In 1996, after decades of living in the shadow of Conrad Black, his flamboyantly controversial partner, Canadian newspaper magnate David Radler told the Toronto Star, “I am nobody’s right-hand man.”
On Thursday, he proved it.
According to U.S. Atty. Patrick Fitzgerald’s office, Radler, 63, plans to plead guilty to fraud charges stemming from his involvement with the tangled, yearslong Hollinger International Inc. scandal.
Fitzgerald’s office also said Radler intends to cooperate with the ongoing investigation, a step that many experts assume will mean laying out evidence against Black, his partner in a four-decade spree of buying and selling newspapers, including the Chicago Sun-Times.
“The government has only one playbook, and that is to go to the top,” said John Coffee, a law professor and securities regulation expert at Columbia University. “You don’t get any credit [otherwise].”
At the moment the government still is climbing the ladder. Named as defendants in an indictment obtained Thursday are Radler; Mark Kipnis, Hollinger’s 58-year-old former corporate counsel; and the Ravelston Corp., a privately held Canadian company controlled by Radler and Black that the government said was used to funnel money out of Hollinger International.
But in outlining the charges of fraudulent self-dealing at the expense of Hollinger International shareholders, the indictment makes numerous references to other officers in Ravelston and a company it controlled called Hollinger Inc.
Coffee said the government likely is following the script that worked so well in the recent case against former WorldCom Inc. Chief Executive Bernard Ebbers. By getting WorldCom’s former Chief Financial Officer Scott Sullivan to cooperate, prosecutors sent Ebbers to jail for 25 years, while Sullivan will spend only five years behind bars.
“The recent sentencing of Sullivan was probably not lost on Radler and Kipnis,” Coffee said.
People who know the two men said it’s not surprising that Radler decided to cooperate. Although Black is a globe-trotting tycoon who has flaunted his wealth and social status, it is Radler who might have had more at risk by going to war with prosecutors. Some Hollinger shareholders speculate that much of Black’s fortune has evaporated over the last several years. Radler, on the other hand, has held onto his assets, they believe.
“Black has nothing to lose,” said one large Hollinger shareholder. “He’ll fight to the death. But Radler wants to cut a deal.”
A spokesman for Black did not respond to a request for comment.
Although Radler has repeatedly declared publicly that the Hollinger board had full knowledge of the deals that are questioned in the indictment, few expect the government to seek criminal charges against the company’s independent directors.
The group includes some meaty targets, including former Illinois Gov. James Thompson and former U.S. Secretary of State Henry Kissinger, and there is ample evidence that they badly mishandled duties in monitoring Radler and Black and protecting shareholder interests. But a criminal fraud or conspiracy case would be highly difficult to develop.
“A board that sat on its lazy behinds is not the same thing as fraud,” said Coffee.
A pending $50 million settlement between a group of Hollinger shareholders and insurance companies representing the independent directors is wending its way through Canadian and U.S. courts. But even civil actions against directors may be harder to come by in the future.
Last week in a landmark corporate governance case, a Delaware judge harshly criticized the business practices at Walt Disney Co. but found that Disney directors did not breach their fiduciary duty to shareholders when they approved a contract for a top executive that contained a $140 million severance package.
Indeed, bringing a case and winning one are two different things. The recently failed fraud case against former HealthSouth Corp. CEO Richard Scrushy demonstrated that much.
“Case law isn’t made on the basis of indictments. It’s made on convictions,” said Ric Marshall, chief analyst with The Corporate Library, a research firm that specializes in corporate governance.
That’s why Radler’s cooperation might be important if a case is brought against Black.
Radler, who grew up in a middle-class family that owned a French restaurant in his hometown of Montreal, has worked with Black for almost 40 years. They became partners when Radler bought a small paper in Quebec in 1969, and they made a specialty over the years of buying papers, slashing costs and turning them into money machines.
Early on, Radler became the deal guy, and Black was Mr. Outside. Black’s interest was in the bigger properties, notably the London Daily Telegraph. He and his wife, columnist and socialite Barbara Amiel, spent lavishly to be a part of London’s upper-crust social scene. They had little time to pay attention to the community newspapers Hollinger amassed in the 1980s and ’90s. That was Radler’s domain.
In his 1993 autobiography “A Life in Progress,” Black said that newspaper publisher Rupert Murdoch once told The New York Times that he didn’t have the time to visit newspapers in a lot of little towns like Conrad Black did.
“I don’t either,” Black wrote. “But David Radler does.”
Described often as reclusive and shy, Radler had a simple formula: Buy small papers in out-of-the-way places with little or no competition, then cut costs relentlessly, driving up profits. That worked until Hollinger bought the Sun-Times in 1994.
Instead of investing heavily in reporters and sales representatives to try to catch up to the dominant Chicago Tribune, Radler applied his reliable cost-cutting strategy. As he chopped marketing budgets and sales staff, the advertising gap widened.
“David is a great monopolist,” an executive who worked closely with Radler told the Tribune last year. “He was not very good in a competitive market.”
The indictment cites a series of deals in which Hollinger International sold papers to others and demanded “non-compete” payments from the buyers. Some $32 million was skimmed from those payments and then funneled to Hollinger Inc., the indictment said.
Some legal experts said Thursday that since Radler has traditionally been the deal guy in the trenches, it might be hard to tie those transactions to Black without Radler’s help. Consequently, the government may be building the case step by step.
Corporate governance watchdogs like Marshall are reluctant to declare victory in the Hollinger case. While the evidence against the executives may be compelling, he said, “What’s missing is a clear statement by a court that directors have liability. So far, directors have been able to get off on the business judgment rule or some variation.”
Even shareholders found Thursday’s indictment bittersweet.
Investor Chris Browne, a partner in Tweedy, Browne & Co., said he doesn’t take great satisfaction in the charges even though his firm acted as a catalyst by demanding a special committee be appointed to look into the services arrangement between Hollinger and Ravelston.
“When we started,” Browne said, “we had no idea there was anything of this magnitude going on. I don’t take any great pleasure in it. I think it’s kind of a tragedy.
“It just makes business people like me look like a bunch of crooks. The truth is we’re not. If you’re broke and desperate, you resort to robbing a candy store. These guys lived in mansions. They didn’t have to do this.”
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mdoneal@tribune.com; schandler@tribune.com
