Dual Loyalties

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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

Conrad Black Accused Of Stealing More Than $400 million With Richard Perle's Help

[R-G] Richard Perle, Conrad Black and Hollinger International: "Richard Perle, Conrad Black and Hollinger International
1st. September 2004
The Associated Press

Probe: Ex-Hollinger CEO looted profits

Conrad Black accused of stealingmore than $400 million

NEW YORK - Conrad Black, the former CEO of Hollinger International Inc., conspired with associates to systematically loot the newspaper publishing company of more than $400 million _ nearly all of its profits from 1997 through 2003, an internal investigation found.

The report, which was filed with the Securities and Exchange Commission on Tuesday, was prepared by a special committee of Hollinger's board which was formed last year to examine concerns from shareholders about payments made
to Black and others.

Black has since been forced out as CEO and chairman of Hollinger International, the parent company of the Chicago Sun-Times and The Jerusalem Post, following initial findings from the committee that he and others improperly received millions in fees and payments that should have gone to the company. He remains the company's controlling shareholder.

The committee's 500-page report makes even more sweeping allegations of wrongdoing, accusing Black and a senior associate, former chief operating officer David Radler, of milking the company to satisfy their "ravenous appetite for cash."

In an introduction to their report, the three-member committee wrote: "This story is about how Hollinger was systematically manipulated and used by its controlling shareholders for their sole benefit, and in a manner that violated every concept of fiduciary duty."

The report was the latest blow to Black, a flamboyant media tycoon who has been steadily losing his grip on his newspaper empire over the past year. Born in Canada, he renounced his citizenship to accept the title of Lord Black of Crossharbour in the United Kingdom, where he moved in high-level social circles. He also published a widely praised 1,280-page biography of Franklin Delano Roosevelt last fall.

The committee found that Black had Hollinger pay for at least $8.9 million worth of FDR memorabilia while he was working on the book, as well as a number of perquisites for himself, his wife, and other associates that were often not properly disclosed.

>From 2000 to 2003, the committee found, the company paid about $390,000 to lease and repair various cars, including a Bentley and Rolls Royce in London. Black also billed the company for $28,480 for three dinners for former secretary of state Henry Kissinger, who is a board member, and his wife; as well as $24,950 for "summer drinks."

Ravelston Corp., a Canadian company 65 percent-owned by Black and the ultimate parent entity of Hollinger International, released a statement saying that the report is "recycling the same exaggerated claims laced with outright lies that have been peddled in leaks to the media and over-reaching lawsuits."

Radler owns 14 percent of Ravelston. Neither Black nor Radler could be reached for further comment beyond the statement.

The three-member committee was made up of outside directors and was advised by Richard Breeden, a former SEC chairman who also acted as a court-appointed bankruptcy monitor for WorldCom Inc.

Hollinger International's special committee is also suing Black, Radler and others in federal court in Chicago, seeking $1.25 billion in damages and accusing the group of racketeering. The committee also submitted its final report to that court late Monday.

The report was disclosed a day after Hollinger International's publicly traded parent company, the Toronto-based holding company Hollinger Inc., disclosed that the SEC's Midwest regional office planned to recommend civil charges be filed against it for alleged violations of the Securities Exchange Act. Black and Radler control Hollinger Inc. through Ravelston.

The report was also critical of the company's audit committee, which was chaired by former Illinois Gov. James Thompson, saying that the committee's performance was "ineffective and careless over a prolonged period of time."

However, the investigators also found that the committee was frequently misled by Black, Radler and other insiders, who also withheld important information from them on a regular basis. Thompson declined to comment on the specifics of the report, but acknowledged that he had put his faith in Radler and Black. "I've never been on a board where you start with the presumption that the CEO is a crook," Thompson said in an interview.

The committee also criticized Richard Perle, a member of Hollinger International's board, saying that he "repeatedly breached his fiduciary duties" a member of the board's executive committee. Perle was assistant secretary of defense under President Reagan and a former chairman of the Defense Dept.'s Defense Policy Board in the current Bush administration.

They found that Perle repeatedly signed papers without evaluating or even reading them, including several that cleared the way for payments to insiders in a way that allowed Black and Radler to avoid disclosing them to the board or to its audit committee.

They also found that Perle, together with Black, caused Hollinger International to make an investment in Trireme, an investment fund in which they both held a financial interest, without seeking the required approval from the board's audit committee.

"By putting his own interests above those of Hollinger's shareholders, Perle has violated his duties of good faith and loyalty," the investigators said in their report. "As a faithless fiduciary, Perle should be required disgorge all compensation he received from the company," including more than $3 million he received in bonuses as the former chairman and CEO of the company's digital operation.

An assistant in Perle's office said he was traveling and couldn't be reached for comment.

The report describes extensive abuses of power by Black and his associates, concluding that Hollinger International "went from being an expanding business to becoming a company whose sole preoccupation was generating current cash for the controlling shareholders. ... Black and Radler made it their business to line their pockets at the expense of Hollinger almost every day, in almost every way they could devise."

The report concluded that the amount of money looted from Hollinger by Black and others over the period of 1997-2003 represented just over 95 percent of the company's entire earnings during that time.

Black has already lost two legal battles against Hollinger in Delaware's Chancery Court, the last of which blocked his effort to call a shareholder
vote on the company's move to sell one of its main assets, The Daily Telegraph of London, to the Barclay Brothers of the United Kingdom. An earlier ruling found that he "persistently and seriously" breached his obligations to the company.

Following the sale of the Telegraph, Hollinger International retains the Sun-Times, several other newspapers in the Chicago area, where the company is based, and The Jerusalem Post."

Richard Perle - Pay back 5 Million Dollars

Richard Perle's Nemesis: "From Washington Dispatch.com

Richard Perle's Nemesis
Commentary by Martin Kelly
September 10, 2004
Downward and downward spiral the fortunes of Conrad Black, the deposed CEO of Hollinger International, the only tycoon in history brought low by his wife’s taste in shoes. Last week, the sometime Sun King of the Sun-Times received a mortal blow in the form of an internal report into his alleged malfeasance called ‘The Hollinger Chronicles’ authored by a personage no less prominent than Richard Breeden, former chairman of the SEC.

It is damning stuff. According to Dominic Rushe in the September 5 Sunday Times, Breeden has found that throughout the period of 1997-2003, the amount of money taken by Black and his cohort David Radler in a policy of ‘aggressive looting’ amounted to $400m, a staggering 95.2% of Hollinger’s net income for that period. Although there might not be much to substantiate the investigations by the SEC and the Illinois authorities, if he is found to have breached any SEC rules Black is automatically guilty of violating a consent decree requiring him to comply with securities laws, which was passed with his consent in 1982 and which remains in force, following litigation against sometime target Hanna Mining. Such violation is a criminal offence, and he goes straight to the hole.

However, it’s not only King Conrad who should be quaking in his boots with this report’s release. As a result of his failure to perform the duties incumbent upon him as a member of Hollinger’s executive committee, uber-neoconservative Richard Perle, ‘The Prince of Darkness’, sometime Chairman of the Pentagon Defence Policy Board, may soon find himself out of pocket to the tune of – wait for it, I’m savouring this – 5 MILLION DOLLARS!

Perle is not just a neoconservative – he is the personification of that philosophy. Along with David Frum, he is the co-author of An End to Evil, neoconservatism’s vision for the Middle East. Frum, like Black a Canadian by birth, was a columnist for Blacks’s National Post before being hired as a Bush speechwriter. Fired after his wife’s Internet boast that he coined the phrase ‘Axis of Evil’, Frum then penned the Bush hagiography The Right Man, before finding his true level as resident ideologue of the National Review Online. Frum is a hatchet man with a strong tendency towards self-promoting buy-the-book conservatism. In March 2003, he published a scandalous article in the National Review called ‘Unpatriotic Conservatives’ accusing Pat Buchanan, Robert Novak, Samuel Francis and others of, amongst other things, disloyalty, anti-Semitism and racism as payback for their refusal to support the Iraq War. Buchanan returned the compliment to Perle in a classic article, ‘Whose War?’ published in the March 24 2003 American Conservative.

Perle started his career in public life as an aide to Scoop Jackson. In 1983, the New York Times reported that he had been paid by Israeli weapons manufacturers. In 1996, he co-authored a report for Likud Prime Minister Benjamin Netanyahu called ‘A Clean Break: A New Strategy for Securing the Realm’ along with arch-neoconservative Douglas Feith. Buchanan quoted directly from the paper:

“Israel can shape its strategic environment, in co-operation with Turkey and Jordan, by weakening, containing and even rolling back Syria. This effort can focus on removing Saddam Hussein from power in Iraq – an important Israeli strategic objective in its own right – as a means of foiling Syria’s regional ambitions”

Four years after writing that, Perle was back at The Pentagon. It was in the office of Feith, now the number three civilian at The Pentagon, that the suspected Israeli agent Lawrence Franklin worked.

However, Breeden blasts Perle for the lack of care he exhibited towards the interests of the wider shareholder democracy forming Hollinger International. Perle was not just a main board director; he was a member of the corporation’s executive committee. He should have been scrutinising the web of interlocking companies, the non-compete fees, the management fees and the asset sales and purchases that seem to have enabled Black and Radler get their hands on so much for so long. Either Perle wasn’t doing his job properly or he was looking the other way. Breeden proposes that the ultimate penalty be imposed on Perle for his consistent failure to perform. Black’s biographer Richard Siklos, writing in Hollinger’s former title The Sunday Telegraph of September 5, quotes Breeden thus –

“As a faithless fiduciary, Perle should be required to disgorge all compensation he received from the company”.

Over the course of his involvement with the company, Perle was paid a total of 5 million dollars. If Perle is called upon to repay this sum, it will be very interesting to see who is backing him up.

‘A faithless fiduciary’. Man, that must really hurt. However, Conrad Black liked his company. Under Conrad Black, both the Daily and Sunday Telegraphs faithfully parroted the neoconservative line. According to Dominic Rushe, Hollinger International’s board meetings were civilised affairs, where, after a brief chat about the operations and tribulations of a global media empire, Black, Perle and Henry Kissinger would chew the fat about politics. It’s a pity that more time wasn’t spent on discussing corporate affairs; otherwise the Louisiana Teachers’ Pension Fund might not now be suing Hollinger. It just goes to show that, in business as in politics, don’t ever ask a neocon to mind the store.

© Copyright 2004 The Washington Dispatch"

Chicago Tribune | Perle an 'abject failure' as outside director, report says

Chicago Tribune | Perle an 'abject failure' as outside director, report says: "Perle an 'abject failure' as outside director, report says

By James P. Miller
Tribune staff reporter
Published September 1, 2004
In the report of financial escapades at Hollinger International Inc., some of the harshest criticism is leveled at Richard Perle, a member of the company's board of directors.

A one-time assistant U.S. defense secretary and a leading proponent of the neo-conservative movement, Perle is widely considered to have wielded significant policy influence in the Pentagon during the administration of President George W. Bush.

But Perle was an "abject failure" as an outside director at Hollinger International, where he had a responsibility to protect the interests of company shareholders, according to the report, commissioned by Hollinger International and prepared by a committee headed by Richard Breeden, a former chairman of the Securities and Exchange Commission.

Perle had a key role at the company, the committee noted, because he was the only independent voice on Hollinger International's powerful, three-member executive committee. The two other members of the committee were the company's controlling stockholders, Chief Executive Conrad Black and his longtime lieutenant, David Radler. Radler also was publisher of the Chicago Sun-Times.

Black and Radler improperly siphoned off hundreds of millions of dollars from Hollinger International, the report said. And Perle, the Beltway insider, made it easy for them to do so, Breeden's investigation found.

Perle told investigators that he considered the executive committee reports simply a way to push through paperwork that would end up being reviewed by Hollinger International's full board of directors. In fact, the board signed off on a variety of financial misdeeds by Black and Radler, relying on assurances from the executive committee that all was well, the Breeden report said.

Perle "admitted that he generally did not even read [the documents he was signing] or understand the transactions to which they applied," the report said.

"It is difficult to imagine a more flagrant abdication of duty than a director rubber-stamping transactions that directly benefit a controlling shareholder without any thought, comprehension or analysis."

And while Perle was listed as an outside director, the report said, he actually wasn't independent of Black and Radler at all. Beginning in 1996, it said, Perle was an officer of Hollinger Digital, a venture-capital subsidiary of Hollinger International. In that role, he received millions of dollars in incentive payments.

As a result of those lucrative payments, the report found that "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, Black and Radler."

Because he was a "faithless fiduciary," the report said, Hollinger International's new managers intend to demand that Perle repay the $5.4 million he received from the company in director fees, salary and incentive payments.

In his role as an official with the venture-capital group, the report also said, Perle successfully pushed Hollinger International into putting $2.5 million into an investing fund in which he had a significant financial interest. The investment required clearance from Hollinger International's audit committee, the report said, but "no such approval was ever sought or obtained."

Neither Perle nor his attorney could be reached for comment Tuesday. Perle has previously said he did nothing improper at Hollinger International.

Copyright © 2005, Chicago Tribune "