News exec tells how money was diverted

A media executive told a federal jury Monday how half a billion dollars in asset sales by the Hollinger International newspaper conglomerate were structured to funnel money to a Canadian holding company controlled by former media mogul Conrad Black.

Michael Reed, former chief executive of Community Newspaper Holdings Inc. -- which bought a number of community newspapers from Hollinger in 1999 and 2000 -- said Hollinger executives had insisted on including money for the Canadian holding company.

The payments are at the heart of charges that Black and three former Hollinger executives swindled millions of dollars from the Hollinger newspaper empire they once ran.

Companies that bought hundreds of community newspapers from Hollinger International made payments in return for promises that Hollinger would not compete with them in markets where the newspapers circulated.

But millions of dollars in “noncompete” payments that prosecutors say should have gone to Hollinger shareholders went instead to Black and his associates.

In 1999, Community Newspaper Holdings bought a group of newspapers for almost $433.8 million, with $50 million of that set aside for noncompete payments, Reed testified. Some of that money was earmarked not for Hollinger International but for Hollinger Inc., a Toronto-based holding company that controlled Hollinger International and that in turn was controlled by Black, Reed testified.

Reed, now CEO of GateHouse Media Inc., testified that Community Newspaper Holdings wanted a noncompete agreement from Hollinger International -- the operating company that ran the newspapers -- but not from Hollinger Inc.

“Did you care one way or another whether Hollinger Inc. signed a noncompetition agreement?” Assistant U.S. Atty. Edward Siskel asked.

“No, we did not,” Reed said.

Asked who insisted on inserting the Hollinger Inc. agreement into the deal, he named former Hollinger attorney Mark Kipnis, one of Black’s codefendants. Kipnis worked in Hollinger’s Chicago headquarters and, though not accused of getting noncompetition money personally, is accused by prosecutors of drawing up the deal that sent the money to Black.