Conrad Black's Lawyer Questions Impartiality of First Witness

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Defence: Black Didn't Get Involved with Company Finances

Paris: Black Was Always In Control

Updated March 27, 2007. Gordon Paris, Hollinger International CEO and first prosecution witness Eddie Greenspan, Conrad Black's well-known Canadian lawyer, continued to try and create a doubt about veracity of the prosecution's first witness Gordon Paris (seen on the right). Paris took the stand for an hour yesterday when he was questioned by Genson and his testimony continued today with questioning from Greenspan. During his questioning, Greenspan impugned that Paris - who had replaced Black as Hollinger International Inc's CEO - had a conflict of interest when Paris was charged with investigating financial problems at HII.

Paris, a former investment banker and head of the Toronto Dominion Bank's New York operations, became HII's chief executive officer upon Black's departure and at the board's invitation. He said he did so out of a sense of obligation, as most of HII's senior executives had left and there was a leadership vacuum at HII. Paris stepped down as Hollinger's CEO in December 2006, but remains a director on the board of Sun-Times Media Group Inc, HII's successor.

Could Defence Tactics have Hurt Black?

The standard in a criminal trial is for the prosecution to prove their case beyond a reasonable doubt. The defence needs to introduce that doubt, and they spared no effort in this direction. However, could it be that Genson and Greenspan's intensive and harsh questioning made Paris say things that may have hurt their client, Black, in the minds of the jury?

Paradoxically, Greenspan brought out that Paris had joined Hollinger International Inc (HII)'s board of directors in April 2003 at Conrad Black's request to carry out an investigation of issues that concerned shareholders: high management fees and non-competition payments paid to Black and Black's associates. Said Greenspan to Paris, "He didn't control you. You were not his 'yes' man, but he came to you and asked you to be on the board."

According to evidence introduced by the prosecution, in an e-mail sent at 1:02 a.m. to board member Marie-Josee Kravis, Black informed her that his decision to appoint Paris to HII's board was made because "this practice of certain of the institutions holding hands with elements of the competing press and representing us as nest featherers suffering from financial strain should be rebutted. ...I know these Tweedy Brown people fairly well; they are self-righteous but not dishonest and it should be possible to diffuse this. I will take on the task of hosing down shareholders in need of it as a matter of some priority."

Clearly, Paris carried out his investigations at Black's behest in order to silence noisy shareholders. However, Greenspan appeared to confirm that Paris was not beholden to anyone and that his work was objective. It appears that what Paris uncovered in his investigations was sufficient enough to turn him against Black. Certainly, what followed was a damning indictment contained in Paris' 400 page investigation report. The report's opening paragraphs say:

Excerpts from Paris' Report

"The Special Committee of the Board of Directors of Hollinger International Inc. submits this Report to the U.S. Securities and Exchange Commission and the Honorable Blanche M. Manning of the United States District Court for the Northern District of Illinois pursuant to Section III.4 of the Order of Permanent Injunction dated January 16, 2004 in the matter of United States Securities and Exchange Commission vs. Hollinger International Inc. The Report covers the results of the Special Committee's investigation since it was formed in June 2003 in response to allegations of fiduciary duty violations and other misconduct at Hollinger.

"The Report chronicles events at Hollinger over the decade since it first became a U.S. public company in 1994. Hollinger is a publishing company, but the story of the last decade at Hollinger, which is the subject of this Report, is not about Hollinger's valuable publishing assets or the quality of the staff at its many publications. Rather, this story is about how Hollinger was systematically manipulated and used by its controlling shareholders for their sole benefit, and in a manner that violated every concept of fiduciary duty. Not once or twice, but on dozens of occasions Hollinger was victimized by its controlling shareholders as they transferred to themselves and their affiliates more than $400 million in the last seven years. The aggregate cash taken by Hollinger's former CEO Conrad M. Black and its former COO F. David Radler and their associates represented 95.2% of Hollinger's entire adjusted net income during 1997-2003."

The report went on to say that Black and his cohorts used Hollinger as a personal "piggy bank" by creating a "Corporate Kleptocracy". "The bulk of what Black and Radler were taking from Hollinger was cash, and that cash did not come from earnings or the creation of value for all shareholders. Rather, one scheme after another was devised to siphon away Hollinger's opportunities..."

Paris was not allowed to discuss his report in court, since it has not been entered into evidence . He could only say that there was an investigation.

Genson Grills Paris

Yesterday, Paris was constantly interrupted by Black's lawyer, Ed Genson. The interruptions prompted Judge Amy St. Eve to ask Genson to let witnesses finish speaking before asking another question. "I'm sure it's not the last time I'll have to ask you that," she said to Genson. Genson replied smiling, "I'll apologize every time." Lawyer Edward Genson, Conrad Black and Lawyer Edward Greenspan outside Chicago courthouse

Who was Responsible for Hollinger's Finances?

Under vigorous cross examination by Genson on Wednesday, March 21, Paris said that while Black "was quite knowledgeable" about Hollinger's financial strategy, Black was not as knowledgeable as Jack Boultbee (Hollinger International's Chief Financial Officer during the time Conrad Black was CEO), who Paris called "the architect of the financial strategy". Nevertheless, in testimony on the 22nd, Paris testified that Black managed to control HII even though he owned only a minority of shares.

How Black Controlled Hollinger Int. with only 16% Shares

Prosecutor Eric Sussman asked Paris to explain how Black who effectively owned 16% of Hollinger International Inc's shares, managed to control HII's voting stock through a layer of holding companies.

HII had common shares that carried one vote, and special shares that carried ten votes per share. Through a scheme of layered holding companies, Black indirectly held the majority of Hollinger's special shares, which enabled him to control voting at company meetings, as well as the election of directors. The scheme also enabled Black to withdraw the vast majority of funds even though public shareholders owned most of the shares.

The ownership scheme was as follows:

Black was the majority partner of Ravelston Corp. Ltd., a private Toronto company, a company he owned in partnership with two of the co-accused, John Boultbee and Peter Atkinson.

Ravelston in turn controlled Hollinger Inc., (not to be confused with Hollinger International Inc.) a Toronto-based holding company, which in turn owned 35% stock in Hollinger International (HII), enough to give Black controlling interest.

(Lord Black is still technically the HII's controlling shareholder. However, even though he still owns his shares in Ravelston, Ravelston is in receivership and Black's interest has been restricted by the courts.)

The prosecution had introduced a chart to explain how Black and the other defendants controlled and manipulated HII's finances for their benefit, taking money that belonged to HII's shareholders.

When Genson asked Paris whether he was the author of the chart, Paris said the chart had been drawn up by the prosecution. "So you're testifying to numbers that one of these young people told you?" Genson asked, pointing to the four prosecutors (and using the opportunity to portray the prosecution team as immature).

Defence Strategy 1: Radler and Others Responsible - Not Black

The defence strategy is to show that the architect for Hollinger International's financial woes were individuals other than Black. According to the defence lawyers, the main culprit of HII's woes was Black's partner David Radler (who is expected to appear as a witness and who has already pleaded guilty), and perhaps the other defendants.

The defence contends that Black was so preoccupied with running the London-based Daily Telegraph newspaper, with writing books, and with political involvements, that he had no time to concern himself with the day-to-day running of HII. He had left HII's day-to-day management - and by extension, its financial management - to David Radler and other senior executives.

Can this Defence be Refuted?

On the face of it, unless the defence has a surprise up their sleeve or prosecution drops the ball, the prosecution should be able to repute the defence that Black did not involve himself in financial management. First, Black was HII's Chief Executive Officer - an executive position by definition. Second, Black received management fees - very large management fees. If Black was not managing, why did he charge management fees? CEO's usually do not involve themselves directly in specific management tasks - they have other executives supervise the execution of those tasks: primarily operations and finances. The CEO gives these executives direction and holds them accountable for their performance. If a CEO fails to do so, it amounts to an abdication of leadership and even negligence. Such abdication or negligence is not a defence. Famously, the management buck stops here - smack in the CEO's lap.

Greenspan Grills Paris - was there a Conflict of Interest?

The other member of Black's legal team, Eddie Greenspan, took up questioning Paris on Thursday, March 22. Asked Greenspan, "Did you never say to yourself, 'You know, this is inappropriate,' [since] you were hanging out with the crowd you were investigating?" (When Paris was chairman of the investigation committee, he was also a board member and a member of the board's audit committee.)

Paris responded by saying, "I never had any concerns about my own objectivity."

You too had Your Fingers in the Cookie Jar!

If Paris found that Black was receiving unjustifiably large amounts of money from Hollinger, then according to Greenspan, so did Paris. "I'm going to suggest to you that you were making $15,805 a day in '05," shot Greenspan. Paris didn't have a chance to respond since the prosecution objected to the question and the judge sustained the objection. Paris admitted he received US$511,375 from Hollinger International in 2003.

Defence Strategy 2: Black Relied on Others. Got OK from Board of Luminaries

Continuing the the defence strategy to portray Black as someone who relied on others in making business decisions, Greenspan added that Black couldn't have manipulated Hollinger International Inc's finances because HII's board included luminaries who were "no pushovers" - luminaries like former U.S. secretary of state Henry Kissinger, past Illinois governor James Thompson, former U.S. ambassador to Germany Richard Burt, and Wall-Street financier Henry Kravis' wife Marie-Josee Kravis.

The defence teams can be expected to question the credibility of every prosecution witness and engage them in harsh cross-examinations in order to expose inconsistencies or in order to extract statements supportive of their clients.