NEW YORK (Reuters) – Newspaper tycoon Conrad Black and his top lieutenant were charged by regulators on Monday with siphoning more than $85 million from the company they ran, and they face a move to bar them from serving as officers of a public company.
The U.S. Securities and Exchange Commission filed the lawsuit in federal court in Illinois, accusing Black and David Radler of diverting money to themselves and other company insiders from Hollinger International Inc. (HLR.N: Quote, Profile, Research) , publisher of the Chicago Sun-Times and Jerusalem Post.
In a direct challenge to Black’s control of Hollinger International, the lawsuit also seeks to force the Canadian billionaire to put his stake in the company in a trust that would strip him of the voting power of his shares.
That unusually strong step by the SEC was meant to send a signal about the agency’s willingness to go after individual executives in fraud cases, legal analysts said.
«When the SEC does something likes this, they are trying to send a message and influence behavior in the future,» said Morton Pierce, a partner at law firm Dewey Ballantine.
Black resigned under pressure as Hollinger International’s chief executive a year ago and was removed as chairman in January after a special committee of the company’s board uncovered disputed payments he received.
Black’s Toronto-based Ravelston Corp., a holding company used to control Hollinger, and Hollinger Inc., which has an 18 percent stake in Hollinger International, said they would mount a vigorous defense to the SEC charges.
«The evidence will show that the decision-makers of Hollinger International relied upon the advice and counsel of professionals, and that the pertinent information was disclosed to a board of directors that was both sophisticated and conscientious,» Ravelston said, adding that it expected Black and Radler to be «vindicated fully.»
‘PERSONAL PIGGY BANK’
The SEC said it was seeking an undisclosed amount of disgorgement and fines from Black and Radler, Hollinger International’s former chief operating officer.
The two men «abused their control of the public company and treated it as their personal piggy bank,» Stephen Cutler, director of the SEC’s enforcement division, said in a statement.
The agency accused Black and Radler of selling some of Hollinger International’s newspapers «at below-market prices» to a privately held company that they controlled and said they had improperly diverted about $85 million to themselves and other insiders from 1999 through 2001 through «non-competition» payments for newspaper sales
The SEC said it was seeking to bar Black and Radler from serving as officers or directors of a public company and impose a voting trust on Hollinger International shares held by Black and Hollinger Inc.
Radler’s spokesman, Josh Pekarsky, said that certain non-compete payments made to Radler had been repaid in full. «As we have said before, we will defend these allegations vigorously, in due course and in the proper venue,» Pekarsky said in a statement.
The SEC charges come on the heels of a 500-page report prepared by a special committee led by former SEC chairman Richard Breeden. The report accused top executives with looting Hollinger International of more than $400 million.
Hollinger International refiled its lawsuit against its former chairman and Radler last month after a judge threw out an earlier version that included racketeering claims.
Hollinger International shares rose 2 percent, or 36 cents, to $18.16 on the New York Stock Exchange on Monday.
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