A federal grand jury indicted ousted Chicago Sun-Times Publisher F. David Radler on fraud charges, saying he illegally helped funnel about $32 million in corporate funds to a private company he co-owns.
Also named in Thursday’s seven-count indictment was Mark Kipnis, former head corporate lawyer for Hollinger International Inc., the media holding company that owns the Sun-Times.
The two men were supposed to make sure Hollinger properly disclosed its dealings, said U.S. Atty. Patrick Fitzgerald, but they instead “made it their business to conceal those transactions … because insiders at the company were stealing money.”
Although the indictment marks the first criminal charges to emerge from the financial scandal that began to engulf Hollinger in 2003, it may not be the last.
The grand jury didn’t charge Conrad Black, who served as chief executive of the holding company until directors–after an internal investigation found evidence he and Radler had been looting Hollinger to line their own pockets–forced both men out of office in late 2003.
On Thursday, Fitzgerald emphasized that the criminal probe of the Hollinger case is still under way.
The prosecutor disclosed that the 63-year-old Radler is cooperating with federal investigators, which raises the possibility that Black’s longtime lieutenant and investing partner is providing evidence that could help the prosecutor make a criminal case against Black.
“To my mind this is a pressure play,” said one lawyer who has been following the case. “This looks like an effort to push people into cooperating against the ultimate target, Conrad Black.”
Fitzgerald declined to say whether Black or any other individual will be charged.
He did say, however, that stockholders in publicly traded firms “have a right to expect that their monies will be managed properly” by corporate officials, “and that the officers and directors won’t steal it.”
Beside Radler and Kipnis, the indictment also named as a defendant Ravelston Corp., a private company in Toronto whose main asset was its controlling interest in Hollinger. Black is the controlling shareholder of Ravelston, which is now under control of a receiver designated by a Canadian court.
The defendants were charged with five counts of mail fraud and two counts of wire fraud. If convicted on each count, the former executives could face as much as 35 years in jail.
Radler, who is expected to plead guilty as part of his cooperation agreement, is unlikely to face substantial jail time.
Black and Radler are already co-defendants in civil litigation that alleges they siphoned hundreds of millions of dollars out of Hollinger’s coffers.
Over many years, the Canadian-born Black built an international media empire that at one time included the London Daily Telegraph, the Sun-Times, and a hundreds of small-city papers across North America.
Although the papers have been owned by publicly traded Hollinger International, Black has always retained unchallenged voting control of Hollinger via a maze of interlinked holding companies. And the “scheme” that Fitzgerald described Thursday involved the alleged misuse of that ownership structure.
In the publishing business, the buyer of a newspaper sometimes asks the seller to agree not to open a competing paper in the same market; to seal the accord, they pay the seller a “non-compete fee.”
The indictment claims that Radler and others diverted $32 million, disguised as non-compete fees, to Ravelston Corp.
“You’ll see that the way they went about this fraud got more and more brazen and bold over time,” Fitzgerald told reporters.
At the press conference, Fitzgerald referred on several occasions to the former chairman of Hollinger, without ever identifying Black by name.
Later, in response to a question, the prosecutor said “I’m not going to comment on who the chairman was, but you can check the public record.”
In some cases where assets were sold and phony “fees” were diverted from the sale price and sent to Ravelston, the purchasers of the Hollinger papers had never even asked for a non-compete agreement, much less paid a fee.
In one deal in which Radler and others improperly pocketed $12 million, documents were prepared to make it appear the buyer had insisted on a non-compete agreement, the indictment states.
The indictment notes that the alleged diversions began only a few years after a Canadian court ruled that non-compete agreements are not taxable. And it states that when Radler, Kipnis and two other Hollinger International execs decided in 2001 to pay themselves $5.5 million in bonuses, they disguised the bonuses as non-compete payments to lower their tax liability. Indeed, the indictment declares that the individual and corporate defendants also “cheated” Canadian tax authorities of tax revenue.
Fitzgerald was particularly caustic about a deal in which Hollinger International sold some tiny newspaper properties to a company known as Horizon, which was owned by Radler and other Ravelston owners. Horizon paid Hollinger $5 million in non-compete fees, of which $1.2 million was diverted to Ravelston.
As a result of the complex transaction, “you have people who are buying a newspaper paying themselves not to compete with themselves,” said the prosecutor.
Kipnis is not a co-owner in Ravelston and thus didn’t profit from the alleged diversion of Hollinger funds; he nonetheless is charged with helping to carry out and conceal the scheme.
“We will enter a plea of not guilty and expect to be vindicated,” said attorney Ted Helwig, who represents Kipnis.
Radler’s attorney, Anton Valukas, was said to be traveling and couldn’t be reached for comment; Radler and Black have previously denied any wrongdoing.
Although the non-compete payments that the grand jury focused on were the first element of the Hollinger scandal to emerge, the New York company’s subsequent in-house investigation found more apparent abuses; that is why Hollinger’s own lawsuit against Radler and Black seeks a total of about $400 million in restitution.
“We feel vindicated because Radler is expected to enter a guilty plea in connection with serious issues raised by Hollinger International shareholders over three years ago,” said Eugene Fox, managing director of Cardinal Capital Management in Greenwich, Conn., which owns 1.5 million Hollinger International shares.
Fox added: “We will let people draw their own conclusions with respect to Conrad Black.”
FBI Special Agent Robert Grant called the indictment “an example of corporate officers conspiring to defraud their shareholders by outright theft.”
Grant also said that the investigation “remains a priority of the FBI and it is ongoing.”
———-
mo’connor@tribune.com
jpmiller@tribune.com
