The Fall of an Arrogant Fraud: What Really Brought Down Conrad Black's Media Empire?

Conrad Black used to keep a picture of the Chicago gangster Al Capone on the silk-lined wall of Hollinger International's New York boardroom and would jokingly point him out to visitors as "our chief shareholder." Unlike Capone, who was convicted of tax evasion back in 1931, Black escaped a similar charge in Chicago on Friday. He was also cleared of eight other charges, including one of racketeering. Had there been a clean sweep of convictions, Black would have faced a prison sentence of almost 100 years. However, the former proprietor of hundreds of newspapers from Israel to the United States, Canada and the UK was convicted on three charges of fraud and one charge of obstructing justice, enough for him to be facing a fine of $1m and a jail sentence of 35 years.

This was not how Black had envisaged the outcome of the case. "Stage one were the ululations of joy at the so-called downfall," he had said earlier. "Stage two is the big battle ... And then stage three is where I win." Convinced that he has a special relationship with God, Black has always believed in his invincibility. He was inspired by such military heroes as Alexander the Great, Napoleon and General MacArthur, as well as by tenacious politicians such as as Churchill, Franklin Roosevelt, Nixon and Maurice Duplessis, the dictatorial leader of mid-20th-century Quebec.

In 2006, Black vowed that "we will bring this entire gigantic, malicious prosecution down around the ears of its authors." Throughout the trial he maintained a demeanor of comic-opera bravado, dubbing the US government prosecutors "Nazis" and telling reporters that the prosecution case was "hanging like a toilet seat around their necks."

The government failed to win convictions on the so-called lifestyle charges, relating to Black's expenses claims for his wife Barbara Amiel's lavish 60th birthday party at New York's La Grenouille restaurant in 2000 and for a 2001 trip to Bora Bora, Polynesia, for the two of them.

At the heart of the prosecution case were several controversial "non-compete" agreements arising out of the sale of Hollinger-owned newspapers in America and Canada. These payments were made by the buyers of the newspapers so as to prevent Black and his colleagues from setting up new titles in competition with them. Such payments, totaling approximately $60m, should have been paid to Hollinger, the government argued, but were instead diverted to the defendants. In the most blatant instance, the American Publishing Company (APC), a Hollinger subsidiary, paid Black and David Radler (his long-time business partner) almost $5.5 million, so that the two men were in the absurd position of paying themselves not to compete with themselves (in the event that they left Hollinger). Mark Steyn, a former employee of Black's and his chief journalistic champion, dismissed the APC payments as "a book-keeping wheeze dreamed up by David Radler that I'd wager Conrad wasn't even aware of until afterwards."

"If they are honest about it, the heart of their case was lost," said Edward Greenspan, Black's Canadian lawyer. "They lost on the big stuff." Bernard Harcourt, a professor of law at the University of Chicago Law School, strongly disagreed: "I think the verdict is a whopper. They got him on the four counts that mattered, the four that really make a difference." Jacob Frenkel, a former federal prosecutor and Securities and Exchange Commission enforcement lawyer, called it a "stunning victory" for the government and explained how a split verdict was in fact the best possible outcome for the prosecution since "it highlights for the appellate court that the jury was very thoughtful and thorough in its deliberations, separating the wheat from the chaff, identifying those counts in which the government met its burden of proof and those in which it failed to do so." Even Mr Steyn, Black's indefatigable supporter and -- some would say -- useful idiot, conceded: "The US Attorney's office might usefully adopt as its motto the IRA's message to Mrs Thatcher after the Brighton bombing -- 'You have to be lucky every time. We only have to be lucky once.'"

According to their (very unofficial) biographer Tom Bower, Conrad Black and Barbara Amiel were millionaires who behaved as if they were billionaires, desperate to keep up with the Kravises, Manhattan's pre-eminent power couple, who definitely are billionaires. Ms Amiel envied the Kravises their two private jets and encouraged Black to acquire two corporate jets for Hollinger. Once, when her Concorde flight was delayed, she tried to reach Lord King, the British Airways chairman and a Hollinger director. Instead she had to pass on a message for him via a Telegraph journalist: "Tell Lord King that I'll never fly commercial again. I'm finished with British Airways, public transport and the lot of them."

It was Black's arrogant refusal to abide by a November 2003 agreement to pay back $7.2m in non-compete fees and admit that they were "not properly authorized on behalf of the company" and his underhand attempt to sell the Telegraph Group to the Barclay twins that proved his undoing. What followed was an investigation by the Securities and Exchange Commission, the Delaware court case in February 2004, at which Judge Leo Strine characterized Black as an "evasive and unreliable witness," and Hollinger's May 2004 $1.25bn lawsuit against the Blacks, culminating in the seizure of their principal assets and the indictment against him in the autumn of 2005.

The chief architect of the frauds was David Radler, Black's business partner since 1969, who decided to admit his part in the crime and become a government witness in September 2005, in return for a 29-month jail sentence to be served at a Canadian "country club" prison. As a witness, Radler was evasive and creepy, but the suggestion by Black's attorneys that he was a renegade partner who acted on his own in setting up the fraudulent scheme was belied by the evidence of Hollinger's directors, who said that Radler and Black were like peas in a pod. "David Radler didn't turn into a criminal overnight," argued Eric Sussman, the lead prosecution lawyer. "They're birds of a feather. Conrad Black and David Radler nested together for over 30 years."

Black's defense team ran the familiar argument of defense attorneys in mob trials when faced with the incriminating evidence of so-called "rats," mobsters turned government witnesses, and that is to damn them as liars. Because they have engaged in criminality themselves, the argument goes, how can anyone believe a word they say? This rarely works, as is shown by the vast number of organised crime bosses now in prison on the basis of such evidence. It is usually explained to jurors that the immunity or reduced sentences given to such witnesses can be revoked if they are shown to have perjured themselves.

For Black's defense to be believed, the jurors would have had to conclude not only that Radler was a liar, but also that the board directors of Hollinger who gave evidence for the prosecution, including a former US ambassador, a former governor of Illinois, and Marie-Josée Kravis, who has served on the boards of several public companies, were also inveterate liars.

Also, there was the inescapable logic of who benefited from the non-competes. "It's as simple as 'follow the money'," said Eric Sussman, quoting the words of Watergate's "Deep Throat" to the investigative journalist Bob Woodward. If David Radler was the sole criminal as opposed to a co-conspirator, why would he have sought to enrich his fellow defendants? Indeed, Black was the bigger beneficiary, the government pointed out in its summing up, having received $14.7m in disputed payments, compared with Radler's $8.8m. "David Radler is not Robin Hood," said Mr Sussman. "Why would he be stealing money to pay Conrad Black's mortgage?"

Yet the prosecutors were thought to have made some strategic blunders in their presentation of the case, relying too much on the uncorroborated testimony of Radler and overdoing their indignation about Black's flamboyant lifestyle, harping on about the trip to Bora Bora and Ms Amiel's 60th birthday celebration. Government witnesses described the latter as a private party masquerading as a business event, while a character witness for Black, John O'Sullivan, a Washington journalist, described it as a business event masquerading as a private party.

"The government's efforts to put Black's lifestyle on trial almost undermined the entire trial," said John Hueston, the prosecutor in the Enron case. "By acquitting Black of the counts accusing him of fraud in using company funds to pay for lavish parties and perks, the jury signalled rejection of the theory that Black was motivated by greed to commit crime."

The decision not to go into the witness box was always going to be a double-edged sword for Black. On the one hand, he avoided making a fool of himself. "Black has a famously bad temper, most recently revealed when he made an obscene gesture to journalists outside the courtroom," said John Hueston. "A competent cross-examination would likely have resulted in a fatal meltdown for Black, the alienation of the jury and a full slate of convictions."

But on the other hand, the jurors may have convicted him on the most serious charge, obstruction of justice, precisely because he did not testify. Caught on CCTV cameras he thought weren't working, he removed boxes from his office without permission. This charge, argued Mr Steyn in a Friday blog, "could only be explained and mitigated by understanding what was in his head ... The circumstantial evidence was too appealing to be overridden by anything but the testimony of the defendant himself." Without his testimony, the video footage of Black sneaking into his office and removing boxes of evidence could not be gainsaid.

Speaking on Sky News on Friday, Andrew Neil reckoned that Black would receive a sentence of no more than 10 years when he is sentenced on 30 November. Yet Mr Hueston, now a litigation partner with a Los Angeles law firm, believes that the outlook for Black is more worrying. "The jury result reflects a classic compromise verdict," he said, "but like many such attempted verdicts, the sentencing outcome for the defendants will be almost as grim as a full slate of convictions."

The Sentencing Reform Act of 1984 laid down new federal sentencing guidelines that require trial judges to undertake a cold mathematical computation and follow a preordained grid when it comes to meting out jail terms. Black faces a maximum possible sentence of 35 years. The likely tariff will be about half that, somewhere around 15 years. Bernie Ebbers, the former CEO of WorldCom, who was sentenced to 25 years, and Jeff Skilling, the former CEO of Enron, who was sentenced to 24 years, can both expect to serve close to the full length of their sentences. The reason for that is that parole was abolished in the federal system.

Whatever his sentence, Black will have to do the time. Federal prisoners now have to serve about 85 per cent of their sentences. What's more, it will be hard time. He will most likely be sent to a federal prison far from a major city, making it difficult for friends to visit. Without the Hollinger corporate jet at her disposal, Ms Amiel will have to suffer the indignities of being an ordinary commercial airline passenger. At the same time, she and his children by his first marriage will see his assets swallowed by forfeiture claims.

Black may rue the day he renounced his Canadian citizenship to take his seat in the House of Lords. "He can reapply," says Canadian lawyer and legal commentator Lorne Honickman, "and my guess is he will reapply immediately. If he was a Canadian citizen, as is David Radler, we have an agreement with the United States, a prisoner exchange programme where you can make the application to serve your sentence in Canada."

Otherwise, Black's best hope is that President Bush might give him a presidential pardon. It would make a mockery of the federal justice system, of course -- but then so did Mr Bush's recent pardon of the convicted perjurer Lewis Libby.

For the sake of a mere $7.5m and his gargantuan pride, Conrad Black lost control of a multi-million-dollar media empire and faces financial ruin as well as a lengthy spell inside. Now he will have time to reflect on a remark by General Dwight D Eisenhower which he quoted during the British newspaper price war of the early 1990s: "The cost of victory may be high, but the price of defeat is everything."

Conrad Black, in his own words:

"I have no doubt that mothers in America use my name to frighten their children into finishing their vegetables"

"I said [to Margaret Thatcher]: 'The revolution you have wrought on this country is more important by far than the episodes in British history that usually enjoy that description.' She patted me indulgently on the forearm and said, 'That's very good. Do come back, won't you?"

"Bullies are intolerant of contrary opinion, domineering and rather cowardly. I hope none of those terms could be used to describe me"

"It's war. I'm on an inexorable march to victory ... I see the trend. My strategy is working. (Outside the Chicago courtroom)."

"The malaise of our free press [is] the irresponsible power of journalists, unrestrained by publishers."

"I have always had the twin ambitions to have at least one hundred million and to get away from Canadian winters."


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