A special committee of $1 billion Hollinger International’s board released a 529-page report detailing “self-righteous and aggressive looting” of the Toronto-based company by former executives and controlling shareholders.
The committee, led by former SEC Chairman Richard Breeden, said former CEO Conrad Black, former COO David Radler and others used the newspaper publishing company as a “piggy bank,” lined their pockets at the expense of the company almost every day, and manipulated it for their sole benefit “in a manner that violated every concept of fiduciary duty.”
Specifically, Black, Radler and associates are accused of transferring more than $400 million to themselves over the last seven years.
Though press reports seemed to focus on the expensive opera tickets, birthday dinners, and "summer drinks" that were “indiscriminately” expensed “without any plausible business connection,” equally damning is the report's accusation of negligence and “lack of diligence” by the company's audit committee.
Calling the audit committee's performance ineffective and careless over a prolonged period of time, the report noted that the committee's worst failing was "not performing any appreciable analysis or review of whether more than $225 million in management fees they approved for payment to Black and Radler ... were fair and reasonable charges to Hollinger."
The report was especially critical of audit committee chairman James Thompson, a former governor of Illinois, who allegedly trusted Black and Radler when they were instead "regularly feeding inadequate or misleading information" to the committee. "He failed to apply the critical part of former President Reagan’s
famous dictum to “Trust, but verify,” noted the report.
The report also concluded that the audit committee "failed to monitor effectively Hollinger’s compliance with its disclosure requirements under the federal securities laws, or to detect the recurring pattern of violations of fiduciary duties committed by Black, Radler and their cohorts."
Though the report noted that Delaware law and Hollinger's Articles of Incorporation "exculpate board member from personal liability," it also noted that "at some point a director’s failure to question even the most basic elements of a significant related-party transaction calls into question whether any decision made by that director was a decision at all but rather only a rubber stamping of a non-arm’s length transaction."
The Committee has already commenced an action against Black, Radler and other defendants, seeking $1.25 billion in damages "suffered by Hollinger from the individual acts and events described in the Report, and from a long course of fraudulent activities in violation of federal racketeering statutes."
The committee, which was formed in June 2003, will continue to look into the matter until litigation concludes, according to interim Chairman and CEO Gordon Paris. The company said it will provide bi-weekly updates.
Late last week, Hollinger confirmed the receipt of a Wells notice from the SEC, meaning civil action is likely against the company, which publishes the Chicago Sun-Times and The Jerusalem Post.
The complete report is available from the box above, right.