Author`s name Dmitry Sudakov

Conrad Black trial comes down to non-compete payments

For all the sexy testimony about a Bora Bora vacation at his company's expense and a lavish Park Avenue apartment bought at a suspiciously low price, the core of the case against former media baron Conrad Black comes down to a decidedly unglamorous topic: Non-compete payments.

Black has denounced the U.S. government's case as "pure fiction," a terse comment he made in French to Canadian reporters as he left U.S. District Court here Wednesday after the 3 1/2-month trial went to a jury.

But it is the jury's review of factual documents, thousands of them, about payments from newspaper sales that is likely to determine whether the 62-year-old former head of the Hollinger International newspaper empire goes to jail.

The Hollinger case, while drawing less attention in this country than the Enron, Tyco and WorldCom scandals, continues a trend of top management of major corporations being held more accountable for their conduct.

Black and fellow ex-Hollinger executives Jack Boultbee and Peter Atkinson, along with Chicago lawyer Mark Kipnis, are accused of participating in schemes in which more than $60 million was siphoned from the company. Most of that was from payments received in exchanges for promises not to compete with the new owners of U.S. and Canadian newspapers the executives had just sold. All four defendants have pleaded not guilty.

Black and former Hollinger International vice presidents Boultbee and Atkinson got the money along with the company's No. 2 man, F. David Radler, who has pleaded guilty and was the government's star witness. Radler was promised a lenient 29-month sentence for testifying.

Kipnis, who is accused of helping to engineer the payments, never pocketed any of them. But he received $150,000 in bonuses under Black.

The big question the jury must answer: Were they legitimate non-compete payments or were they a smoke screen for ripping off the company, as the government contends?

Non-compete payments are commonplace in the newspaper and other industries, with buyers wanting to ensure they are not paying millions to sellers just to see them remain in the same market as competitors. It is virtually unheard of for them to end up as the focus of a criminal trial.

Black also is accused of cheating Hollinger International by taking the company plane on a vacation to Bora Bora in French Polynesia, billing shareholders $40,000 for his wife's birthday party and paying below the market rate when he bought a company apartment on New York's Park Avenue.

"Some of the other issues might be easier to understand," said Jeff Riffer, a Los Angeles attorney who has represented newspapers. "You don't have to be an expert in business to understand them. But the big money here is the non-competes and whether they legitimately belong to individuals or Hollinger."

Riffer could not recall such large non-compete fees from his three decades practicing law. But he said it is unlikely they would have drawn any significant attention had they gone straight to Hollinger and remained in company coffers.

"The effect here was the individuals ended up with pretty substantial amounts of money," he said. "And at the same time the individuals owed a fiduciary duty to their company to act in the best interests of the company."

Yawns were frequent in the jury dock during the lengthy trial, particularly as attorneys from both sides discussed financial details of newspaper transactions for hours on end. But attorneys and Judge Amy St. Eve also commented on the jurors' overall attentiveness as the non-competes were scrutinized.

Showing that they were wasting no time getting to the heart of the case, the jury's first request in deliberations was to see a prosecution summary chart illustrating the various newspaper transactions and related non-compete payments.

"I don't think we should underestimate this jury's intelligence, their ability to grasp the issues," said Steven Skurka, a criminal defense lawyer from Toronto who is commentating on the trial for Canadian television.

He said he got the sense just from how jurors took notes that they were "not having a lot of difficulties."

"At the end of the day, especially with fraud, you're talking about an intention to deceive," Skurka said. "And that's not a difficult factual issue to understand. Ultimately you're trying to decide 'Was this person dishonest?"'

Black's lawyers argued he did not negotiate most of the non-compete deals and had no idea there was anything illegal about them, if there was.

The government, meanwhile, maintained the payments amounted to fraudulent bonuses - never formally approved by company directors or properly disclosed to shareholders.

Lead prosecutor Eric Sussman said the non-competes "smell to high heaven" and were phony.

Defense lawyers called witnesses emphasizing that the non-compete payments were approved by Hollinger International's audit committee. They also had another strategy: accusing the government's witnesses of fibbing. By the prosecution's count, 14 of its witnesses were accused of lying, most notably Radler.

Regardless of the outcome, the case turned up the level of scrutiny another notch on senior corporative executives.

"This is a trend in American jurisprudence that will not see a retreat," said Roma Theus, chairman of the corporate integrity and white-collar crime committee of the Chicago-based Defense Research Institute and a former federal prosecutor.

"Corporate executives and members of the boards of directors of publicly held companies have reached a turn in the road, and that turn will require a higher level of fiduciary responsibility than in the past. There is no going back."

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