Conrad Black's bills pile up

Canada's media tycoon faces complex, expensive legal battles on many fronts. Can he afford them?

In February 2004, Conrad Black strode past derelict buildings through the quiet streets of downtown Wilmington, Del., on his way to testify at the city's courthouse. He was not alone; surrounding him was an imposing posse of perhaps half a dozen well-dressed men, mostly lawyers. Notwithstanding Black's astute selection of hired guns, though, he lost hugely: the court's scathing decision crushed any doubts the Canadian-born British Lord no longer ruled the roost at Hollinger International Inc., then a publishing company with newspapers in London, Chicago, Jerusalem and elsewhere.

Since then, things have only gotten worse; Black, now 61, finds himself besieged by a clamouring horde of legal opponents, among them securities regulators, disgruntled shareholders, U.S. federal prosecutors and some of the very same companies he once controlled. Black denies virtually all their allegations. And he's assembled a gargantuan legal team that makes his Delaware entourage look low-rent by comparison.

American lawyer Arthur Garfield Hays once said: “When there's a rift in the lute, the business of the lawyer is to widen the rift and gather the loot.” The loot, in this case, is the remains of Black's once considerable fortune. It's now beset by a barrage of billable hours so daunting it might provoke sympathetic groans from similarly afflicted businessmen like Bernard Ebbers and Kenneth Lay. Only the wealthiest of tycoons could contemplate pursuing justice on this scale. There's just one question: Is Black among them?

It's no exaggeration to say Black is buried in litigation. Hollinger International, headquartered in Chicago, accuses him (and other former execs) of looting hundreds of millions of dollars from the company. Toronto-based Hollinger Inc. and Argus Corp. Ltd. are suing him, too. Litigation is a two-way street, however, and during 2004 and 2005, Black launched six defamation suits against former colleagues on Hollinger International's board–including longtime friend Henry Kissinger–in the Ontario Superior Court.

Various shareholders launched their own lawsuits against Black. Securities regulators had concerns, too. In late 2004, the SEC launched a lawsuit in a U.S. District Court in Illinois, accusing Black and others of engaging in a “fraudulent and deceptive scheme to divert cash and assets from Hollinger International…and to conceal their self-dealing.” The Ontario Securities Commission's enforcement staff issued its own allegations against Black and others in March 2005.

All of that, though, was overshadowed when U.S. federal prosecutors indicted Black and three other former Hollinger executives on 11 counts of fraud this past November. (Racketeering, money laundering and obstruction of justice charges were added a month later.)

Fighting battles on so many fronts requires considerable legal firepower. Canadian Business studied court documents and identified no fewer than 33 lawyers retained by Black in the U.S. and Canada since the Hollinger scandal erupted. This roster features considerable experience, diverse expertise, and counsellors highly esteemed in their fields. For example, early members of Black's legal team included David Boies, who as long ago as the 1980s was described by The New York Times Magazine as “the Wall Street lawyer everyone wants,” and John Warden of New York-based Sullivan & Cromwell, who once faced off against Boies as chief counsel to Microsoft Corp. for its defense against the U.S. Department of Justice's antitrust prosecution. (Both have since left Black's employ.)

Another of Black's lawyers, William Jeffress of Baker Botts, has defended ABC News, former U.S. president Richard Nixon and I. Lewis “Scooter” Libby, the former chief of staff to U.S. vice-president Dick Cheney implicated in the Valerie Plame scandal. In the SEC proceedings, Black hired Gregory Craig, a prominent Washington lawyer whose clients have included Massachusetts Senator Edward Kennedy, UN secretary general Kofi Annan and former U.S. president Bill Clinton. Toronto firm Ogilvy Renault is defending Black against a lawsuit brought by Hollinger Inc. The list goes on.

When Black appeared for his arraignment in Chicago in December, accompanying him were Edward Greenspan and Edward Genson. Genson, who one Chicago Sun-Times columnist has described as “not only one of the best, but also most colorful, Chicago defense lawyers,” has four decades of experience; his clients have included politicians and businessmen. Dubbed “the Johnnie Cochran of Canada” by the New York Post, Greenspan has represented theatre impresario Garth Drabinsky and actor Dennis Hopper. Rumour has it former Nova Scotia premier Gerald Regan spent much of his life savings on Greenspan's successful defence against sexual assault charges. Ontario millionaire cocaine addict Helmuth Buxbaum reportedly paid Greenspan $1.3 million to defend him, but in 1986 he was convicted for hiring a hit man to kill his wife.

How much is all this legal ammo costing Black? Well, in a legal document filed last year, the former Hollinger chief revealed that by May 2005 he'd paid US$6.8 million in legal fees to a single firm, Williams & Connolly, to fight investigations by the SEC and U.S. Department of Justice. In another filing a few months later, he reported that he'd spent at least US$435,000 on services from Baker Botts and Schopf & Weiss. Others are footing his bills, too; Hollinger International, for example, said that as of Sept. 30, 2005, it had paid US$9 million toward Black's defence costs. Meanwhile, as early as September 2004, Black and former associate David Radler (who last year pleaded guilty to a fraud count and is co-operating with federal prosecutors) were asking Hollinger Inc. to pay another $6.5 million in legal fees they'd incurred. Given those numbers, it's easy to imagine Black's monthly legal bills reaching well into the hundreds of thousands of dollars–and quite possibly the millions.

And there's no end in sight. Black's criminal trial is scheduled to begin in March 2007; he publicly expressed a desire to answer the charges sooner. Civil actions are stalled until it's over. But others are eager to get back to pursuing Black in court. “Basically we're on a holding pattern right now,” says Peter Chan, assistant regional director at the SEC's Midwest regional office in Chicago. “Our expectation is that as soon as the order to stay by the [Chicago] judge is lifted, we will be going very fast and very furious.”

Can Black afford what's shaping up to be a protracted battle? When Hollinger International's shares surged following his departure as CEO, Black was outwardly cavalier about his finances. “I made 50-million bucks yesterday,” he quipped to reporters. “That's a flame-out I could get used to.” More recently, at his arraignment in Chicago, reporters asked Black whether or not he was struggling financially. “If I was, I wouldn't have so many lawyers,” he replied.

It may not be that simple. In 2001, the last year Canadian Business estimated Black's net worth, we claimed he was worth $275 million. While that's considerable, much of it was tied up in shares of Hollinger-related companies. But now Black can't convert those shares into cash–partly because federal prosecutors seek their forfeiture. When the scandal erupted, Black also had more than 2.1 million stock options in Hollinger International, but the company has so far thwarted his efforts to cash them.

The other major component of Black's wealth was real estate. Black owned mansions in Toronto, London and Palm Beach, Fla., and a luxury apartment in New York. Over the past few years, he extracted value from those properties through high-interest mortgages. For example, in July 2004 he took out a $32-million mortgage on his Toronto and London homes with Quest Capital Corp., a Vancouver company that offers short-term real-estate-backed loans to high-net-worth individuals. (While other Canadians enjoyed record low interest rates, Black borrowed at nearly 13% per annum–actually slightly above Quest's “typical” range of 9% to 12%.) In May 2005, Black mortgaged his Palm Beach estate for US$10 million. Laminar Direct Capital of Houston granted that loan, which is due for repayment this coming May.

Meanwhile, since 2004 Black has also offered for sale three of his four homes. In the spring of 2005, his London pile sold for a reported £13.5 million. Months later, he disposed of his New York apartment, but FBI agents swooped in and seized US$8.5 million in proceeds just as the transaction closed. Black sued to recover those funds; his court documents discuss his financial situation with less confidence than his public pronouncements. For example, he argued that if the proceeds from the sale were not promptly returned he would be “hamstrung in his ability to challenge the substance of many allegations set forth,” and that “the wrecking ball will have destroyed the building.” Meanwhile, his Palm Beach mansion has been on the market several times since 2004 at asking prices north of US$35 million. Trouble is, Black's US$20-million bail on the criminal charges he is facing is secured largely by it; according to the bail conditions any sale proceeds must be placed in escrow. Claiming Black owes back taxes, the Canada Revenue Agency also has a $13-million lien on the property.

Even forgetting the lawyers, Black continues to have a high burn rate. Taxes on his Palm Beach mansion alone are said to be almost US$400,000 a year. Court judgments have also taken their toll. In the early summer of 2004, Black paid nearly US$24 million to Hollinger International in response to court orders.

All of this leads one to wonder how much breathing room Black has left. Only he and his accountants know for sure. One wild card, though, is how much of his legal tab his former companies will pick up. Corporations must typically indemnify their officers and directors from certain legal risks incurred during the course of their employment. Black is locked in litigation with both Hollinger International and Hollinger Inc. over how much contribution he is entitled to receive from his former employers.

The stakes in the criminal proceedings would be sufficient to decimate many a tycoon's fortune: federal prosecutors in United States seek forfeiture of Black's shares, US$92 million and his Florida residence. Victory at next year's criminal trial in Chicago could vindicate Black, yet leave him with the personal-finance equivalent of an atomic wedgie. Defeat could spell financial annihilation, with profound implications for those seeking stiff fines, disgorgement of allegedly ill-gotten gains and penalties that sum in the billions of dollars.

Whatever happens, though, it seems lawyers will get their loot. The rift remains wide indeed.