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Tuesday, April 05, 2005

Bloomberg.com: U.S.- Perle, Ex-Pentagon Aide, May Face SEC Suit Over Hollinger Role

Bloomberg.com: U.S.: "Perle, Ex-Pentagon Aide, May Face SEC Suit Over Hollinger Role
March 23 (Bloomberg) -- The U.S. Securities and Exchange Commission has warned former Pentagon adviser Richard Perle that it may sue him for his role in the alleged looting of Hollinger International Inc., the Chicago-based media company once controlled by Conrad Black.

Perle, 63, a Hollinger director, said in a telephone interview that he received and responded to a so-called Wells notice, a formal warning that the agency's enforcement staff has determined that evidence of wrongdoing is sufficient to bring a civil lawsuit.

The SEC staff, which has reviewed Perle's response, plans to urge the regulatory body's commissioners to authorize a suit against him, according to people familiar with the matter.

Hollinger International officials, shareholders and the SEC allege that Black and former Hollinger President David Radler wrongfully diverted proceeds from the sale of some of the chain's newspapers for their personal use. Perle was a member of Hollinger International's three-member executive committee, with Black and Radler, from 1996 to 2003.

``We did receive a notice some months ago and we responded at some length,'' said Perle, who was the leading architect of U.S. nuclear arms-control policy as assistant secretary of defense from 1981 to 1987, during the administration of President Ronald Reagan. In the 2000 presidential campaign, Perle was foreign policy adviser to George W. Bush.

Perle said he never profited from the Hollinger deals that investigators have scrutinized.

``I didn't benefit from any of the transactions that they looked at,'' Perle said.

`Significant Stigma'

Perle said he didn't recall the specific allegations in the SEC's notice, and he referred questions about them to his lawyer, Dennis Block. Block, a partner at Cadwalader, Wickersham & Taft in New York, didn't respond to phone and e-mail messages seeking comment.

A final decision by the five SEC commissioners on whether to sue may come within two months, a person familiar with the warning to Perle said. The person didn't say what allegations were made in the Wells notice nor what accusations that a suit, if filed, might make against Perle.

John Nester, an SEC spokesman in Washington, declined to comment.

If the SEC takes action, it would be a ``significant stigma'' for someone who has built his post-government career on a wide network of business interests, said John Coffee, a securities law professor at Columbia University School of Law in New York. The SEC, which has sharpened its scrutiny of director behavior since the 2001 collapse of the energy trader Enron Corp., could seek to bar Perle from serving as an officer or director of any public company, Coffee said.

The SEC sought 161 such bans in fiscal 2004, four times more than in fiscal 2000, when 38 were sought.

`Blown Away'

The board at Hollinger International, publisher of the Chicago Sun-Times newspaper, ousted Black in January 2004. The company later sued Black, saying in a 513-page report issued in August that he and other top executives looted the company of more than $400 million over seven years. The SEC in November sued Black, Radler and Hollinger Inc., the Toronto-based company Black used to control Hollinger International, for fraud.

U.S. District Judge Blanche Manning in Chicago on March 14 denied a request by Black and his associates to dismiss Hollinger's suit.

Perle, in the interview, said he had been unaware of the alleged wrongdoing by Black and others at Hollinger International that was brought to light in an internal investigation by the company. The report, drafted by former SEC Chairman Richard Breeden for a board committee, was filed with the SEC.

``I was blown away by it,'' Perle said.

Trireme Partners

Asked whether he felt betrayed by Black, Perle declined to comment, citing the welter of litigation related to Hollinger.

Perle received $3.1 million in undisclosed bonuses at Hollinger for running an Internet investment arm called Hollinger Digital, according to the company report.

The report said that Perle and Gerald Hillman, a friend of Perle, convinced Black to put $2.5 million of company cash in Trireme Partners LP, a venture-capital fund that Perle and Hillman had set up to invest in homeland-security technology after the Sept. 11, 2001, terrorist attacks.

The Breeden report said of Perle: ``His executive committee performance falls squarely into the `head-in-the-sand' behavior that breaches a director's duty of good faith and renders him liable for damages under Delaware law.'' Hollinger was incorporated in Delaware.

Defense Policy Board

In its November suit, the SEC claimed that from 1999 through 2003, Black, then Hollinger International's chairman and chief executive officer, engaged in a ``scheme'' with Radler and Hollinger Inc. to loot $85 million from Hollinger International by extracting ``non-competition'' payments from the Chicago publisher. Hollinger International received the payments from buyers of newspapers the company was selling.

Black and Radler said when the suit was filed that they planned to contest it and expected to be vindicated. The case is being argued in U.S. District Court in Chicago.

The SEC warning adds to the scrutiny of Perle's business affairs. In 2003, members of Congress, including John Conyers, a Michigan Democrat, questioned why Perle set up an investment fund and took consulting jobs from other companies while serving as chairman of the Pentagon's Defense Policy Board under President Bush. The advisory panel's members have included former Secretary of State Henry Kissinger, who is also a director at Hollinger International.

Perle said he didn't advise the Pentagon on matters in which he had a direct financial interest. He resigned in March from the policy board.

Pentagon Supplier

Perle has served on at least a dozen corporate boards since leaving the Reagan administration, including those of Berkshire England-based Morgan Crucible Co., a ceramics maker; Autonomy Corp., a U.K. maker of data-mining software; and Herndon, Virginia-based DigitalNet Holdings Inc., a Pentagon supplier of computer-network security software that was sold to London-based BAE Systems Plc last year.

At Hollinger, Perle was the only non-management member of the executive committee, which had wide authority to approve transactions. Perle approved deals that let Black and Radler buy Hollinger newspapers for themselves at below-market prices and loan money to companies they controlled, causing at least $10 million in losses, according to the report by Breeden.

Perle told the investigative panel that he viewed his role on the executive committee as a formality, according to the report. He would get packages of documents to sign and ``generally did not even read them or understand the transactions,'' it said.

`Flagrant Abdication'

``It is difficult to imagine a more flagrant abdication of duty,'' the report said. ``Perle clearly had a motive to abdicate his fiduciary duties as an executive committee member so as to accommodate the persons responsible for his huge Hollinger compensation.''

In the interview, Perle took issue with that characterization.

``One could not have been aware of it,'' he said. ``When you look at the consents that I signed, none of them gives any indication of what happened later.''

To contact the reporters on this story:
Otis Bilodeau in Washington obilodeau@bloomberg.net
Peter Robison in Seattle at robison@bloomberg.net.

To contact the editor responsible for this story:
Ron Henkoff at rhenbkoff@bloomberg.net
Last Updated: March 23, 2005 00:01 EST
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