Conrad Black Trial - Role of Lawyers Part II. Accusations Suffer Setback

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Conrad Black Trial: Non-Compete Payments. Accusations of Theft, Tax-Evasion & Non-Disclosure Suffer Set-Back

Lord Conrad Moffat Black, Chairman and CEO, Hollinger International Inc.April 24, 2007. In this phase of the criminal trial of media mogul, Lord Conrad Black, Chairman and CEO of Hollinger International Inc. (HII), and his co-defendants, former HII executives vice-president Peter Atkinson, chief financial officer John Boultbee, and lawyer Mark Kipnis - the prosecutions appears to be making three charges:

1. Lord Black and his partner David Radler (who has already pleaded guilty) stole $60 million from HII shareholders by diverting proceeds from the sale of HII newspapers to them personally via non-compete agreements - agreements they would not compete in future with the purchasers.

2. In a year 2000 $3.5-billion purchase of HII's Canadian newspaper chain (the former Southam newspaper chain) by CanWest Global, executives Peter Atkinson and John Boultbee added their names to the CanWest non-compete agreement in order to disguise taxable management fees and bonuses as non-taxable non-compete payments.

3. All the defendants failed to properly disclose the non-compete payments.

The defence on its part contends:

1. CanWest asked for the non-compete payments and that the payments (and other payments) were approved by Hollinger International's board and by the independent directors of the audit committee.

2. Peter Atkinson and John Boultbee did not add their names to the agreement. The names were added by Torys LLP lawyer Darren Sukonick on his own volition.

3. That the initial non-disclosure was because of bad legal advice and that once the defendants received competent advice, they disclosed the payments. The final CanWest agreement named all the defendants and cited the non-compete payments as a closing condition.

4. Regardless, the charges are matters for a civil trial and not a criminal trial.

Darren Sukonick, lawyer, Torys LLPAt the start of trial hearing for the week of April 16, 2006, the video taped testimony of prosecution witness Darren Sukonick, a Toronto law firm Tory LLP lawyer, continued to come under fire from the defence. Darren Sukonick was part of a team of Torys LLP legal advisers to Hollinger International Inc. (HII) on the agreements concerning the non-compete payments made by CanWest Global as part of a year 2000 $3.5-billion purchase of Canadian newspaper chain (the former Southam newspaper chain).

Sukonick had testified he had told HII lawyer Mark Kipnis that the non-compete payments did not need to be disclosed and that the law firm Cravath, Swaine & Moore agreed with Tory LLP's (Sukonick's) advice on the matter.

Concerned about Sukonick's advice to not to disclose the non-compete payments, former HII vice-president, Peter Atkinson, sought out Cravath, Swaine & Moore for a first-hand opinion on whether the HII and the defendants needed to publicly disclose the non-compete payments to Black and the other co-defendants at the trial.

Atkinson, a trained lawyer, sought law firm Cravath, Swaine & Moore's legal opinion because Torys LLP's advice to keep the payments "private" didn't "quite feel right to him," said his lawyer Michael Schachter.

Senior Cravath corporate lawyer William (Bud) Rogers wrote in a 2001 letter to HII executives Kipnis and Atkinson, that Torys LLP and lawyer Sukonick were not only wrong in their advice, but that Rogers was "shocked" to learn Darren Sukonick had told Hollinger executive Mark Kipnis that Cravath agreed with Torys' opinion, because "that statement was simply false." "It is not correct to say that we 'accepted (and agreed)' that no disclosure of the non-compete payments is required under the U.S. Securities laws" wrote Rogers. "We do not have sufficient facts on which we can make a judgment on that question."

This letter would appear to have severely undermined prosecution witness Darren Sukonick's video testimony.

On Wednesday, April 18, 2007, the defence presented the video-taped testimony of a former Torys LLP lawyer Beth DeMerchant. DeMerchant was a former senior corporate lawyer Torys LLP, and had also advised Hollinger International on the CanWest Global Communications Corp. deal. She testified that Torys LLP had initially advised the Hollinger executives (who are now defendants at the trail) that they need not disclose the payments.

However, when law firm Cravath, Swaine & Moore brought up concerns about the payments, DeMerchant said, she realized that Torys had made a mistake. She contacted Atkinson and "I said I was sorry, that there was a problem and that I was there to talk about it." She then referred the matter to Darren Sukonick, who said the fees could be kept private.

DeMerchant, like Darren Sukonick, testified via a video recorded in February in Toronto. Both of them invoked their rights as a Canadian citizens not to travel to Chicago for the trial.

As a result of their testimony, Torys LLP agreed to pay disgruntled Hollinger International shareholders $30.25-million in a settlement of the shareholder's complaint that Torys had not raised red flags over the non-compete payments. In making the settlement, Torys did not admit to any wrongdoing.