The Conrad Black story

Conrad Black was convicted in Chicago yesterday of mail fraud and obstruction of justice, acquitted of 10 of the 14 charges. Here’s the WSJ story.

The obstruction was a seemingly simple matter, caught on video, and lacking any testimony by Black that might have justified it. The mail fraud was about non-competes that might or might not have been approved – the jury, which at one point announced that it was deadlocked, seems to have struggled mightily with the claim.

So what are the lessons here?

1. The bottom line is that Black was convicted basically for illegitimately selling control. As Holman Jenkins has noted, the central crime is a product of our dubious policy toward takeovers:

Had outsiders seen unrealized value in Hollinger, they might have weighed their odds and launched a hostile bid to buy the company out from under its proprietor. Any lawsuits and media campaigns would have been carefully metered to encourage Lord Black to sell but not to damage the company. That approach worked well enough in the 1980s. Yes, this would have made it worth Lord Black's while to get out of the way. Onlookers wonder why large sums change hands in the business world to get rid of used-up CEOs or reward controlling shareholders for giving up control. Answer: To avoid destroying a business in order to save it.

2. Accepting the illegality of Black's conduct, it's still not an illustration of why we needed SOX, as I’ve said before, and as yesterday's Forbes observes:

Whether Sarbanes-Oxley, had it existed in the late 1990s, would have restrained Black's swashbuckling is doubtful. It was intended to hold top executives personally accountable for their companies' actions and focus the light of transparency on their company's accounts. That is a job that shareholders should have had their boards do, and which, in Black's case, took far too long to happen--especially since his crimes lay in plain sight

3. Even this seemingly clear case illustrates the total unsuitability of criminalizing agency costs. As Tom Kirkendall has said, after surveying evidence that director and former U.S. attorney and governor Jim Thompson (whose name is on one of the biggest buildings in Chicago’s Loop) approved the noncompetes:

In civil litigation, all of the Hollinger directors and executives involved in the allegedly questionable non-compete payments to Black and his associates would be included as defendants. Thus, in such a case, responsibility for the payments -- if they were found to be wrongful -- could be allocated among all of directors and executives involved. But the sledgehammer effect of criminal prosecution focuses all of the responsibility for the transactions in question by hanging the threat of long prison sentences over Black and his associates even though it is clear that the allegedly wrongful payments were disclosed to and approved by Hollinger's directors. This is not the way a truly civil society would resolve such issues.

4. Like all these cases, the government tried to make this look like a simple case of greed and excess. But in the end, the jury didn’t buy the the peripheral stuff, focused on the central charges, and evidently struggled with those.

5. Once more we see how the results in these trials turn on prosecutorial deals that make a mockery of justice. As Mark Steyn says:

The judge has announced that Conrad Black and his co-defendants will be sentenced on November 30th. That's five months away - or one month less than the total amount of jail time David Radler [Black's co-defendant] will serve at his "golf therapy" farm in BC. Truly, the ways of US justice are a wonder to behold.

6. And for those who say, so what, a bad man got caught, so the end justifies the means, even that isn’t so simple, as this long story of the Black affair demonstrates.

Comments

[Jerri Lynn Ward, J.D.]

I wish that someone address an issue about the non-competes which occurs to me. Why is it fraud for Black to have been paid for signing a non-compete? If he hadn't been paid, how could the non-compete have been enforced against him individually? Is paying a 3rd party as part of a contract, sufficient consideration to contractually bind the 2nd party?

This bit about one of the parties to the transaction having not asked for the noncompete being used as evidence against Black seems strange. Just the other day, I offered an opposing attorney something his client had not asked for in negotiations. He accepted. How is that nefarious?

Having a direct agreement with Conrad Black that he will not compete against a buyer seems like good business. After all, it was not the purchased entity which possessed the brains that got it where it was--it is Conrad Black who possesses those brains.

I just don't get this.

[Rick Caird]

I am kind of with Jerri here. Who was the non compete with? If it were solely Hollinger, then Black could have formed another company and competed. If it were with Black, then of course he should be paid as long as he told the board, and he did.

I find this whole thing baffling.

Rick