 |
||||||
 |
||||||
Anton Cermak Kerner has been reading the papers lately and remembering. In 1973 his father, Otto Kerner, a federal appeals judge who'd been governor of Illinois, was sent to prison in disgrace. Anton Kerner will never forget or forgive. Four years ago a new book deepened his certainty that an injustice had been done. Kerner: The Conflict of Intangible Rights, by Tribune financial writer Bill Barnhart and former Illinois legislator Gene Schlickman, describes petty lies and venalities that contributed to Otto Kerner's fall, but its larger argument supports an acquittal. "In the crude lingo of politicians and journalists," they wrote, "it was not a system but rather a game that sent Kerner and [codefendent Theodore] Isaacs to federal prison. They played poorly and lost. U.S. Attorney James Thompson played well and won. He was elected Illinois governor four times and retired from public life to a lucrative law career." The card Thompson played to win the game was a recently minted legal theory known as "intangible rights." The trial turned on profitable racetrack stock that Kerner, while governor in the 60s, had been given via an intermediary by Marjorie Everett, who controlled Washington Park and Arlington Park. Unseemly, yes, and Everett's racing interests flourished while Kerner was governor. But no evidence ever turned up that the governor had extorted her and little to suggest that Kerner took the stock as a bribe. In other words, Barnhart and Schlickman explained, there was no crime obvious or large enough to justify a federal indictment of a judge with Kerner's stature. The Justice Department's solution was to accuse Kerner of violating the people's "intangible rights" to honest and honorable service from their public officials -- a theory that had recently been teased out of the federal mail-fraud statute. "Without it," Anton Kerner insists, "there was no federal case. My father was wrongfully tried for conspiracy, income-tax evasion, false statements, and perjury entirely by Thompson's 'intangible rights' mail-fraud invention." Thompson, a gifted young lawyer with political ambitions, "held no enmity toward Kerner, or any regard at all," wrote Barnhart and Schlickman, "except as an athlete might feel toward a competitor or a hunter toward prey." But an expression of indifference is as rare in a courtroom as an expression of indignation is familiar. After Kerner was convicted, Thompson told the judge about to sentence him that Kerner had built a reputation as "a rare breed of public servant." But, Thompson continued, "that building contained the fatal flaws or defects of corruption, arrogance, cynicism . . . and so it came crashing down." Thompson has swept through life from honor to honor. If Otto Kerner gave his name to the famous Kerner Commission Report -- which in 1968 warned that America was becoming two separate and unequal societies -- Thompson gave his to the State of Illinois Building he commissioned from Helmut Jahn. He's now chairman of Winston & Strawn and sits on the National Commission on Terrorist Attacks Upon the United States and on a half dozen or more corporate boards. Among them is the board of directors of Hollinger International, where he's sat alongside luminaries such as Henry Kissinger and Richard Perle. Last November scandal thrust Hollinger into the headlines, and Anton Kerner felt stirrings of poetic justice. Thompson didn't simply grace Hollinger with his name in absentia. He diligently attended board meetings and chaired the audit committee. And now the conduct of the audit committee preoccupies a suit filed last month in Delaware by a Hollinger International shareholder, Cardinal Value Equity Partners. Cardinal Value accuses Black and other executives of "a stunning abuse of authority" and the board of permitting them "an unfettered license to line their pockets at shareholder expense. "In all," the suit continues, "plaintiff estimates that Black and the Hollinger Executives have looted as much as $300,000,000 or more from Hollinger. [And as] the Hollinger executives were treating Hollinger like their private piggy bank, Hollinger's Board, including ostensibly blue ribbon independent directors and Hollinger's Audit Committee were totally quiescent. Despite being presented with numerous self-dealing transactions, the Board without question or investigation repeatedly approved the actions of Hollinger Executives (often after the fact) and permitted their unfettered raid on Hollinger's finances." The Cardinal Value suit sifts through the minutes of past audit committee and full board meetings and calls the corporate history they relate a "saga of greed and deliberate indifference to fiduciary duties." Consider the events of September 10, 2001. According to the complaint, the day began with a 20-minute meeting of Thompson's audit committee, with Radler sitting in. The committee ratified millions of dollars in payments to senior executives that the executive committee -- Black, Radler, and director Richard Perle -- had approved two months earlier in connection with the sale of some Canadian papers controlled by Hollinger. The purchasers supposedly wanted the executives to personally receive this money to guarantee they would not go into competition with their old papers. The Cardinal Value suit asserts that the audit committee approved the payments with no questions asked, not even why Black and Radler "had, apparently, dispensed with the formalities of presenting such payments prospectively for rubber stamp approval." (The suit challenges many such "noncompetition" payments to Black, Radler, and other executives and complains that the board "made not the slightest inquiry" into their legitimacy.) The audit committee also approved the sale the month before of a small Hollinger newspaper, the Monmouth Times, for one dollar to Horizon Publications, a firm controlled by Black and Radler. Again, the suit charges, there was no discussion. "There is not even any question about why the matter is being brought to the Committee only after the fact," it says. "Prior to being informed that management had sold the publication to themselves, the minutes are devoid of any indication that the Board ever considered selling that publication." Furthermore, the committee seemed incurious about the fact that Black and Radler, Hollinger's top two executives, wanted the company to unload a property that the two of them, wearing other hats, intended to buy. A meeting of the full board followed. The complaint calls it "an identical ex poste facto ratification of the matters presented to the Audit Committee. . . . No questions were raised. No independent investigation was undertaken. No challenge to or even any inquiry of defendants Black and Radler was made in any regard. It is clear by now the Board had comfortably settled into its role as rubber stamping the self-dealing transactions conceived by defendants Black and Radler and other Hollinger executives to the point where they did not even mind being relegated to providing their approval after the fact." The Cardinal Value complaint is a methodical 52-page recitation of such occasions. • A February 22, 2000, meeting of the audit committee at which a proposal to turn three Hollinger publications over to Horizon was approved. "No one apparently questioned Radler or Black as to why they would recommend Hollinger get out of these businesses when yet, at the same time, Radler and Black were personally purchasing these businesses." In addition, Radler proposed an increase in his and Black's compensation, and the audit committee approved it without "independent review. . . . The minutes reflect no apparent justification offered by Radler." • A May 11, 2000, meeting of the audit committee at which yet another deal between Hollinger and Horizon was approved. "The Hollinger Executives were buying a newspaper from Hollinger at a non-negotiated price, which was not subject to any independent review or fairness opinion. Also negotiated with themselves was a $6 million interest-free ten-year loan from Hollinger to finance their purchase." • A February 26, 2001, meeting at which the audit committee was given a plan to sell two Hollinger publications to Horizon for one dollar. "The proposal was accepted as presented." And on and on. Eventually minority stockholders and then the board itself rose against Black and Radler and last November toppled them from executive control of Hollinger International. In mid-January Hollinger International filed a suit of its own. On the basis of an ongoing investigation by a "special committee" of independent directors, it sued to recover more than $200 million that Black, Radler, and three management firms controlled by Black allegedly took from Hollinger "through various improper means." A Hollinger press release explained that more than $90 million had allegedly flowed to the defendants in the form of noncompetition payments, some of them "sham transactions," others never authorized by the board. In addition, the company allegedly paid out "tens or hundreds of millions of dollars in excessive, unreasonable and unjustifiable" management fees. An "attitude of proprietor entitlement permeated Defendants' dealings with the company," the suit declares. Up to a point, the suit echoes what Cardinal Value had to say about the board. It was a board that didn't "meaningfully negotiate" management fees or adequately review those "sham" noncompetition payments. The audit committee had allowed Black and Radler to operate their Horizon sideline "without adequate fairness analysis." But Cardinal Value saw a board of irresponsible enablers. The Hollinger suit posits the directors as the shareholders' fellow victims. To demonstrate Black's alleged "contempt for the public shareholder majority," it quotes from e-mail from Black to other executives in 2002 remarking that Hollinger's only reason to be a public company was "relatively cheap use of other peoples' capital." Black seemed to be wondering whether incorporation was worth it: "We now have an unsatisfactory situation where a number of the shareholders think we are deliberately suppressing the stock price, some others think we are running a gravy train and a gerrymandered share structure, and we think they are a bunch of self-righteous hypocrites and ingrates."
|
