the board’s attention. “It
was incumbent on management,” said Burt, “to bring to the board timely
information.”
The court has heard that the payments were only disclosed in mid2001 after
lawyers conducting due diligence on behalf of a bank discovered in
Hollinger’s records that Black and his co-directors had in 2000 taken $51.8m
from the $2.1 billion sale of Hollinger’s Canadian newspapers to Can-West.
Black accurately argued that the nondisclosures were approved by Torys, a
Canadian law firm.
But Beth de Merchant, the Torys lawyer, has admitted in court her ignorance of
US law. “I dropped the ball,” she conceded. “I said I was sorry.” She
recently retired from her law firm, which paid $30m in compensation to
Hollinger without admitting wrongdoing, to “enjoy her children”.
Crucially, Paul Saunders, one of the lawyers, testified that after telling
Peter Atkinson, Hollinger’s in-house lawyer also on trial, that the
directors were “in breach of the law” by failing to declare the $51.8m
payment, Atkinson did not fully reveal seven other noncompete payments taken
by Black and his co-directors.
The ignorance extended to KPMG, Hollinger Inc’s auditors in Canada. Marilyn
Stitt, Hollinger Inc’s relationship partner, testified: “I don’t recall the
payments to executives being mentioned in the [2001] accounts.” She added:
“No-one brought them to my attention.” The company’s 2001 minutes, Stitt
testified, were “inaccurate”.
Confusingly, KPMG’s partners in Chicago, the court was told, did belatedly
receive details of the payments but did not inform Stitt in Toronto. The
combination of alleged negligence by the lawyers and auditors and the
directors’ ignorance is, say the prosecution, a result of the criminal
conspiracy which Radler admits and Black denies.
Black’s defence is that Radler acted alone in selling Hollinger’s US
newspapers and allocating the noncompete payments. Ed Genson, his lawyer,
has described the partners as acting in isolation, dividing their tasks –
Radler running operations in America while Black managed Britain and Canada.
“And just as the business was run,” Genson said earlier, “it was sold.”
Kravis rejected that notion. “Conrad Black was the boss,” she told the jury.
“There was no geographic division.” Burt agreed. During 10 years as a
Hollinger director, “I didn’t see this compartmentalisation you are putting
of Radler and Black . . . They acted in tandem . . . seamless”, he said.
Repeatedly, Genson referred to Hollinger’s board minutes about the sales of
the US newspapers. Only Radler’s name is mentioned, Genson said. “But that’s
only the minutes,” replied Burt.
Just one week ago, Black told journalists: “I’ve always said they had no case
and nothing has changed. So what are we doing here?”
Kravis told the jury that in 2003, as the shareholders’ revolt raged against
Black, she had advised him to “take a more quiet tone. To be more humble”.
After her evidence, he may recall that advice. But his lawyer’s
cross-examination of Kravis tomorrow is unlikely to be chivalrous.
