Conrad's Black Eye

By Peter Gumbel

Conrad Black loves a good fight. The blustery press baron who owns the Chicago Sun-Times, Britain's Daily Telegraph and more than 140 other newspapers worldwide often writes letters to his own publications taking potshots at opponents. Two years ago, he even renounced his Canadian citizenship in a public battle with Prime Minister Jean Chretien in order to become a British peer, Lord Black of Crossharbour. As biographer Peter C. Newman put it, "He has the body language of a puma in heat."

But Black, 59, may not be quite so nimble as he thought. As he set out on a book tour of Toronto and New York City last week to tout his new biography of Franklin D. Roosevelt, Black found himself at the center of a typhoon over alleged improprieties in his business affairs. On Wednesday, Black resigned as CEO of Hollinger International, his Chicago-based public company, after shareholders revolted against him, and regulators in the U.S. and Canada opened probes. Late Friday night Hollinger's Canadian parent company, which Black controls, announced that its four-member audit committee had resigned. Now the $1 billion newspaper empire he spent four decades building seems to be headed for the auction block.

Black's troubles began two years ago, when investors Tweedy, Browne--one of Hollinger International's biggest shareholders--asked about unusual-looking payments to Black and other executives. Ignored by Black and Hollinger's board, Tweedy, Browne persisted; and Hollinger announced last week that an internal inquiry had uncovered $32 million in questionable payments, including $7.2 million directly to Black and $16.55 million to Hollinger's Canadian parent company.

None of these payments were authorized by the board or the relevant committees. That has triggered criticism of the apparent lack of vigilance by the luminaries on the board, including Henry Kissinger, former Democratic National Committee chairman Robert Strauss and former top Pentagon official Richard Perle. (They reportedly missed many board meetings.)

Although Black resigned as Hollinger's CEO, he is trying to stay on as nonexecutive chairman--and insists that it's too early to pen his corporate obituary. "All you fellows who wrote today that I'm finished may not have it right," he told reporters. Because Hollinger stock surged on the news of his ouster, he boasted he was $50 million richer, declaring "That's a flameout I could get used to."

Black's problems may be just starting, however. Tweedy, Browne's complaints to the Securities and Exchange Commission (SEC) go much deeper. Black and his wife, columnist Barbara Amiel, and several top executives received other payments now being examined. Black, Amiel and the executives are affiliated with a private firm called Ravelston Corp., which received $203 million from Hollinger from 1995 to 2002 for so-called service agreements. Hollinger admitted in March that these agreements "were not the result of arm's length negotiations between independent parties" and thus may not be favorable to the company. Yet Hollinger's board signed off on some of the payments. On Friday the firm said it had understated taxes by at least $17 million because of "inaccuracies" in previous disclosures. Making matters worse for Black, he signed a consent decree with the SEC in 1982, agreeing not to break securities laws (he had been charged with filing misleading documents, which he neither admitted nor denied). If he is found in violation of the decree, the SEC may elevate civil charges to criminal ones.

It's a spectacular fall for Black, who built up a global empire from two small Quebec newspapers he acquired while still a student. Now the vultures are circling to pick over his holdings, with potential bidders ranging from private equity firms to rival newspaper giants like Gannett. In his Roosevelt biography, Black writes that the President's "considerable vanity could never allow that he had been defeated or outsmarted." It's an insight that could well apply to Black himself.

--With reporting by Daren Fonda/New York and Steven Frank and Cindy Waxer/Toronto

With reporting by Daren Fonda/New York and Steven Frank and Cindy Waxer/Toronto