"Self-dealing:" a quick thought

As I was taking a glance at the indictment again, a thought occurred to me: if it were the aim of Black, et. al. to "loot" Hollinger International for the benefit of themselves, then they were uncharacteristically dumb about it, by the standards of more 'august' forms of public-company crookery. I refer, of course, to stock-market manipulation.

The name of the game in the latter kind of crime is to paint up the stock one owns, so as to funnel as much 'windfall' cash to oneself by unloading a big block of the company once the market's gotten excited about its prospects. Had Black, Radler and the others been sneaky about money shuffles in the "pyramid" that Hollinger Int'l formed the base and Ravelston formed the top of, there was a more efficacious way to do it: instead of selling Hollinger Int'l assets to companies they also controlled (Horizon, Bradford) at a low price, they would have sold those assets at a very high price and claimed later that they had unlocked "hidden value" in those relatively moribund properties.

That move is precisely analagous to buying and selling shares of stock to oneself - the classic kind of crooked self-dealing - at an inflated price. That practice used to be called "painting the tape."

"Painting the assets" in that way would not only have made Hollinger Int'l seem much more valuable than it was, but also would have justified huge bonuses - no, not non-compete payments, but performance bonuses - that would have gone right into Black, et. al's pockets with much applause. In addition, given that the alleged deal-making would have kept parent company Hollinger Inc. solvent, Black, et. al., through Ravelston, could have demanded huge performance bonuses from Hollinger Inc. for heading off a liquidity crisis at the pass.

Lest you think that setting up a side corporation and then overpaying for an asset (in order to make the much larger corporation you already control appear to be more valuable than it is) makes no sense, consider that doing so establishes a precedent that can make the assets of that larger corporation acquire sudden goodwill. If the deal in question is small relative to the size of the pre-existing corporation's assets, then it's a relatively small cost of doing crookery - just as buying a chunk of stock for much more than it's worth is a relatively small cost, provided that you own a much larger chunk of that same stock whose value gets boosted by inference. In addition, there may not be a cost at all, if the greater-fool-theory is tapped into skillfully by that side corporation.

That's how it used to be done back in the crooked old days, folks; an accurate label for it would be, "giving the mark what he wishes for." Had Black, Radler, et al. been bent on looting Hollinger Int'l in that manner, they would have allowed Horizon and Bradford to be (temporarily) stiffed, while loudly proclaiming that those Hollinger Inc. newspapers that Horizon and Bradford bought were a "bargain at twice the price." That would have been plain self-dealing crookery, Vancouver-Stock-Exchange style. I find it interesting that the original self-dealing charges that pertain to the sales of Hollinger Int'l properties to Horizon and Bradford go the other way, accusing Black, Radler, et. al of "painting the assets darkly."


[The only hint of the kind of bombast associated with CEOs who swindle the shareholders is found in the evidentiary proffer, p. 23 of it, footnote 19. That footnote quotes a statement Conrad Black had made somteime May, 2003, more than four years after the original Horizon deal closed and more than two years after the Bradford purchase; the latter deal closed sometime in 2000, according to Richard Siklos (Shades of Black, p. 440.) The context given in that part of the proffer indicates that it was not said at the Hollinger Int'l shareholders' annual meeting. It can be downloaded from here. ]


Of course, Conrad Black doesn't make for the most up-front of characters to the legally-minded, given his experiences in the Delaware Court of Chancery. That court promises swift justice in expedited cases, like the ones that Mr. Black lost. Swift justice has its price, and the price in the Delaware chancery court is the subjection of complex cases to certain rules of thumb. One rule of thumb, evidently, is, "the person who goes back on an agreement, or acted in a manner that contradicts a document he or she had signed, had better have a damned good reason for doing so." In the 1982 Hanna injunction, and in the 2004 Hollinger Int'l bylaw-change injunction, Conrad Black couldn't prove that he had a damned good reason, one that he could identify when on the stand and back up when being cross-examined. Hence, he was pegged as unbelievable by both judges, and he lost both cases.

If you're interested, the opposite side in the 2004 injuction case pegged Mr. Black as someone who played the man instead of the ball. The lawyer for Hollinger Inc., Martin Flumenbaum, pulled a classic "meta-trick," which Black fell for: acting like he's pulling a trick while, in fact, offering a lifeline to the knowledgable. It's in the question, "'Well, might it be possible that someone wanted those cheques to be a lot closer to the transactions that you were going to claim they were non-competes for, when there was no documentation for that? Is that a possibility?'" (Siklos, p. 429.) This kind of trick might be a scurvy one, but it does take advantage of the less-than-knowledgeable.

The moral of this tale of Delaware woe? Swift justice depends upon drawing lines, which put the presumptive finger of guilt on the party who crossed one of them. If you find yourself in a legal dispute under the purview of an unfamiliar court, especially one that delivers swift justice, you'd do very well for yourself to find out when, and over what actions, the rule of stare decisis (the rule of precedent) kicks in, specifically for that court. At least, you'll know what you're in for.

Admittedly, Tom Bower may have been on to something when he called Conrad Black mentally lazy (Conrad & Lady Black, in the last sentence on p. 413) - even if Mr. Bower expressed it in an aspersive form.