ANALYSIS: Radler’s Plea Agreement Suggests Black Ordered Improper Fee Scheme

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By: Mark Fitzgerald

One theme that resonates throughout the 32-page plea agreement F. David Radler submitted in federal court Tuesday: His former boss, Conrad M. Black, started the scheme to improperly divert $32 million from Hollinger International Inc., and devised the “template” that kept it going.

Radler’s guilty plea to a single count of mail fraud — which would sentence him to 29 months in prison and a $250,000 fine — is conditional on his cooperation with the continuing investigation of the alleged looting of Hollinger International.

In the plea bargain’s narrative, the first of the improper payments were made at the orders of “the Chairman,” or “Toronto” — terms that clearly refer to Black. As chairman of Hollinger International, Black controlled a newspaper empire stretching from small-town America to Chicago, London, and Jerusalem through a complex web of holding companies in which Radler also had substantial stakes.

Soon, though, the plea agreement suggests Black didn’t really have to specifically ask Radler or former Hollinger International general counsel Mark Kipnis — who was indicted along with Radler, but maintains his innocence — to phony up the payments, because Black had ordered a “template” of how fees would be diverted in all future transactions.

In the popular image of Hollinger’s operation, it was Radler who was the details man, while Black preferred to hob-nob with political leaders and thinkers. This weekend, The Wall Street Journal quoted people familiar with Black’s defense strategy as saying he intends to portray Radler as the person behind any wrongful conduct. (Black has not been charged criminally, although he is widely viewed as the federal investigation’s ultimate target.)

In his plea agreement, Radler says non-compete fees from newspaper sales were improperly diverted from Hollinger International to Black’s Hollinger Inc. In other instances, the agreement says, payments to Radler and other Canadian-born executives were made to look like non-compete payments in order to take advantage of certain tax advantages in Canada.

In the late 1990s, Hollinger International began selling off nearly all the community papers it had amassed under the old American Publishing Co. name. In 1998, it reached an agreement to sell some of those papers to Community Newspaper Holdings Inc. (CNHI) in a $472 million deal.

“Defendant (Radler) participated in negotiating the principal terms of the CNHI transaction,” the plea agreement says. “The amount of International’s non-compete fee [$50 million], however, was decided by Ravelston’s agents in Toronto.”

Later, the plea agreement says, Radler got a call from these “agents” telling him to give Hollinger Inc. a $12 million cut of that fee by having the company “inserted as a covenantor” to the non-compete agreement with CNHI.

“Defendant understood that this decision was ultimately being made by the Chairman, since none of the other International executives were in a position to make a decision of this magnitude,” the agreement states.

The agreement quickly adds that none of this was Radler’s idea: “Prior to this call, defendant had no idea that [Hollinger] Inc. would be a covenantor to the non-compete, or that it would receive a non-compete payment.”

Radler told Kipnis to get it done, and it was, according to the plea agreement’s version of events.

Soon thereafter, Kipnis had a message for Radler: This is how things would work from now on.

“Kipnis advised defendant that, at a meeting he attended in Toronto, it had been decided by ‘Toronto’ that Inc. would be inserted as a non-compete covenantor in all future deals involving the sale of International’s U.S. community newspapers, and that Inc. would receive 25% of any non-compete payments,” the agreement states.

The plea agreement notes there is no business reason why Hollinger International would agree to kick fees to Hollinger Inc.

The plea agreement also seems to let off the hook Hollinger International’s independent directors, a group of Black-appointed luminaries that includes Henry Kissinger and former Illinois Gov. James Thompson. Both have been criticized for not detecting the self-dealing and improper payments.

“Defendant [Radler] understood that neither the CNHI payment, nor the ‘template,’ would ever be truthfully disclosed to the independent directors because of their obvious impropriety,” the agreement states.

As part of the plea agreement, Radler will not be sentenced until the case against his former co-defendants Kipnis and Ravelston are concluded — and until all “related” cases are shut. The agreement commits Radler to cooperate with the U.S. Attorney’s continuing investigation, which is clearly aimed at Black.

As reported, Radler would be sentenced to 29 months in prison and a $250,000 fine for pleading guilty to a single count of mail fraud. He had faced a maximum of 35 years in prison on seven counts of wire and mail fraud. He was released Tuesday on a $500,000 bond secured by a $50,000 cash payment.

Radler also committed to cooperate in the U.S. Securities and Exchange Commission (SEC) lawsuit against Radler, Black, and others. An SEC official speaking outside the courtroom at U.S. Federal District Court for Northern Illinois made it clear that the commission would like to see Black get some jail time.

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