Hollinger Inc. settled the SEC’s 2004 enforcement action against it. That complaint named as defendants the company, Conrad M. Black, Hollinger International’s former Chairman and CEO, and F. David Radler, Hollinger International’s Deputy Chairman and COO. SEC v. Black, Civil Action No. 04C7377 (N.D. Ill. 2004). The Commission’s Litigation Release is here.
The SEC’s complaint alleged that the defendants engaged in a fraudulent scheme to divert cash and assets from the company through a series of related party transactions. In those transactions Messrs. Black and Radler diverted to themselves about $85 million of the proceeds from Hollinger International’s sale of newspaper publications, according to the complaint. To effectuate the scheme the complaint claims that Messrs. Black and Radler misled Hollinger International’s Audit Committee and Board of Directors and misrepresented material facts in filings.
To resolve the matter, Hollinger consented to the entry of a statutory injunction prohibiting future violations of the antifraud, proxy and books and records provisions of the Exchange Act. The final judgment also states that the company will pay approximately $21.2 million in disgorgement and prejudgment interest. That payment however, is in fact being made under the terms of a settlement agreement in Hollinger International, Inc. v. Black, 844 A.2d 1033 (Del. Ch. No. 183-A).
Lord Black did not agree to settle the case against him. Last July, a jury found the one-time media baron and House of Lords member guilty. In December, the court sentenced Mr. Black to about six and one half years in prison. Mr. Black is currently serving that term.
Prior to bringing this action, the SEC issued Wells notice not only to those named as defendants but to the Hollinger audit committee. As noted in a post of May 17, 2007, the crux of that proposed case may have been summarized by former Illinois governor and Hollinger International audit committee member Jim Thompson, who testified for the government at Mr. Black’s trial. In that testimony, the former governor noted that while he only skimmed the disclosure documents for the company, he read “every word” of the Wells notice. No action was brought against the audit committee which, the complaint ultimately claimed, was deceived.