Witness: Deals Funneled Millions to Conrad Black’s Holding Company

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

Michael Reed, former CEO of Community Newspapers Holdings Inc. — which bought a number of community newspapers from Hollinger in 1999 and 2000 — said Hollinger executives insisted on including money for the Canadian 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 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 testified that Community Newspapers Holdings wanted a noncompete agreement from Hollinger International — the operating company that actually ran the newspapers — but not from Hollinger Inc.

“Did you care one way or another whether Hollinger Inc. signed a non-competition agreement?” Assistant U.S. Attorney Edward Siskel asked.

“No we did not,” Reed said.

“Would the deal have closed without Hollinger Inc.’s non-competition agreement?” Siskel asked.

“Yes, it would have,” Siskel said.

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

Under cross examination by Black defense attorney Edward M. Genson, Reed testified that the first sale of Hollinger properties to his company was arranged by Kipnis and the second by F. David Radler, the longtime No.2 man in the Hollinger empire.

Radler has pleaded guilty in the case and is now a government witness.

Reed testified that he never met Black.

Black’s defenders maintain that he had no direct role in the sales to Community Newspaper Holdings. They say he oversaw Hollinger operations in eastern Canada and Britain while Radler was in charge of operations in western Canada and the United States.

In the second purchase, Community Newspaper Holdings in 2002 bought a group of community newspapers from Hollinger for $92,078,569. That deal included $3 million in non-competition money, with 25 percent going to the Canadian company, Reed said.

Again, Reed testified that his company had no interest in receiving a promise from Black’s Canadian holding company that it wouldn’t compete. He said Hollinger officials insisted on the payment to Hollinger Inc.

He also said that at the last minute, Hollinger executives gave his company instructions on how to wire $4.5 million in non-competition money to Black, a like sum to Radler, and lesser amounts to executives John Boultbee and Peter Atkinson.

Reed said he refused to wire the money because there was no provision for individual payments to the Hollinger executives in the contract. Asked if there was any other reason for refusing, he said: “It didn’t seem like the right thing to do.”

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