‘They’re picking off the little fish. The finale is next’

RADLER

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A former business associate described Radler as “very pragmatic” and said he can be expected to do “the logical thing” and settle all the remaining claims against him.

Tim Warren, an SEC official, said yesterday the securities regulator was pleased with Radler’s guilty plea, describing him as “someone at the heart of the matter.” Although he would not comment on the possibility of future indictments against Lord Black, Mr. Warren said the SEC believes Lord Black violated U. S. securities laws, adding, “We’d certainly like to see justice done.”

It is widely expected that Radler will provide evidence to the U. S. Department of Justice that could lead to a criminal indictment against Lord Black, although U.S. law enforcement authorities repeatedly refuse to comment.

“ They’re just picking off the little fish. The finale is next,” said Chris Browne of Tweedy Browne & Co., the first and one of the most vocal shareholders to complain about instances of self- dealing by Lord Black and other Hollinger executives.

Rob Kirkpatrick, managing director of Cardinal Capital Management, a Hollinger International shareholder that filed suit against key executives and directors last year, added, “Clearly, the admission by Radler in court that there was money taken from all shareholders is a substantial step forward for rectifying the wrongs that have been done.”

Lord Black, who founded Hollinger International and served as its chairman and chief executive until November, 2003, has not been charged in connection to a two-year probe by the U. S. Department of Justice into business activities at Hollinger International. He was not specifically named in Radler’s plea agreement.

Sources say Lord Black’s U. S. lawyers met with the Justice Department several months ago but there has been no contact since. Lord Black has vehemently denied he engaged in any wrongdoing and sources say his lawyers informed U. S. legal authorities that he will not engage in negotiations or deals.

In August, federal prosecutors accused Radler and Mark Kipnis, former in-house lawyer at Hollinger International, of siphoning US$32-million from the Chicago-based newspaper company to holding companies controlled by Lord Black and his top lieutenants, including Radler.

“ This was a systematic fraud on shareholders,” Patrick Fitzgerald, U.S. Attorney for the Northern District of Illinois, said last month when he filed the charges. “ There is an understanding that corporate officers would manage shareholders’ money, not steal it.”

Ravelston Corp., Lord Black’s private holding company, also faces seven counts of fraud. The Toronto-based company, which filed for bankruptcy protection in April, is scheduled to be arraigned in Chicago tomorrow. Mr. Kipnis pleaded not guilty to the charges last month.

The case against Radler and Mr. Kipnis centred on six separate sales of Hollinger International newspaper assets between January, 1999, and May, 2001, and non-compete fees made to the company so it would not open rival publications.

For example, when Hollinger sold Community Newspaper Holdings Inc. for US$472-million in 1999, Radler and other Ravelston “agents” earmarked US$50million of the proceeds as noncompete payments. Of that, according to the charges, US$12million was “fraudulently” transferred to Hollinger Inc. In another case, the Hollinger executives paid themselves not to compete with a company that they owned.

“ You step back and think about it,” said Mr. Fitzgerald, “They decided among themselves that they would pay themselves not to compete with themselves. So you have people who are buying a newspaper paying themselves not to compete with themselves but using other people’s money.”

Before his plea agreement, Radler was facing a maximum penalty of five years in a federal prison and a US$250,000 fine on each of the seven counts listed in the criminal indictment. According to the plea agreement, the preliminary sentencing guidelines would have given the judge discretion to mete out a prison term of between 57 and 71 months.

However, federal prosecutor Eric Sussman told the court that the U.S. government agreed to 29 months if Radler held up his end of the bargain. As well, Mr. Sussman said the Justice Department would not intervene if Radler applied to serve his jail term in Canada.

For now, Radler remains free on a US$500,000 bond until the proceedings in the fraud case are concluded. However, if those investigations and trials become “inordinately delayed,” the Justice Department will forge ahead with his sentencing.

Financial Post, with files

from Barbara Shecter

ttedesco@ nationalpost. com