The settlement of a long-standing lawsuit between former newspaper baron Conrad Black and securities regulators in the United States may blunt similar proceedings set to begin in Canada with the Ontario Securities Commission, legal and business experts say.
The U.S. Securities and Exchange Commission reached an agreement with Black last month, preventing him from acting as the director of a public company in that country and ending the lawsuit about his dealings as the head of the Hollinger media empire. The civil suit had been pending throughout his much-publicized criminal trial for fraud and obstruction of justice in 2007, as well as Black’s subsequent appeals.
Now that the lawsuits in the United States have wrapped up, regulators in Canada are moving ahead with their own proceedings to determine whether Black and two other former Hollinger executives should be banned from buying or trading in securities and from becoming directors of a public company in Ontario.
The Ontario Securities Commission alleges directors and officers of Hollinger Inc. and Hollinger International engaged in “a scheme” to line their pockets with company proceeds through a complicated system of “non-competition” payments, accusations it plans to begin to address during a preliminary hearing in Toronto on Friday.
Observers believe Black’s lawyers will use the SEC settlement to try to nullify those proceedings.
“The SEC is seen as being tougher than the OSC, and if the SEC has settled, that would generally suggest that the matter has been concluded,” said James Morton, a Toronto lawyer who has followed Black’s case.
“Certainly that’s likely to be one of the things that will be argued by Conrad Black’s lawyers; they’ll suggest that the matter has been dealt with and there’s nothing left to be done.”
The OSC, Morton added, will have to draft its arguments broadly enough to suggest its complaints haven’t been fully addressed by regulators south of the border.
Black received an initial judgement in the SEC case last October, ordering him to pay back $6.1 million and prohibiting him from acting as an officer or director of a company.
He appealed that ruling, and the matter was eventually sent to mediation through standard U.S. court procedures in July.
The SEC settlement maintained the ban, but reduced the restitution to $4.1 million. In exchange, Black agreed to drop his appeal. That settlement is awaiting final court approval.
The $4.1 million in restitution was well below the $100 million suggested in the initial enforcement action from 2004, when the SEC first brought a complaint accusing Black of violating securities laws while at the helm of Hollinger by allegedly failing to disclose information about certain payments he received.
Black, Peter Atkinson and John Boultbee were found guilty of three counts of fraud each by a U.S. jury in 2007, and Black was also convicted of one count of obstruction of justice. The 7th U.S. Circuit Court of Appeals later tossed two of the three fraud convictions against the men because the U.S. Supreme Court ruled that one of the laws used to convict had been too broadly applied.
Black ended up serving 37 months out of a 42-month sentence in a Florida prison, and was fined $125,000.
Black has made it clear that he considers the criminal case won, and that the OSC proceedings are procedural matters that have been overblown by the media.
A source close to Black confirmed that he will not attend Friday’s preliminary hearing.
The OSC declined to comment on the proceedings other than to say a preliminary hearing was on track for Friday.
Richard Powers, a professor with the University of Toronto’s business school, said the OSC has a duty to pursue the case because Hollinger was a publicly traded company.
“The OSC does have an obligation to look at this and determine whether it’s in the public’s interest to levy any more sanctions or try to recoup any of their costs in the investigation,” said Powers.
“The real risk is probably a financial penalty relating to the OSC’s costs of the investigation.”
To Morton, the hearings are largely about optics, because the Ontario Securities Commission has, in the past, been seen as weak in dealing with white-collar crime when compared with the United States.
“It may well be that the OSC is pursuing this in order to restore confidence in the securities regulation system in Ontario, which is obviously in the public interest, or perhaps simply to show that they are involved too … which is not a particularly useful use of taxpayers’ money,” he said.
The OSC and Black’s former business partner, David Radler, reached a plea agreement last year.
Ahead of Black’s criminal trial, Radler had pleaded guilty to one count of mail fraud at U.S. District Court, and was sentenced to 29 months in jail and ordered to pay a fine of $250,000. He also had to testify against his former colleagues.
Black’s history with the SEC goes back to a report by former Securities and Exchange Commission chairman Richard Breeden, which accused Black of stealing from Hollinger. The SEC relied heavily on that report to launch its initial action.
Black responded to the report, which also contained allegations that ultimately led to his 2007 criminal trial, with a $1-billion libel suit.
That libel suit was eventually settled and a source close to Black said Wednesday that his portion of the libel settlement amounted to $4-million.