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Hollinger 'milked' of cash, suit says
Barbara Amiel-Black, wife of press baron Conrad Black, liked to tip the doorman at posh New York clothing retailer Bergdorf Goodman--and then expense it to her husband's company, Sun-Times owner Hollinger International Inc.
Chicago-based Hollinger also paid $90,000 to refurbish a 1958 Rolls-Royce limousine that the couple used to tool around London in high style.
In the life of the formerly powerful publishing couple, such perks were routine, according to new allegations in Hollinger's lawsuit against the couple and other former executives. For many years, Black, his wife and other executives used Hollinger as a "cash cow to be milked of every possible drop of cash," the company says in the suit.
But those examples actually are among the smallest alleged indiscretions cited by Hollinger as it seeks to recoup hundreds of millions of dollars in management fees and gains from deals in which money went from the publicly held company to firms privately owned by Black and other former executives.
The suit, which seeks $1.25 billion from Black and the others, alleges that the former executives broke federal racketeering laws in padding their pockets. Hollinger filed the suit Friday in U.S. District Court in Chicago. It made the updated complaint public Monday in a regulatory filing.
From 1997 to 2003, the suit alleges, Black and his chief lieutenant, former Sun-Times Publisher David Radler, paid themselves $391 million, or 72 percent of the company's net income in the period.
Despite the new allegations, the suit fell short in the eyes of Hollinger's largest outside shareholder, Tweedy, Browne Co.
The New York-based investment firm, which owns 18 percent of Hollinger's stock, said Monday that Hollinger's independent directors, including former Illinois Gov. James R. Thompson, should be held accountable for approving hundreds of millions of dollars in controversial fees to Black and other former executives.
Partner Christopher Browne said he made his case to the special committee of Hollinger's board that has been investigating the payments to Black, Radler and others.
Browne declined to divulge the contents of his letter. But he said he also sent a copy to Richard C. Breeden, the former Securities and Exchange Commission chairman overseeing the special committee's investigation.
In its amended lawsuit, Hollinger says Black and Radler engineered deals in which companies they controlled acquired newspapers from Hollinger for as little as $1 apiece--in some cases despite six-figure offers from competing companies.
The lawsuit acknowledges that Hollinger's audit committee, led by Thompson, approved millions of dollars in management fees paid annually to Black's Ravelston Corp. But the suit says Black, Radler and others "did not reveal what was going on behind the curtain at Ravelston since they had learned how to manipulate and dominate the audit committee."
That didn't assuage Browne, who said Thompson should have more aggressively scrutinized the payment requests.
"This board didn't know how to say no," Browne said. "There's no excuse for it. Jim Thompson is not an Isuzu salesman from Peoria."
Thompson could not be reached for comment Monday.
Browne's response puts more pressure on Breeden and the special committee to turn their attention to the board's handling of the management fees.
For his part, Radler, who issued two statements over the weekend before the amended lawsuit was made public, also laid blame at the board's feet.
The lawsuit "repeatedly acknowledges that many of the things Mr. Radler is being accused of were presented to the board, considered by the board and approved by the board, yet it somehow fails to implicate the board in any of the alleged misconduct," a Radler spokesman said Sunday.
Black's Ravelston Corp., through a spokesman, also denied any wrongdoing.
"When this complaint is heard in a court of law, the poverty of this case will be plainly demonstrated," Ravelston said in a written statement.
The lawsuit alleges that Black and Radler--sitting on both sides of transactions between Hollinger and their private firms, Horizon Publications Inc. and Bradford Publishing Co.--manipulated the earnings and valuation multiples of Hollinger newspapers, clearing the way for their firms to buy the publications for about $30 million less than fair market value.
When Hollinger sold Bradford several small papers for $38 million in 2000, Black and Radler arranged for $6 million of the purchase price to be paid to them personally in the form of a "non-compete" agreement, the suit says.
In another deal that year, the suit alleges, Black and Radler arranged for Horizon to buy two Hollinger newspapers for $1. But Horizon also collected $149,999 from Hollinger to close the deal.
Horizon was able to make a profit on its purchase because Hollinger's audit committee had been given an erroneous "negative portrayal" of the papers' finances, the suit says.
In that deal, Radler failed to disclose that he had received a memo six months earlier from another Hollinger executive saying the papers had turned the corner, were "coming along nicely" and would be profitable in a year, according to the suit.
In addition, the suit claims, the board was not told that a third party had offered to buy one of the two papers for about $750,000. And within 18 months of the sale, Horizon turned around and resold both publications for a combined profit of about $700,000.
Along with her expensed tips to the doorman, Amiel-Black is criticized for collecting a combined $1.1 million in salary and bonus from 1999 to 2003. Though she carried the title of Hollinger's vice president of editorial and publishing, the suit says, she did "little if any work."
"Had she not been the wife of Black, these amounts never would have been paid," according to the suit.