SEC sues 2 ousted Hollinger executives

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Former top executives of Chicago Sun-Times owner Hollinger International Inc. "cheated and defrauded" investors and filed misleading public documents, the Securities and Exchange Commission alleged Monday in a federal lawsuit.

The civil suit is the first federal action against Conrad Black, the company's former chief executive, and David Radler, his top lieutenant, since the two executives were ousted from the company a year ago in the wake of a payment scandal that engulfed the newspaper publisher.

In its action, the SEC asked the federal court in Chicago to order Black and Radler to give back millions of dollars in "ill-gotten gains," and it also asks that both men be permanently barred from serving as officers of any public company.

But in the latest twist in what has been a yearlong cat-and-mouse game between regulators and Black over how much he can exercise his rights as Hollinger's controlling stockholder, Monday's suit also includes an unusual request to have the court impose an independent "voting trust" to oversee Black's voting control over Hollinger.

That voting trust provision is key for the current Hollinger team, which ousted Black and is seeking to keep him from regaining control of the company.

Under a separate injunction still in effect, Black is limited in his ability to exercise his power as the top shareholder, but only through Jan. 31.

If the court agrees to the SEC provision, company sources say that Hollinger would likely restart an auction process for the Sun-Times and the rest of the company. That effort was shelved last spring after revelations the Sun-Times had overstated its circulation figures.

At least two bids from that earlier process--one from a consortium led by Rev. Jesse Jackson's son Yusef Jackson and another from the Ontario Teachers' Pension Plan--remain on the table, the sources said.

Black was forced out as chief executive of the Chicago newspaper concern 12 months ago, after an internal investigation found evidence that he and Radler had improperly pocketed hundreds of millions of dollars that should have gone to the company. Radler was the No. 2 executive, and publisher of the Sun-Times, before he left the company at the same time.

Both men reiterated Monday that they have done nothing wrong.

A separate criminal probe into Black and Radler, as well as Hollinger's circulation scandal, continues, according to sources close to the investigation.

In one sense, the SEC's Monday lawsuit wasn't a major surprise: The agency has been investigating the tangled doings at Hollinger for some time. Early this year it took legal action to ensure Black didn't use his voting control to shut down the board's internal probe.

Hollinger's board ultimately sued Black and Radler for close to $400 million, the amount its investigators contend the two men siphoned off through schemes designed to enrich themselves at the expense of stockholders. The two also face similar claims from a host of lawsuits filed by shareholders.

At the center of those complaints are allegations that, as Hollinger sold off assorted operations, Black and Radler personally collected huge sums by crafting questionable "non-compete" agreements, in which they promised the buyers of Hollinger papers that they wouldn't start competing publications. In many instances, the buyers never sought such agreements, the SEC alleges.

The SEC suit said that Black, Radler and other insiders had used those agreements as a way to improperly divert some $85 million of the proceeds from Hollinger's sale of newspapers.

But in contrast to the existing litigation, the SEC's suit states that Black and Radler violated federal securities law by failing to disclose, or by inadequately disclosing, how they were personally profiting from Hollinger-related transactions, including sales of Hollinger papers for $1 apiece to private firms the executives controlled.

It also cites "misleading" public statements Black made at Hollinger annual shareholder meetings, as he deflected increasingly blunt investor questions about his side deals.

The SEC suit also says Black wasn't truthful when he signed off on a company press release in November 2003 announcing he was stepping down.

In the release, Hollinger said it was exploring a "strategic process" in which the company might either sell itself outright or might sell off certain properties. Black vowed in the release that he would focus his efforts on supporting the process.

But the SEC contends that when Black made that public statement, "he was not and had no intention of" backing the company's plan. Instead, it notes, he was secretly in talks to sell his controlling stake in the company to Britain's Barclay brothers--two investors who wanted Hollinger's London Telegraph newspaper.

After a lengthy legal tussle, the company negotiated a more preferable $1.2 billion deal under which the Barclays bought the Telegraph from Hollinger in mid-2004. The proceeds from that sale are to be distributed to Hollinger stockholders.

Black controls Hollinger through a Canadian holding company.

In Toronto, Black's private investing vehicle Ravelston Corp. said Monday that "we expect to be vindicated" in the court fight. And as to the transactions that are at the core of the SEC's allegations, Black said via Ravelston, "the decision-makers of Hollinger International relied upon the advice and counsel of professionals," and directors were kept informed.

Through a spokesman Radler dismissed the SEC complaint, saying it contained "nothing new of substance." Radler promised to defend himself "vigorously, in due course and in the proper venue."

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