The stories on the Conrad Black trial, webbed overnight by media Websites, mainly focus upon a witness' answer to one of Conrad Black's now-oft-repeated E-mails:
1. The Belleville News-Democrat has webbed the Associated Press report on yesterday's part of the trial, which concentrates upon the advice given by Marie-Josée Kravis to Conrad Black during the 2003 Hollinger International shareholder revolt.
2. A New York Times report recounts Mrs. Kravis' testimony not only under direct examination, but also under the first 45 minutes of cross-examination, which proceeded in much the same way as Richard Burt's did. The cross-examination of Mrs. Kravis will continue on Monday.
3. The Ottawa Sun has webbed a brief Canadian Press report, focusing on Mrs. Kravis' advice to Mr. Black.
4. Another CP report, this one credited to Romina Maurino, has been webbed by the Hamilton Spectator.
5. Paul Waldie of the Globe and Mail starts off with Mrs. Kravis' testimony while being cross-examined by Patrick Tuite. It starts off with: "For an economist who works at a high-powered think tank, Marie-Josée Kravis had a hard time explaining her reading habits to the jury in the Conrad Black trial yesterday."
6. The Toronto Star's Jennifer Wells takes a different tack from the rest, starting off with a profile of Mrs. Kravis as an A-lister. (She seems to be subbing for the now-absent Brits.)
7. The New York Post has an excerpt from the latest Reuters report.
8. From the Chicago Sun-Times, Mary Wisniewski's report on what Mrs. Kravis revealed under direct examination. Her report is the only one amongst the eight in this list that doesn't mention Mrs. Kravis' advice to Mr. Black, given in 2003, to be "humble."
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The Chicago Tribune has webbed a profile on David Radler, expected to testify in the week after next. It starts off with the observation that, despite the apparent long odds against a plea bargainer being a credible witness, the Justice Department had struck gold with a known sleazebag, Andrew Fastow, who proved in the Enron case to be "more compelling on the stand than many had expected.... [Turncoat insiders] often make good witnesses because of their intelligence, presentation skills and first-hand knowledge of what went on, former prosecutors say." Interestingly, this profile blames Mr. Radler for the inflated-circulation scandal: it was he who hand-picked the Sun-Times' circulation manager, Mark Hornung, even though Mr. Hornung had earlier resigned from the paper as a self-admitted plagiarist. This point is made before relating Mr. Radler's good side. One of his virtues happens to be all-Canadian: "[I]f one of Radler's employees had a problem, he would move mountains to help him or her. When a financial executive was diagnosed with brain cancer, Radler worked to find the top specialist in the city, helped the man organize his affairs and even paid some of his debts, several former executives say."
Near its end, the profile makes the point that Mr. Radler became more and more estranged from Conrad Black because of (evidently mutual) antipathy for his new wife, Barbara Amiel Black.
Tom Bower has a piece, webbed by the London Times Online, on Marie-Josée Kravis's testimony. He deems her to be one of the most credible prosecution witnesses so far, with the other being Richard Burt. Also, the Guardian has an article on prosecution of fraud in the British legal system, which concludes: "While the American legal system successfully demonstrated the complicated crimes of Bernie Ebbers of WorldCom and Ken Lay of Enron to juries, the British legal system's attempts to prosecute complex frauds are invariably fiascos." In the second-last paragraph, it holds up the Conrad Black trial as proof that a fraud trial by jury can result in a fair trial for complex corporate-fraud cases, provided that a rigourous judge is presiding. Extending the principle of trial by jury is the article's recommendation for improving the British legal system. [The same article has been posted in The Guardian's "Comment Is Free" section.]
Saturday, April 28, 2007
Two Notes About Corporate Fraud, Both Unrelated To The Conrad Black Case
These two notes come from an E-letter by the name of The Daily Reckoning. In last Thursday issue, the introduction points to the proliferation of fraud in the subprime-housing market:
The second note is embedded in the introduction to last Friday's issue. It highlights a practice that, although not legally criminal fraud, may have incurred a civil tort:
The latter practice comes close to a kind of corporate loosery, which used to scare off old-style equity analysts, called "paying dividends out of capital," or paying more in dividends than the corporation has earned. In order to avoid this practice, a corporation that borrows money to pay a dividend would have to have earnings, as justified by solidly conservative accounting practices, that are greater than the amount of the dividends that were paid out. To use a bland phrase found in Wikipedia's article on dividends, the dividend cover ratio would have to be greater than one.
[NOTE: Intentionally paying a dividend out of capital is okay if it's clearly identified as either a "capital dividend" or as a "special dividend," and is non-recurring.]
That there is still ample room for movement - towards wariness on the part of the former, and prudence on the part of the latter - is demonstrated in today's International Herald Tribune. [Link to the report added.] Yes, dear reader, the mainstream press is finally catching on to the imperial trend we spotted years ago - towards widespread, commonly accepted fraud. Today it is 'fraud for housing.'
"Loans that require little or no documentation of income soared $276 billion, or 46 percent, of all subprime mortgages last year, from $30 billion in 2001," says IHT. Now, these 'liars' loans' are defaulting at eight times the rate of regular, fully documented prime mortgages.
According to the paper, many of the buyers didn't even know they were lying about their income; the mortgage brokers lied on their behalf, inflating income figures in order to get the loans through the approval process.
"I saw account executives openly engage in conduct such as altering borrower's W-2 forms or pay stubs, photocopying borrower signatures and copying them onto other, unsigned documents and similar conduct," said a witness.
But the FBI is not on the case. The G-men aren't interested in 'fraud for housing.' They've got bigger fish to fry - people who lie to get multiple mortgages with no intention of paying them back, known as 'fraud for profit.'
And don't expect the local DA or politicians to go after the small fish either. There's nothing in it for them - no glory…no votes…no path to higher office.
Instead, they will move to 'protect' the hapless victims of mortgage fraud - in many cases, the very same people who lied to get loans. Every era produces its own special variety of fraud; and every great, shining fraud is followed by paler imitators. Typically, borrowers get themselves into trouble; and then the politicians thunder about 'debt relief' or a 'moratorium' on foreclosures.
The second note is embedded in the introduction to last Friday's issue. It highlights a practice that, although not legally criminal fraud, may have incurred a civil tort:
When it comes to supplying funds for dodgy corporate deals, hedge funds rush in where banks fear to tread. And here we turn to Rob Peebles to tell us how...and why, using an example from the Wall Street Journal, July 25, 2006:
"First, Burger King paid the private equity folks $22.4 million in 'professional fees,' apparently for shepherding the company from the public wilderness into the loving arms of private equity owners. Then, after three years of restructuring and other voodoo, and three months before releasing Burger King back to the public, Burger King paid the investors a $367 million dividend...
"Burger King borrowed the money for the dividend, the sort of thing that apparently is possible at the late stage of a credit bubble.
"Finally, as a parting gift of sorts, Burger King paid the investors $30 million to terminate their agreement, because after all, there is only such improvement an operating company can take.
"All in [all], according to the Wall Street Journal, the private equity investors squeezed $448 million in dividends and fees out of The King before the company went public again...
"New York Times columnist Floyd Norris recently put a number on the private equity dividend mania, and that number - the amount of money companies borrowed to pay dividends to their owners - was $26.9 billion - in the first quarter of this year. At that rate, RFP this year will easily surpass last year's $56 billion, a figure that towers over the less than $20 billion borrowed for dividends as recently as 2003.
"The beauty of RFP, as Mr. Norris points out, is that the private equity investors can make money even if the company itself goes under, or has to layoff scads of employees. But who would loan money to a company that borrows money at one end and pays it to its owners out the other?"
We elaborate. Who would be so stupid as to lend to borrowers who use the money merely to impair the lenders' collateral?
The latter practice comes close to a kind of corporate loosery, which used to scare off old-style equity analysts, called "paying dividends out of capital," or paying more in dividends than the corporation has earned. In order to avoid this practice, a corporation that borrows money to pay a dividend would have to have earnings, as justified by solidly conservative accounting practices, that are greater than the amount of the dividends that were paid out. To use a bland phrase found in Wikipedia's article on dividends, the dividend cover ratio would have to be greater than one.
[NOTE: Intentionally paying a dividend out of capital is okay if it's clearly identified as either a "capital dividend" or as a "special dividend," and is non-recurring.]
Friday, April 27, 2007
Corrupt Corporate Cultures: Further Thoughts
In a comment on this Toronto Life Conrad Black Trial blog entry, I briefly discussed why it's so hard to turn around a corrupt culture. The nub of it was that, in corrupt organizations, corruption and strength go hand-in-hand, so the top sweeper with the "new broom" winds up an ineffectual leader unless (s)he or gets her/his reputation dirty.
Since "corrupt" is a loaded word, I should specify what I mean by it. From an organizational perspective, a "corrupt culture" means one where the formal head of the organization cannot lead by setting an example. Any attempts to do so renders the top boss "the fop at the top." I want to make it clear that I'm using "corrupt" in a particularistic, value-free way.
In a real way, a "corrupt" organization is ridden with certain subcultures, which keep information and true conduct away from the top of the organizational pyramid. "Cabals," "feifdoms," "satrapies" are some of the terms that are used to describe these subcultures. The consensus in these organizational subcultures is that some form(s) of obedient behavior bespeaks weakness, typically relative to competitors.
This element is crucial. If it were just a matter of a cabal taking advantage of an opportunity to pilfer a little - whether it be borrowing the company laptop for the weekend, having a little fun on the expense account, goofing off while on the job or some other kind of "itchy-finger" appropriation - is that it can be elimated by one crackdown of sufficient severity. People who indulge themselves in that way know at heart that they're living a little on the hog, so they tend to quit it when called on the carpet for it.
A corrupt culture is essentially different from the above because of the long-term ineffectuality of any such crackdown, no matter how severe. Anyone who tries to tighten up the ship at the expense of a satrapy will soon find out that things return to the previous norm in it; the only permanent change will be the disciplinarian responsible for the crackdown acquires a reputation as a "martinet," or some such. Sophisticated leaders know this, so they tend to use a gentle or exhortative approach, which leads to the immobilization effect I sketched out in my comment.
There is, of course, no easy way out of the choice betwen the devil (joining in) and the deep blue sea (ineffectuality) that this dynamic sets up. Since this problem is a subtle one even with respect to a single case, let alone in terms of general principle, the only hint that this mere blogger can offer is for any cabal-fighter to see what kinds of corruption, or deviancy, bespeak pride and strength in a corporate feifdom. Beyond that inductive process, any would-be change agent will have to reason teleologically with the gathered data - or just plain wing it.
Of course there is the option of becoming "one of the boys," but there's a real risk attached to it. Straight arrows are always sized up as potential "narcs," or whistleblowers, and any sensible runner of a scheme is going to at least consider some kind of a set-up to keep such a straight shooter in line.
Since "corrupt" is a loaded word, I should specify what I mean by it. From an organizational perspective, a "corrupt culture" means one where the formal head of the organization cannot lead by setting an example. Any attempts to do so renders the top boss "the fop at the top." I want to make it clear that I'm using "corrupt" in a particularistic, value-free way.
In a real way, a "corrupt" organization is ridden with certain subcultures, which keep information and true conduct away from the top of the organizational pyramid. "Cabals," "feifdoms," "satrapies" are some of the terms that are used to describe these subcultures. The consensus in these organizational subcultures is that some form(s) of obedient behavior bespeaks weakness, typically relative to competitors.
This element is crucial. If it were just a matter of a cabal taking advantage of an opportunity to pilfer a little - whether it be borrowing the company laptop for the weekend, having a little fun on the expense account, goofing off while on the job or some other kind of "itchy-finger" appropriation - is that it can be elimated by one crackdown of sufficient severity. People who indulge themselves in that way know at heart that they're living a little on the hog, so they tend to quit it when called on the carpet for it.
A corrupt culture is essentially different from the above because of the long-term ineffectuality of any such crackdown, no matter how severe. Anyone who tries to tighten up the ship at the expense of a satrapy will soon find out that things return to the previous norm in it; the only permanent change will be the disciplinarian responsible for the crackdown acquires a reputation as a "martinet," or some such. Sophisticated leaders know this, so they tend to use a gentle or exhortative approach, which leads to the immobilization effect I sketched out in my comment.
There is, of course, no easy way out of the choice betwen the devil (joining in) and the deep blue sea (ineffectuality) that this dynamic sets up. Since this problem is a subtle one even with respect to a single case, let alone in terms of general principle, the only hint that this mere blogger can offer is for any cabal-fighter to see what kinds of corruption, or deviancy, bespeak pride and strength in a corporate feifdom. Beyond that inductive process, any would-be change agent will have to reason teleologically with the gathered data - or just plain wing it.
Of course there is the option of becoming "one of the boys," but there's a real risk attached to it. Straight arrows are always sized up as potential "narcs," or whistleblowers, and any sensible runner of a scheme is going to at least consider some kind of a set-up to keep such a straight shooter in line.
Friday testimony: revisiting the audit committee
From the Globe and Mail, a brief write-up from Paul Waldie describing Marie-Josée Kravis' initial testimony. She testified that Conrad Black and David Radler "worked closely together at the company....
"'They complemented each other,” Ms. Kravis said in response to questioning by prosecutor Julie Ruder. 'They were very conversant on the company's operations.'”
Mrs Kravis also backed up Richard Burt's testimony under direct examination, with regard to dearth of audit committee members' knowledge of the non-compete payments at the heart of most of the charges against the defendants.
[This report has been updated by adding that Mr. Radler is scheduled to be the third witness after Mrs. Kravis.]
680 News has webbed Romina Maurino's latest piece, which reports that Mrs. Kravis testified flatly that she never approved the individual non-compete agreements, nor did she vote for any non-compete fee to be directed to Hollinger Int'l to be transferred to Hollinger Inc.: "'That was money that belonged to the shareholders of (Hollinger) International,' she said." She also testified that she had suggested that, if the individual non-compete agreements were necessary, then the individuals could sign non-compete agreements with Hollinger Int'l itself after the company received the non-compete fees. "Radler refused, saying he 'would not sign a non-compete with the company (because) it was restrictive.'"
Mr. Waldie supplied additional information on Mrs. Kravis' testimony during a BNN interview, aired at 2:25 PM ET. The prosecutors have confirmed to Judge St. Eve that Mr. Radler is in the next batch of witnesses, so he will appear in one to two weeks (unless there's more delays due to extended questioning.) The trial itself is now finished for the week. Mrs. Kravis' answer, when she was shown documents she had signed with the individual non-compete payments itemized in them, was a lot like Richard Burt's: she didn't read them in their entirety. She insisted that the board did not approve the individual non-competes, all through the cross-examination she's faced so far. When asked by co-host Lisa Oake about the success Conrad Black's defense team has had with respect to the distancing theory, Mr. Waldie replied that [his defense team] hasn't has much success in making that point while questioning the last two witnesses. They both insisted that Mr. Black and Mr. Radler worked closely together.
Bloomberg's report, by Andrew Harris and Joe Schneider, begins with: "Conrad Black and two other Hollinger International Inc. board members never told other directors about three deals that routed more than $5 million to him and a company he controlled, a witness at Black's fraud trial said." Those three transactions were sales of newspaper properties to Forum Communications, The Paxton Group and Community Newspaper Holdings, Inc. She also testified, "'If I had known this was a common practice, I would have looked at the roles of these individuals differently'''.
The updated version of the same report has some detail on the cross examination by Jack Boultbee's counsel, Patrick Tuite. After being asked why she had signed financial statement which she insisted were mistaken during previous testimony, she answered "'I must have missed it'... [Csr.] Tuite...noted the entries outlining the approvals were in two sections of the financial statements.
"'Did Conrad Black ask you to be his rubber stamp on the board,'' Tuite asked. 'No,'' Kravis answered."
Another report has been updated - Romina Maurino's. It's been webbed by 680 News, and it recounts, in some detail, Mrs. Kravis' testimony under direct examination - including Mrs. Kravis' telephones response to the notorious "hose down" E-mail by Mr. Black: "'I suggested he take a more quiet tone,' she told prosecutor Julie Ruder. 'I thought it was in the best interest of the company.'" The same tack is taken in tonight's Reuters report.
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Mark Steyn, in his latest trial blog entry, described Marie-Josée Kravis, when testifying for the prosecution, as sounding "like a terrified 11-year old schoolgirl... [or] like the kidnap victim who tells you down the phone they’re treating her very well."
A general note about the Toronto Life trial blog: its daily poll, asking "Based on today's evidence, I think Conrad Black is Guilty/Not Guilty", has swung around. It used to regularly show a "Guilty" majority, until about a week ago, when "Not Guilty" became the norm.
"'They complemented each other,” Ms. Kravis said in response to questioning by prosecutor Julie Ruder. 'They were very conversant on the company's operations.'”
Mrs Kravis also backed up Richard Burt's testimony under direct examination, with regard to dearth of audit committee members' knowledge of the non-compete payments at the heart of most of the charges against the defendants.
[This report has been updated by adding that Mr. Radler is scheduled to be the third witness after Mrs. Kravis.]
680 News has webbed Romina Maurino's latest piece, which reports that Mrs. Kravis testified flatly that she never approved the individual non-compete agreements, nor did she vote for any non-compete fee to be directed to Hollinger Int'l to be transferred to Hollinger Inc.: "'That was money that belonged to the shareholders of (Hollinger) International,' she said." She also testified that she had suggested that, if the individual non-compete agreements were necessary, then the individuals could sign non-compete agreements with Hollinger Int'l itself after the company received the non-compete fees. "Radler refused, saying he 'would not sign a non-compete with the company (because) it was restrictive.'"
Mr. Waldie supplied additional information on Mrs. Kravis' testimony during a BNN interview, aired at 2:25 PM ET. The prosecutors have confirmed to Judge St. Eve that Mr. Radler is in the next batch of witnesses, so he will appear in one to two weeks (unless there's more delays due to extended questioning.) The trial itself is now finished for the week. Mrs. Kravis' answer, when she was shown documents she had signed with the individual non-compete payments itemized in them, was a lot like Richard Burt's: she didn't read them in their entirety. She insisted that the board did not approve the individual non-competes, all through the cross-examination she's faced so far. When asked by co-host Lisa Oake about the success Conrad Black's defense team has had with respect to the distancing theory, Mr. Waldie replied that [his defense team] hasn't has much success in making that point while questioning the last two witnesses. They both insisted that Mr. Black and Mr. Radler worked closely together.
Bloomberg's report, by Andrew Harris and Joe Schneider, begins with: "Conrad Black and two other Hollinger International Inc. board members never told other directors about three deals that routed more than $5 million to him and a company he controlled, a witness at Black's fraud trial said." Those three transactions were sales of newspaper properties to Forum Communications, The Paxton Group and Community Newspaper Holdings, Inc. She also testified, "'If I had known this was a common practice, I would have looked at the roles of these individuals differently'''.
The updated version of the same report has some detail on the cross examination by Jack Boultbee's counsel, Patrick Tuite. After being asked why she had signed financial statement which she insisted were mistaken during previous testimony, she answered "'I must have missed it'... [Csr.] Tuite...noted the entries outlining the approvals were in two sections of the financial statements.
"'Did Conrad Black ask you to be his rubber stamp on the board,'' Tuite asked. 'No,'' Kravis answered."
Another report has been updated - Romina Maurino's. It's been webbed by 680 News, and it recounts, in some detail, Mrs. Kravis' testimony under direct examination - including Mrs. Kravis' telephones response to the notorious "hose down" E-mail by Mr. Black: "'I suggested he take a more quiet tone,' she told prosecutor Julie Ruder. 'I thought it was in the best interest of the company.'" The same tack is taken in tonight's Reuters report.
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Mark Steyn, in his latest trial blog entry, described Marie-Josée Kravis, when testifying for the prosecution, as sounding "like a terrified 11-year old schoolgirl... [or] like the kidnap victim who tells you down the phone they’re treating her very well."
A general note about the Toronto Life trial blog: its daily poll, asking "Based on today's evidence, I think Conrad Black is Guilty/Not Guilty", has swung around. It used to regularly show a "Guilty" majority, until about a week ago, when "Not Guilty" became the norm.
Media Roundup: No Consensus
The overnight webbed media reports on the Conrad Black trial evince, for the first time, diverging opinions about the performance of Edward Genson's cross-examination yesterday, with some neutral on it:
1. The Chicago Tribune's report, written by Rudolph Bush, concentrates upon Edward Genson pressing the defense's case that Conrad Black and David Radler were far more independent of each other than they seemed in meetings.
2. From the Sydney Morning Herald, a report that focuses upon the attempts by defense counsels Gus Newman and Benito Romano to undo the earlier testimony of Mr. Burt.
3. Romina Maurino's latest report, webbed by the Hamilton Spectator, also focuses upon Csr. Genson's cross-examination.
4. From Canoe Money, a note that says that Marie-Josée Kravis is expected to testify today, and James R. Thompson will do so once she's done with.
5. Jennifer Wells of the Toronto Star also focuses on Edward Genson's cross-examination yesterday, but begins with an evaluation of it: "[V]aunted defence counsel Eddie Genson showed judge, jury and weary spectators what it looks like when a famous lawyer is not at the top of his game.... [T]here were few [points] to be [scored] through an examination that took up an entire afternoon and included an early rest stop when Genson appeared unwell and asked Judge Amy St. Eve for a break." She notes, perhaps wryly, that everyone outside the courtroom who knows of Mr. Black and Mr. Radler also knows that the two were quite independent of each other, but that fact seemed quite difficult to get across in the courtroom yesterday.
6. The Chicago Sun-Times has a report, by Mary Wisniewski, that sums up yesterday's cross-examination of Mr. Burt, starting with: "A former member of Hollinger International's audit committee admitted he received tens of thousands of dollars a year for his service, but failed to catch a crucial error in financial statements."
7. From the Sun-Times' Post-Tribune, a brief report on the settlement of the Hollinger Inc. tax case; it resulted in a $40 million payment, not the $600 million the Canada Revenue Agency had been hoping for.
8. Paul Waldie of the Globe and Mail has only a single report out overnight, which concurred with Ms. Wells' evaluation of Csr. Genson's cross-examination yesterday in which he failed to get Mr. Burt to admit that Mr. Black and Mr. Radler were not a team when outside meetings.
9. From the Edmonton Journal, Peter Brieger also reports on Csr. Genson's cross-examination, but takes a more favorable perspective, highlighting Richard Burt's admission that he missed those individual non-compete payments: "'As I said several times, I missed it... It was incumbent on management to bring those (payments) to the audit committee -- not put it in a footnote in financial statements 12 or 18 months later.'"
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Mark Steyn's latest post for his trial blog includes a point about the Horizon transaction that has not been mentioned very often by other writers about Conrad Black's business career: the sale to Horizon was less like picking the jewels from the Hollinger Int'l crown and more like packaging Hollinger Int'l's scraps into a doggie bag. He also brings up the point that Mr. Burt knew of the related-party nature of the transaction, or should have known by the reasonable-person standard: "It’s further laid out in the 'fairness statement' Hollinger sought from Dirks, Van Essen and Associates, which concluded that 'the Horizon transaction is fair and equitable to the shareholders of Hollinger'. Richard Burt knew that, too. Yet he told the US government he’d had no idea Black and Radler were part-owners of Horizon."
Also, Douglas Bell of Toronto Life's Conrad Black Trial blog draws a comparison between the"travails of Conrad Black and the travails of Paul Wolfowitz," as informed by an entry in David Frum's blog.
1. The Chicago Tribune's report, written by Rudolph Bush, concentrates upon Edward Genson pressing the defense's case that Conrad Black and David Radler were far more independent of each other than they seemed in meetings.
2. From the Sydney Morning Herald, a report that focuses upon the attempts by defense counsels Gus Newman and Benito Romano to undo the earlier testimony of Mr. Burt.
3. Romina Maurino's latest report, webbed by the Hamilton Spectator, also focuses upon Csr. Genson's cross-examination.
4. From Canoe Money, a note that says that Marie-Josée Kravis is expected to testify today, and James R. Thompson will do so once she's done with.
5. Jennifer Wells of the Toronto Star also focuses on Edward Genson's cross-examination yesterday, but begins with an evaluation of it: "[V]aunted defence counsel Eddie Genson showed judge, jury and weary spectators what it looks like when a famous lawyer is not at the top of his game.... [T]here were few [points] to be [scored] through an examination that took up an entire afternoon and included an early rest stop when Genson appeared unwell and asked Judge Amy St. Eve for a break." She notes, perhaps wryly, that everyone outside the courtroom who knows of Mr. Black and Mr. Radler also knows that the two were quite independent of each other, but that fact seemed quite difficult to get across in the courtroom yesterday.
6. The Chicago Sun-Times has a report, by Mary Wisniewski, that sums up yesterday's cross-examination of Mr. Burt, starting with: "A former member of Hollinger International's audit committee admitted he received tens of thousands of dollars a year for his service, but failed to catch a crucial error in financial statements."
7. From the Sun-Times' Post-Tribune, a brief report on the settlement of the Hollinger Inc. tax case; it resulted in a $40 million payment, not the $600 million the Canada Revenue Agency had been hoping for.
8. Paul Waldie of the Globe and Mail has only a single report out overnight, which concurred with Ms. Wells' evaluation of Csr. Genson's cross-examination yesterday in which he failed to get Mr. Burt to admit that Mr. Black and Mr. Radler were not a team when outside meetings.
9. From the Edmonton Journal, Peter Brieger also reports on Csr. Genson's cross-examination, but takes a more favorable perspective, highlighting Richard Burt's admission that he missed those individual non-compete payments: "'As I said several times, I missed it... It was incumbent on management to bring those (payments) to the audit committee -- not put it in a footnote in financial statements 12 or 18 months later.'"
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Mark Steyn's latest post for his trial blog includes a point about the Horizon transaction that has not been mentioned very often by other writers about Conrad Black's business career: the sale to Horizon was less like picking the jewels from the Hollinger Int'l crown and more like packaging Hollinger Int'l's scraps into a doggie bag. He also brings up the point that Mr. Burt knew of the related-party nature of the transaction, or should have known by the reasonable-person standard: "It’s further laid out in the 'fairness statement' Hollinger sought from Dirks, Van Essen and Associates, which concluded that 'the Horizon transaction is fair and equitable to the shareholders of Hollinger'. Richard Burt knew that, too. Yet he told the US government he’d had no idea Black and Radler were part-owners of Horizon."
Also, Douglas Bell of Toronto Life's Conrad Black Trial blog draws a comparison between the"travails of Conrad Black and the travails of Paul Wolfowitz," as informed by an entry in David Frum's blog.
Thursday, April 26, 2007
Thursday's Derailment
Today's interview with Paul Waldie on BNN (1:55 PM ET) had him reporting on a serious bobble made by a defense counsel. The defense lawyer for Jack Boutlbee, Gus Newman, didn't fare that well during his turn at cross-examination. Several times, he couldn't find the right documents to show Mr. Burt, and mixed up some of the ones he had. He opened up a line of questioning that was irrelevant. In doing all these things, he made Richard Burt, in Mr. Waldie's estimation, look more credible than ever.
The Toronto Star has a report by Romina Maurino out, which carries no mention of any maladroitness on Csr. Newman's part. "Gus Newman, a lawyer for Jack Boultbee, took former Hollinger director Richard Burt through a number of audit committee and board of director meetings...asking him to confirm that disputed payments [attached to the sale to CanWest] to Black and the others had in fact been approved.
"Burt agreed the CanWest payments had been approved at half a dozen occasions."
Bloomberg's report, written by Joe Schneider and Andrew Harris, starts off with a surprise: "Former Hollinger International Inc. director Richard Burt testified he knew noncompete fees were paid to Conrad Black, contradicting his previous testimony and supporting defense claims the board knew of the payments." The payment in question, as the report relays, was the non-compete associated with a sale of Hollinger, Inc. properties to Osprey Media. The contemporaneous report from Reuters does not mention that contradiction, but does call attention to memory lapses on the part of Mr. Burt, at the end of it.
Edward Genson concentrated on knocking down the part of Mr. Burt's earlier testimony that said Conrad Black and David Radler were a tight-knit team, according to Ms. Romino's more recent report, webbed by 1130 News. While being cross-examined by Csr. Genson, Mr. Burt stipulated: "'My sense is that Conrad, as the chairman and CEO, had a general understanding of what was going on in the company, but he wasn't directly involved,...'" Mr. Burt also conceded that he didn't know how tight-knit the two were outside of meetings, and that he didn't know about the geographical-separation-of-responsibilities custom that both Mr. Black and Mr. Radler had followed while running Hollinger Int'l.
(I have this suspicion that it was Gus Newman who got Richard Burt contradicting himself.)
The updated version of the same report also details Csr. Genson's attempt to rebut Mr. Burt's testimony, made under direct examination, that the 60th birthday party for Mrs. Black was merely personal. "The guests, Genson said, were 'all people involved in the media,' including broadcasters Barbara Walters and Charlie Rose and Michael Bloomberg... Real estate magnate Donald Trump was also in attendance, but Hollinger was in the middle of negotiating a deal to sell the Sun-Times building in downtown Chicago to the Trump organization,... 'You have, over the years, engaged in business over dinner (or) cocktails - that's not unusual in the world that you live in,' Genson told Burt."
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Slate has an updated compendium of three articles on the Conrad Black trial. The first was posted on Tuesday March 20th, the second was posted Friday, March 23rd, and the third has been posted today. Their author, Scott Jacobs, concludes near the end of today's piece: "What's becoming clear is that the big names with whom Black stocked his board of directors knew nothing about the newspaper business. Most of the board members participated by telephone in key management meetings. Some were absent at critical board meetings. "
Also, Mark Steyn has a post about the cross-examination of Mr. Burt. He says that the chore is more difficult with an A-list witness, as "you need to expose them as frauds and dissemblers." In the end, though, he concurs with Paul Waldie's opinion of Csr. Newman's performance.
Finally, the Toronto Star reports that Sun-Times Media Group, formerly Hollinger Int'l, has settled a tax dispute with the Canada Revenue Agency, formerly known as Revenue Canada.
The Toronto Star has a report by Romina Maurino out, which carries no mention of any maladroitness on Csr. Newman's part. "Gus Newman, a lawyer for Jack Boultbee, took former Hollinger director Richard Burt through a number of audit committee and board of director meetings...asking him to confirm that disputed payments [attached to the sale to CanWest] to Black and the others had in fact been approved.
"Burt agreed the CanWest payments had been approved at half a dozen occasions."
Bloomberg's report, written by Joe Schneider and Andrew Harris, starts off with a surprise: "Former Hollinger International Inc. director Richard Burt testified he knew noncompete fees were paid to Conrad Black, contradicting his previous testimony and supporting defense claims the board knew of the payments." The payment in question, as the report relays, was the non-compete associated with a sale of Hollinger, Inc. properties to Osprey Media. The contemporaneous report from Reuters does not mention that contradiction, but does call attention to memory lapses on the part of Mr. Burt, at the end of it.
Edward Genson concentrated on knocking down the part of Mr. Burt's earlier testimony that said Conrad Black and David Radler were a tight-knit team, according to Ms. Romino's more recent report, webbed by 1130 News. While being cross-examined by Csr. Genson, Mr. Burt stipulated: "'My sense is that Conrad, as the chairman and CEO, had a general understanding of what was going on in the company, but he wasn't directly involved,...'" Mr. Burt also conceded that he didn't know how tight-knit the two were outside of meetings, and that he didn't know about the geographical-separation-of-responsibilities custom that both Mr. Black and Mr. Radler had followed while running Hollinger Int'l.
(I have this suspicion that it was Gus Newman who got Richard Burt contradicting himself.)
The updated version of the same report also details Csr. Genson's attempt to rebut Mr. Burt's testimony, made under direct examination, that the 60th birthday party for Mrs. Black was merely personal. "The guests, Genson said, were 'all people involved in the media,' including broadcasters Barbara Walters and Charlie Rose and Michael Bloomberg... Real estate magnate Donald Trump was also in attendance, but Hollinger was in the middle of negotiating a deal to sell the Sun-Times building in downtown Chicago to the Trump organization,... 'You have, over the years, engaged in business over dinner (or) cocktails - that's not unusual in the world that you live in,' Genson told Burt."
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Slate has an updated compendium of three articles on the Conrad Black trial. The first was posted on Tuesday March 20th, the second was posted Friday, March 23rd, and the third has been posted today. Their author, Scott Jacobs, concludes near the end of today's piece: "What's becoming clear is that the big names with whom Black stocked his board of directors knew nothing about the newspaper business. Most of the board members participated by telephone in key management meetings. Some were absent at critical board meetings. "
Also, Mark Steyn has a post about the cross-examination of Mr. Burt. He says that the chore is more difficult with an A-list witness, as "you need to expose them as frauds and dissemblers." In the end, though, he concurs with Paul Waldie's opinion of Csr. Newman's performance.
Finally, the Toronto Star reports that Sun-Times Media Group, formerly Hollinger Int'l, has settled a tax dispute with the Canada Revenue Agency, formerly known as Revenue Canada.
The Wind That They Reaped With...
...is beginning to blow back. Editor and Publisher has a story on Peter G. White, Conrad Black's first business partner, writing an angry open letter to Hollinger Inc. management, blaming them for the near-total collapse of Hollinger Inc. stock.
Those whose eyes goggled at Conrad Black dismissing the corporate-governance movement as a "fad" can see the E and P article linked to above as evidence of how far that movement has spread. Those who saw the shareholder revolt in the 2002 Hollinger International annual meeting as a just comeuppance for Conrad Black, though, are beginning to see that more than one team can play the same game.
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As far as wind-sowing and whirlwind-reaping are concerned, Roger Martin in the Toronto Life "Business Brief" blog points to what the indirect consequence of two legislative measued designed to stifle CEO greed were. First of all, elimination of tax-deductibility for CEO salaries in excess of $1 million per year caused non-monetary compensation to explode. Secondly, the mandated disclosure of top executive pay encouraged competitive raises. He recounts these unintended blowbacks to support his argument that legislating away CEO greed will do little good. The only remedies to it, he concludes, are shareholder vigilance and potential shareholder inspection, of a public company's CEO, before putting any money into that company's stock.
Those whose eyes goggled at Conrad Black dismissing the corporate-governance movement as a "fad" can see the E and P article linked to above as evidence of how far that movement has spread. Those who saw the shareholder revolt in the 2002 Hollinger International annual meeting as a just comeuppance for Conrad Black, though, are beginning to see that more than one team can play the same game.
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As far as wind-sowing and whirlwind-reaping are concerned, Roger Martin in the Toronto Life "Business Brief" blog points to what the indirect consequence of two legislative measued designed to stifle CEO greed were. First of all, elimination of tax-deductibility for CEO salaries in excess of $1 million per year caused non-monetary compensation to explode. Secondly, the mandated disclosure of top executive pay encouraged competitive raises. He recounts these unintended blowbacks to support his argument that legislating away CEO greed will do little good. The only remedies to it, he concludes, are shareholder vigilance and potential shareholder inspection, of a public company's CEO, before putting any money into that company's stock.
Media Roundup: The Importance Of Being Prolific
The overnight reports on the Conrad Black trial concentrate on Richard Burt's testimony from memory, but include Mr. Black's E-mails as a side item:
1. Rudolph Bush of the Chicago Tribune reports on Mr. Burt testifying, under direct examination, that the audit committee didn't sign off on the deals at the heart of the allegations but instead okayed them.
2. The Associated Press report on Mr. Burt's testimony under direct has been webbed by Business Week.
3. The Hamilton Spectator has webbed a quick summary of Mr. Burt's testimony, by Broadcast News.
4. Canadian Press' summary has been webbed by the Ottawa Sun.
5. A CP guide to today's testimony, webbed by 680 News, mentions that the cross-examination of Mr. Burt has already begun, and will continue today.
6. A different CP summary has been webbed by the Winnipeg Sun. It mentions Conrad Black's attempts to stauch complaints by Tweedy, Browne.
7. Theresa Tedesco of the National Post points out, in her write-up, that this is the first time in the trial that Mr. Black's notorious nocturnal E-mails have been introduced in court through testimony. She then quotes extensively from them.
8. The Toronto Star's Jennifer Wells has a report on a presence that has hardly been mentioned in the last few weeks: Barbara Amiel Black, dressed yesterday in all black, according to Ms. Wells. She arrived in time to hear the beginning of the cross-examination by Benito Romano, Peter Atkinson's defense lawyer. "Yesterday Romano elicited a string of memory failings from Burt about documents that bore his signature....But Burt did not buckle. About the crucial sale of a host of U.S. community papers, noted in the company's annual filings for 2001, Burt snapped, 'It says they were brought to the audit committee as related-party transactions and they weren't.'" (The report didn't mention Mr. Burt's subsequent memory troubles, resulting from a brain operation he had undergone, shortly before November 2003.)
9. The latest from Paul Waldie of the Globe and Mail begins with a forecast of what David Radler will bring to the prosecution's case once he takes the stand: "David Radler is expected to tell the jury hearing Conrad Black's criminal trial that he and Lord Black misused non-competition agreements because their usual supply of money from Hollinger International Inc. was drying up." The rest of the first half elaborates how Mr. Radler's testimony is supposed to establish motive. The second half recounts Mr. Burt's testimony, and includes his explanation of why he signed a document that contained an itemization of the non-compete payments at the heart of the charges: "'I signed because I missed this paragraph,'" he said referring to one document."
10. Mary Wisniewski's latest, webbed by the Chicago Sun-Times, reviews Mr. Burts testimony, including the start of the cross-examination of him. She relates that Mr. Burt "described as 'nonsensical' $5.5 million in non-compete payments made to former press baron Conrad Black and other former executives." Also from it: "'I obviously didn't review all of the footnotes where it says individual directors approved these payments, because we didn't approve these payments,' said Burt, who had nevertheless signed the statement." He did so because "he 'heavily' relied on management to point out relevant issues in disclosure filings."
11. Janet Whitman of the New York Post is back on the Black beat: her report points out that Donald Trump will be called as a rebuttal witness for Mr. Burt's testimony about Mrs. Black's 60th birthday party.
12. The Edmonton Journal has webbed the latest report by Peter Brieger, also of the National Post. He also reported on Mr. Black's E-mails introduced through Mr. Burt's testimony, by supplying context to them.
13. The second article of the day from the Globe's Paul Waldie reports that Marie-Josée Kravis is expected to start testifying today.
An updated version of the same article also mentions that the trial was delayed because of meetings between the defendants and their lawyers; a meeting of prosecution lawyers took place contemporaneously. "Prosecutor Jeffrey Cramer declined to comment after the meetings broke up." It also related that Mr. Burt stuck to his story - "'We relied on management for full and complete disclosure'" - when questioned by Gus Newman, defense counsel for Jack Boultbee.
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On the "Black Board," Peter Brieger recounts Judge St. Eve falling into an inconsistency, and then wittily extricating herself out of it.
1. Rudolph Bush of the Chicago Tribune reports on Mr. Burt testifying, under direct examination, that the audit committee didn't sign off on the deals at the heart of the allegations but instead okayed them.
2. The Associated Press report on Mr. Burt's testimony under direct has been webbed by Business Week.
3. The Hamilton Spectator has webbed a quick summary of Mr. Burt's testimony, by Broadcast News.
4. Canadian Press' summary has been webbed by the Ottawa Sun.
5. A CP guide to today's testimony, webbed by 680 News, mentions that the cross-examination of Mr. Burt has already begun, and will continue today.
6. A different CP summary has been webbed by the Winnipeg Sun. It mentions Conrad Black's attempts to stauch complaints by Tweedy, Browne.
7. Theresa Tedesco of the National Post points out, in her write-up, that this is the first time in the trial that Mr. Black's notorious nocturnal E-mails have been introduced in court through testimony. She then quotes extensively from them.
8. The Toronto Star's Jennifer Wells has a report on a presence that has hardly been mentioned in the last few weeks: Barbara Amiel Black, dressed yesterday in all black, according to Ms. Wells. She arrived in time to hear the beginning of the cross-examination by Benito Romano, Peter Atkinson's defense lawyer. "Yesterday Romano elicited a string of memory failings from Burt about documents that bore his signature....But Burt did not buckle. About the crucial sale of a host of U.S. community papers, noted in the company's annual filings for 2001, Burt snapped, 'It says they were brought to the audit committee as related-party transactions and they weren't.'" (The report didn't mention Mr. Burt's subsequent memory troubles, resulting from a brain operation he had undergone, shortly before November 2003.)
9. The latest from Paul Waldie of the Globe and Mail begins with a forecast of what David Radler will bring to the prosecution's case once he takes the stand: "David Radler is expected to tell the jury hearing Conrad Black's criminal trial that he and Lord Black misused non-competition agreements because their usual supply of money from Hollinger International Inc. was drying up." The rest of the first half elaborates how Mr. Radler's testimony is supposed to establish motive. The second half recounts Mr. Burt's testimony, and includes his explanation of why he signed a document that contained an itemization of the non-compete payments at the heart of the charges: "'I signed because I missed this paragraph,'" he said referring to one document."
10. Mary Wisniewski's latest, webbed by the Chicago Sun-Times, reviews Mr. Burts testimony, including the start of the cross-examination of him. She relates that Mr. Burt "described as 'nonsensical' $5.5 million in non-compete payments made to former press baron Conrad Black and other former executives." Also from it: "'I obviously didn't review all of the footnotes where it says individual directors approved these payments, because we didn't approve these payments,' said Burt, who had nevertheless signed the statement." He did so because "he 'heavily' relied on management to point out relevant issues in disclosure filings."
11. Janet Whitman of the New York Post is back on the Black beat: her report points out that Donald Trump will be called as a rebuttal witness for Mr. Burt's testimony about Mrs. Black's 60th birthday party.
12. The Edmonton Journal has webbed the latest report by Peter Brieger, also of the National Post. He also reported on Mr. Black's E-mails introduced through Mr. Burt's testimony, by supplying context to them.
13. The second article of the day from the Globe's Paul Waldie reports that Marie-Josée Kravis is expected to start testifying today.
An updated version of the same article also mentions that the trial was delayed because of meetings between the defendants and their lawyers; a meeting of prosecution lawyers took place contemporaneously. "Prosecutor Jeffrey Cramer declined to comment after the meetings broke up." It also related that Mr. Burt stuck to his story - "'We relied on management for full and complete disclosure'" - when questioned by Gus Newman, defense counsel for Jack Boultbee.
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On the "Black Board," Peter Brieger recounts Judge St. Eve falling into an inconsistency, and then wittily extricating herself out of it.
Wednesday, April 25, 2007
Richard Burt: The Examination Continues
BNN had an interview with Paul Waldie, aired at 1:55 PM ET, in which he said that Richard Burt is still under direct examination. Mr. Burt was asked about the non-competes, for which he denied all knowledge, and Barbara Black's 60th birthday party. He was at it, and he testified that he had assumed it was a private event. He did sign a disclosure document regarding one of the non-competes, even though he claimed he didn't remember any of them; this was brought out during the direct examination. The prosecution, acticipating the cross-examination, asked him about it: he said he had signed without careful review because he had trusted the management. Mr. Waldie concluded by noting that the direct examination seems to be almost over.
680 News has webbed Romina Maurino's write-up of Mr. Burt's testimony. It begins with: "Former Hollinger director Richard Burt says he approved disputed 'non-compete' payments to Conrad Black and other executives after being repeatedly told they were requested by a buyer of Hollinger International newspapers and failure to agree to the payments would have been a 'deal breaker.'" Mr. Burt believed that the birthday party was a private event because, in his own words, "it 'wasn't a forum for conducting business.'" In addition, he testified that the non-compete agreements he had heard about, when approving the sale to CanWest, were for Conrad Black and David Radler only; the ones for Peter Atkinson and Jack Boultbee, he did not hear about until a month after the CanWest deal was formally pitched to him.
[An updated version of Ms. Maurino's article, webbed by 1130 News, has a five-paragraph addition in the middle of it, which contains Mr. Burt's testimony about the complaints from Chris Browne of Tweedy, Browne. She quotes an E-mail from Mr. Black, sent in 2003, "calling shareholders claims that Hollinger was in trouble 'complete confection' and 'an attempted public relations Pearl Harbour.'
"'Please don't attach much credence to this sideshow,'" he told Burt in an e-mail. "'There is no financial distress in our group.'"]
Mr. Waldie's own write-up, webbed by the Globe and Mail, starts off with an outline, from lead prosecutor Eric Sussman, of what David Radler will testify about. Csr. Sussman gave it during a hearing when the jury was absent; he said that Mr. Radler will testify about what went on in Ravelston, the parent company of Hollinger Inc., and he implied that Radler would testify as to motive.
Bloomberg has webbed a report by Joe Schneider and Andrew Harris, which fills in some details about Mr. Burt's testimony under direct examination. Mr. Black and Mr. Radler got non-compete payments from CanWest "because they were viewed as a 'threat' by CanWest's former Chief Executive Officer Izzy Asper, said Burt, a former U.S. ambassador to Germany." He also testified that he didn't see why Mr. Atkinson and Mr. Boultbee should be paid any non-compete fee at all on the deal. The report also fills in the rest of the no-forum-for-business quote from Mr. Burt: "'I didn't see any business conducted [at the party],'' adding that the audit committee never saw the bill for [it]."
[The updated version of the same article notes that Mr. Burt testified that "as late as June 2003, he didn't know the executives received noncompete payments from five other deals, including newspaper sales to Birmingham, Alabama-based Community Newspapers Holdings Inc. and Forum Communications Inc. in 2000." It also has some detail on the start of the cross-examination of Mr. Burt. When Peter Atkinson's defense counsellor Benito Romano showed him documents that recorded the non-compete payments to the defendants, Mr. Burt answered "'I did not review all these footnotes,'... adding the information in the company's financial statements, which he signed, was wrong. 'It says the audit committee approved those payments and the audit committee did not.''']
The report from Andrew Stern of Reuters contains more copious quotes from Mr. Black's E-mails. Its last quote is from Mr. Burt himself: "'I was beginning to have a fear of being embarrassed as the controversy grew,' he responded [to a question from Jeffrey Cramer.]"
Mr. Burt's testimony under direct examination, and what the prosecutors hope it will prove, has also made The Independent. The author of the article covering Mr. Burt's testimony, Stephen Foley, ends with the ironic obervation that the prosecution is the side which is hoping that star power will overcome unearthed technical flaws in its case. Another report webbed by a British newspaper, The Telegraph, summarizes Mr. Burt's direct-examination testimony too. It's by Simon Litterick, the reporter who usually covers the trial for the Telegraph.
The Associated Press report, webbed by ABC7 Chicago, also focuses exclusively on the testimony elicited under direct examination. It has the most detail on Mr. Burt's direct-elicited testimony of any news report webbed tonight, not only with some new quotes from Mr. Black's E-mails from the time he was CEO of Hollinger Int'l, but also with several quotes (some new) from Mr. Burt's own words when on the stand.
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Mark Steyn, when discussing yesterday's part of Mr. Burt's testimony, made the interesting point that a corporation with a decentralized management structure and a small head office means (in addition to the usual benefits pointed out by securities analysts) that "there aren’t a lot of minions for the prosecution to lean on to plea-cop."
(Speaking of security analysts, there is a hint in that quote for them, given today's time of legal troubles...)
680 News has webbed Romina Maurino's write-up of Mr. Burt's testimony. It begins with: "Former Hollinger director Richard Burt says he approved disputed 'non-compete' payments to Conrad Black and other executives after being repeatedly told they were requested by a buyer of Hollinger International newspapers and failure to agree to the payments would have been a 'deal breaker.'" Mr. Burt believed that the birthday party was a private event because, in his own words, "it 'wasn't a forum for conducting business.'" In addition, he testified that the non-compete agreements he had heard about, when approving the sale to CanWest, were for Conrad Black and David Radler only; the ones for Peter Atkinson and Jack Boultbee, he did not hear about until a month after the CanWest deal was formally pitched to him.
[An updated version of Ms. Maurino's article, webbed by 1130 News, has a five-paragraph addition in the middle of it, which contains Mr. Burt's testimony about the complaints from Chris Browne of Tweedy, Browne. She quotes an E-mail from Mr. Black, sent in 2003, "calling shareholders claims that Hollinger was in trouble 'complete confection' and 'an attempted public relations Pearl Harbour.'
"'Please don't attach much credence to this sideshow,'" he told Burt in an e-mail. "'There is no financial distress in our group.'"]
Mr. Waldie's own write-up, webbed by the Globe and Mail, starts off with an outline, from lead prosecutor Eric Sussman, of what David Radler will testify about. Csr. Sussman gave it during a hearing when the jury was absent; he said that Mr. Radler will testify about what went on in Ravelston, the parent company of Hollinger Inc., and he implied that Radler would testify as to motive.
Bloomberg has webbed a report by Joe Schneider and Andrew Harris, which fills in some details about Mr. Burt's testimony under direct examination. Mr. Black and Mr. Radler got non-compete payments from CanWest "because they were viewed as a 'threat' by CanWest's former Chief Executive Officer Izzy Asper, said Burt, a former U.S. ambassador to Germany." He also testified that he didn't see why Mr. Atkinson and Mr. Boultbee should be paid any non-compete fee at all on the deal. The report also fills in the rest of the no-forum-for-business quote from Mr. Burt: "'I didn't see any business conducted [at the party],'' adding that the audit committee never saw the bill for [it]."
[The updated version of the same article notes that Mr. Burt testified that "as late as June 2003, he didn't know the executives received noncompete payments from five other deals, including newspaper sales to Birmingham, Alabama-based Community Newspapers Holdings Inc. and Forum Communications Inc. in 2000." It also has some detail on the start of the cross-examination of Mr. Burt. When Peter Atkinson's defense counsellor Benito Romano showed him documents that recorded the non-compete payments to the defendants, Mr. Burt answered "'I did not review all these footnotes,'... adding the information in the company's financial statements, which he signed, was wrong. 'It says the audit committee approved those payments and the audit committee did not.''']
The report from Andrew Stern of Reuters contains more copious quotes from Mr. Black's E-mails. Its last quote is from Mr. Burt himself: "'I was beginning to have a fear of being embarrassed as the controversy grew,' he responded [to a question from Jeffrey Cramer.]"
Mr. Burt's testimony under direct examination, and what the prosecutors hope it will prove, has also made The Independent. The author of the article covering Mr. Burt's testimony, Stephen Foley, ends with the ironic obervation that the prosecution is the side which is hoping that star power will overcome unearthed technical flaws in its case. Another report webbed by a British newspaper, The Telegraph, summarizes Mr. Burt's direct-examination testimony too. It's by Simon Litterick, the reporter who usually covers the trial for the Telegraph.
The Associated Press report, webbed by ABC7 Chicago, also focuses exclusively on the testimony elicited under direct examination. It has the most detail on Mr. Burt's direct-elicited testimony of any news report webbed tonight, not only with some new quotes from Mr. Black's E-mails from the time he was CEO of Hollinger Int'l, but also with several quotes (some new) from Mr. Burt's own words when on the stand.
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Mark Steyn, when discussing yesterday's part of Mr. Burt's testimony, made the interesting point that a corporation with a decentralized management structure and a small head office means (in addition to the usual benefits pointed out by securities analysts) that "there aren’t a lot of minions for the prosecution to lean on to plea-cop."
(Speaking of security analysts, there is a hint in that quote for them, given today's time of legal troubles...)
Media Roundup: After The Auditor, The Committee
The Conrad Black trial got the normal amount of overnight coverage, with the initial testimony of Richard Burt being the almost exclusive focus:
1. The report by Rudolph Bush of the Chicago Tribune starts off with Mr. Burt testifying that Conrad Black and David Radler were so closely knit, "they could seamlessly interrupt each other during board meetings while discussing complex business strategies and operations..." It also mentions that part of the cross-examination so far has had the aim of presenting Mr. Radler as a "lone operator who was cagey and unscrupulous -- a portrait that has been filled in through testimony that he was disdainful of employees and dismissive of auditors."
2. From NewsMax, a webbing of a Reuters report on Mr. Burt's initial testimony under direct examination.
3. A briefer Reuters report, by Andrew Stern, summarizes yesterday's testimony by Mr. Burt in a briefer version. It mentions that Mr. Burt served on the Hollinger International board from 1996 to 2005.
4. Paul Waldie's report, webbed by the Globe and Mail, mentions that Mr. Burt "explained that directors met about four times a year and didn't always get an agenda for meetings." He also mentions that the sale of 18 small newspapers to Black- and Radler-controlled American Publishing took place in 1999.
5. Jennifer Wells of the Toronto Star has written another article today, which contains more background on Mr. Burt than the others'. She notes that this is the first time in the trial that the "commingling of Black and Radler" has been put into the trial itself by the prosecution, and concludes that "Burt's testimony, which continues today, is a deep excavation of a fossilized corporate culture...."
6. The Edmonton Sun has webbed the latest CP report on the trial. It's the only one on the list that even mentions Marilyn Stitt.
7. The second part of Neil Sternberg's latest Chicago Sun-Times column recounts him paying a visit to the courtroom while trial was in session. What struck him, as he relates in the part entitled "Trust in the common man," was the middle-Americanness of the jury. His overall reaction, though, was one of excruciating boredom.
8. Also from the Sun-Times, Mary Wisniewski's report, which mentions that Mr. Burt's testimony will be followed by that of "economist Marie-Josee Kravis and former Illinois Gov. James R. Thompson..."
9. A much briefer summarization of Mr. Burt's testimony has been webbed by the Edmonton Journal.
10. Also from Paul Waldie, an article which discloses that Mr. Black wants to reclaim control of Hollinger Inc. It also notes that another Chicago Tribune motion to have the jurors' names release was rejected by Judge St. Eve.
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In "Seeking Alpha," Mark McQueen, after relating that Steve Jobs was let off the hook by the SEC despite their finding out about backdating of Apple stock options for his executives, wonders out loud if "Conrad Black [had] been a Silicon Valley icon, and not an English Lord, would he be on trial today in Chicago?" He may have answered his own question in the Financial Times write-up he quotes, which says that "the SEC said it would not take any action against Apple itself. The regulator on Tuesday said its decision was due in part to the company’s 'swift, extensive and extraordinary cooperation' in the government’s investigation..." (Apple's general counsel, but no other Apple executive, got hit with fraud charges according to that quoted report.)
Also, Mark Steyn returns to making fun of the prosecution's objection process in his latest Maclean's blog entry. Those who discern a disguised compliment of Julie Ruder's taste in clothes should be aware that Mr. Steyn has already pegged her as an "earnest bluestocking."
1. The report by Rudolph Bush of the Chicago Tribune starts off with Mr. Burt testifying that Conrad Black and David Radler were so closely knit, "they could seamlessly interrupt each other during board meetings while discussing complex business strategies and operations..." It also mentions that part of the cross-examination so far has had the aim of presenting Mr. Radler as a "lone operator who was cagey and unscrupulous -- a portrait that has been filled in through testimony that he was disdainful of employees and dismissive of auditors."
2. From NewsMax, a webbing of a Reuters report on Mr. Burt's initial testimony under direct examination.
3. A briefer Reuters report, by Andrew Stern, summarizes yesterday's testimony by Mr. Burt in a briefer version. It mentions that Mr. Burt served on the Hollinger International board from 1996 to 2005.
4. Paul Waldie's report, webbed by the Globe and Mail, mentions that Mr. Burt "explained that directors met about four times a year and didn't always get an agenda for meetings." He also mentions that the sale of 18 small newspapers to Black- and Radler-controlled American Publishing took place in 1999.
5. Jennifer Wells of the Toronto Star has written another article today, which contains more background on Mr. Burt than the others'. She notes that this is the first time in the trial that the "commingling of Black and Radler" has been put into the trial itself by the prosecution, and concludes that "Burt's testimony, which continues today, is a deep excavation of a fossilized corporate culture...."
6. The Edmonton Sun has webbed the latest CP report on the trial. It's the only one on the list that even mentions Marilyn Stitt.
7. The second part of Neil Sternberg's latest Chicago Sun-Times column recounts him paying a visit to the courtroom while trial was in session. What struck him, as he relates in the part entitled "Trust in the common man," was the middle-Americanness of the jury. His overall reaction, though, was one of excruciating boredom.
8. Also from the Sun-Times, Mary Wisniewski's report, which mentions that Mr. Burt's testimony will be followed by that of "economist Marie-Josee Kravis and former Illinois Gov. James R. Thompson..."
9. A much briefer summarization of Mr. Burt's testimony has been webbed by the Edmonton Journal.
10. Also from Paul Waldie, an article which discloses that Mr. Black wants to reclaim control of Hollinger Inc. It also notes that another Chicago Tribune motion to have the jurors' names release was rejected by Judge St. Eve.
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In "Seeking Alpha," Mark McQueen, after relating that Steve Jobs was let off the hook by the SEC despite their finding out about backdating of Apple stock options for his executives, wonders out loud if "Conrad Black [had] been a Silicon Valley icon, and not an English Lord, would he be on trial today in Chicago?" He may have answered his own question in the Financial Times write-up he quotes, which says that "the SEC said it would not take any action against Apple itself. The regulator on Tuesday said its decision was due in part to the company’s 'swift, extensive and extraordinary cooperation' in the government’s investigation..." (Apple's general counsel, but no other Apple executive, got hit with fraud charges according to that quoted report.)
Also, Mark Steyn returns to making fun of the prosecution's objection process in his latest Maclean's blog entry. Those who discern a disguised compliment of Julie Ruder's taste in clothes should be aware that Mr. Steyn has already pegged her as an "earnest bluestocking."
Tuesday, April 24, 2007
Richard Burt Has Taken The Stand
The defense is finally finished with Marilyn Stitt, and the prosecution has called up Richard Burt to testify. The first part of Romina Maurino's updated report on today's testimony details what he's said so far, as elicited by Jeffrey Cramer, the same prosecutor who delivered the opening address. Mr. Burt testified that he saw Conrad Black and David Radler as close-knitted teammates: "'I saw those two gentlemen in particular as being a team and in tandem,' Richard Burt, who is both a former U.S. diplomat and Hollinger director, told the court. 'I understood they were representing themselves and senior management (when they spoke at board meetings). I always found they were a very close team.'"
He also testified that the documents upon which he had to assent or object to were very complex, so he tended to trust, or "'assumed,'" that management gave "'a full description of the affairs of the company.'" He has yet to mention Peter Atkinson. Bloomberg's report, written by Andrew Harris and Joe Schneider, adds to the picture by relaying, "[t]he board, not having any staff, depended on the 'good faith of management' and the information it provided." (Only the top third of their report discusses Mr. Burt; the rest of it deals with Ms. Stitt's testimony and background to the case.)
The Reuters write-up, by Andrew Stern, reports that Mr. Burt testified that the board was not aware of Mr. Black's and Mr. Radler's ownership of Horizon Publishing, a company to whom Hollinger International had sold newspapers. Board members' knowledge of that fact "could have changed the outcome of the board's approval of that deal." Mr. Burt also testified that this possibility of non-approval would have resulted from knowledge that the transaction was a related-party one. "Such deals involving company executives, Burt explained, are called 'related party transactions' and require independent scrutiny by the board." The report ends with Mr. Burt flatly denying that Conrad Black had told him anything about a $2 million non-compete payment from the "American Trucker transaction," where Hollinger Int'l sold American Trucker and Mine and Quarry Trader to Intertec Publishing, in February 1999.
The sale to Intertec, now Primedia, was completed as of May 1998, with the $2 million non-compete payment agreed to at the same time, and the $2 million was diverted to Hollinger Inc. on January 27th, 1999, according to the indictment (p. 10.) An earlier witness, Peter Laino, testified about this transaction, as mentioned in this Globe and Mail report (now available to "Globe Insider" subscribers only.)
The Belleville News-Democrat has webbed the Associated Press article on Mr. Burt's initial testimony, which mentions that the first sale to Horizon was completed in November, 1998. (According to p. 14 of the indictment, that sale agreement was dated March 31, 1999.) He testified that the sale to Horizon and the payment of some of the non-compete fee associated with the sale to Horizon (24% of it, according to the indictment) were all related-party transactions; thus, knowledge of both would have "been important" and "mattered" (respectively) to him as an audit committee member. It ends with Mr. Burt testifying that, to his knowledge, Mr. Black and Mr. Radler had never disagreed with each other.
A PDF copy of the indictment itself can be found by clicking this "Superseding Information" link, found in the "US v. Black, et al." table on this DOJ page.
As of now, I haven't been able to find out whether the Horizon transaction date discrepancy in the AP report was due to the reporting, or to the the Mar. 31 date being a finalized date in a months-long deal process, or to a memory inconsistency on the part of Mr. Burt.
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Douglas Bell of the Toronto Life trial blog has announced that he and Albert Schultz, the actor who played Conrad Black in a CTV TV docudrama entitled "Shades of Black" that's mentioned here, have a two-dollar bet on the trial's outcome for Mr. Black. Mr. Schultz bet on "not guilty of all charges," and Mr. Bell agreed to cover the bet.
He also testified that the documents upon which he had to assent or object to were very complex, so he tended to trust, or "'assumed,'" that management gave "'a full description of the affairs of the company.'" He has yet to mention Peter Atkinson. Bloomberg's report, written by Andrew Harris and Joe Schneider, adds to the picture by relaying, "[t]he board, not having any staff, depended on the 'good faith of management' and the information it provided." (Only the top third of their report discusses Mr. Burt; the rest of it deals with Ms. Stitt's testimony and background to the case.)
The Reuters write-up, by Andrew Stern, reports that Mr. Burt testified that the board was not aware of Mr. Black's and Mr. Radler's ownership of Horizon Publishing, a company to whom Hollinger International had sold newspapers. Board members' knowledge of that fact "could have changed the outcome of the board's approval of that deal." Mr. Burt also testified that this possibility of non-approval would have resulted from knowledge that the transaction was a related-party one. "Such deals involving company executives, Burt explained, are called 'related party transactions' and require independent scrutiny by the board." The report ends with Mr. Burt flatly denying that Conrad Black had told him anything about a $2 million non-compete payment from the "American Trucker transaction," where Hollinger Int'l sold American Trucker and Mine and Quarry Trader to Intertec Publishing, in February 1999.
The sale to Intertec, now Primedia, was completed as of May 1998, with the $2 million non-compete payment agreed to at the same time, and the $2 million was diverted to Hollinger Inc. on January 27th, 1999, according to the indictment (p. 10.) An earlier witness, Peter Laino, testified about this transaction, as mentioned in this Globe and Mail report (now available to "Globe Insider" subscribers only.)
The Belleville News-Democrat has webbed the Associated Press article on Mr. Burt's initial testimony, which mentions that the first sale to Horizon was completed in November, 1998. (According to p. 14 of the indictment, that sale agreement was dated March 31, 1999.) He testified that the sale to Horizon and the payment of some of the non-compete fee associated with the sale to Horizon (24% of it, according to the indictment) were all related-party transactions; thus, knowledge of both would have "been important" and "mattered" (respectively) to him as an audit committee member. It ends with Mr. Burt testifying that, to his knowledge, Mr. Black and Mr. Radler had never disagreed with each other.
A PDF copy of the indictment itself can be found by clicking this "Superseding Information" link, found in the "US v. Black, et al." table on this DOJ page.
As of now, I haven't been able to find out whether the Horizon transaction date discrepancy in the AP report was due to the reporting, or to the the Mar. 31 date being a finalized date in a months-long deal process, or to a memory inconsistency on the part of Mr. Burt.
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Douglas Bell of the Toronto Life trial blog has announced that he and Albert Schultz, the actor who played Conrad Black in a CTV TV docudrama entitled "Shades of Black" that's mentioned here, have a two-dollar bet on the trial's outcome for Mr. Black. Mr. Schultz bet on "not guilty of all charges," and Mr. Bell agreed to cover the bet.
Tuesday's Auditor Examination
BNN had an interview with Paul Waldie (1:55 PM ET), which discussed Marilyn Stitt's testimony from this morning. Her testimony under direct examination was about the concerns she had about the non-compete payments to the defendants and ex-defendant David Radler, and the questions she raised about non-disclosure and audit committee approval of them. Today, she was shown a lot of internal KPMG documents that showed KPMG knew of them since 1999, but had never raised the issue. She replied that she didn't know about those documents, because she was not with the Chicago office that handled Hollinger International's accounts. Her cross-examination is not finished yet; it may be this afternoon. Richard Burt is scheduled to appear whenever she's finished. His story about Conrad Black's lawyers filing motions to block David Radler's settlement package has a six-paragraph write-up on Ms. Stitt's testmony, including cross-examination, at the bottom of it.
A report by Romina Maurino, which has been webbed by 680 News, describes Ms. Stitt sticking to her guns even when shown facts that she had been unaware of. "Unlike previous witnesses who admitted to making errors in their advice to Hollinger and its executives, Stitt remained confident and firm, dismissing attempts by the defence to link the CanWest and U.S. deals." Unswayed, she testified that even when she had made errors, she was (in effect) wrong for the right reasons.
Bloomberg's Andrew Harris and Joe Schneider recount both the direct and the cross-examination in their report. It notes that "[h]er testimony in federal court in Chicago belies prosecutors' claims that the defendants hid the payments....'My staff did a great job,' Stitt, a prosecution witness, said as she defended the firm's auditors, while being questioned by defense attorneys during her second day of testimony." (Since she and her staff were in the Toronto office, this statement of hers in't directly relevant to the Chicago office's performance on the Hollinger accounts in 1999 and 2000.)
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Mark Steyn notes a recent tendency on the part of prosecutor Julie Ruder to object on the basis of "'asked and answered,'" which often is overruled. Evidently, defense counsels are trying to check for internal inconsistency in Ms. Stitt's testimony.
A report by Romina Maurino, which has been webbed by 680 News, describes Ms. Stitt sticking to her guns even when shown facts that she had been unaware of. "Unlike previous witnesses who admitted to making errors in their advice to Hollinger and its executives, Stitt remained confident and firm, dismissing attempts by the defence to link the CanWest and U.S. deals." Unswayed, she testified that even when she had made errors, she was (in effect) wrong for the right reasons.
Bloomberg's Andrew Harris and Joe Schneider recount both the direct and the cross-examination in their report. It notes that "[h]er testimony in federal court in Chicago belies prosecutors' claims that the defendants hid the payments....'My staff did a great job,' Stitt, a prosecution witness, said as she defended the firm's auditors, while being questioned by defense attorneys during her second day of testimony." (Since she and her staff were in the Toronto office, this statement of hers in't directly relevant to the Chicago office's performance on the Hollinger accounts in 1999 and 2000.)
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Mark Steyn notes a recent tendency on the part of prosecutor Julie Ruder to object on the basis of "'asked and answered,'" which often is overruled. Evidently, defense counsels are trying to check for internal inconsistency in Ms. Stitt's testimony.
Media Roundup: Not Done Yet
The overnight stories on the Conrad Black trial all focused upon the testimony of Marilyn Stitt, whose turn on the stand is not yet over. It must be an unusual experience for Richard Burt to be kept waiting, to the benefit of a KPMG auditor:
1. Rudolph Bush of the Chicago Tribune sums up Ms. Stitt's testimony during direct examination.
2. The Belleville News-Democrat has webbed the AP report on Ms. Stitt's testimony so far, including the cross-examination of her by Mark Kipnis' counsel.
3. WQAD.com has webbed a much briefer AP recap, which doesn't mention any cross-examination.
4. The Sydney Morning Herald's wrapup includes a note that Ms. Stitt asked the members of the audit committee to confirm the amount of the individual non-compete payments, which they did.
5. 1130 News has a CP note which mentions that Ms. Stitt's cross-examination isn't over yet. It was posted right at the stroke of midnight, Pacific time.
6. The New York Post has a Bloomberg four-paragraph recap.
7. The Edmonton Sun has webbed the more detailed CP write-up. It ends with: "Had there been any questions about whether the non-competes were not actually required by the buyers, as prosecutors argue, KPMG may have found otherwise, [Ms. Stitt] told prosecutor Julie Ruder."
8. Jennifer Wells of the Toronto Star conveys the impression that Ms. Stitt's testimony was actually exciting. Her report recaps not only Ms. Stitt's testimony under direct examination, but also an admission that she made under cross-examination by Michael Swartz, Mr. Kipnis' counsel. It begins with congratulating Ms. Stitt for going down to Chicago and testifying in person, and contains a quote from Conrad Black about KPMG's services: "In a letter he wrote 3 1/2 years ago, Conrad Black said that KPMG had every opportunity over the years to question the payments. Their 'failure' to do so was not, he intoned, 'a flattering reflection of their thoroughness.'"
9. The Montreal Gazette has a report by Therea Tedesco and Peter Brieger, which reports that Ms. Stitt's notes about her meeting with the audit committee recalled that she took their silence as giving assent to the non-competes.
10. The Globe and Mail has a summary of Ms. Stitt's testimony yesterday, written by Paul Waldie, which focuses on her testimony under direct.
11. So does the Chicago Sun-Times, written by Mary Wisniewski. It ends with a mention of a "'pregnant pause'" after Ms. Stitt heard no objections to the non-competes from the two members of the audit committee she had met with, those being Richard Burt and James R. Thompson.
12. Sun-Times columnist Michael Sneed has a mention of the notorious "possessed" cell phone of Patrick Tuite. "Tuite told Sneed, 'I think they thought it would keep the prosecutor demons away from our Hollinger clients.'"
13. Mr. Waldie has another report, webbed in the Globe, which details a new minority-shareholder-based legal action, launched by Conrad Black against David Radler's settlement with both Hollinger International and the SEC. That agreement also committed Horizon Publishing; Horizon's second-largest shareholder is Mr. Black. He also filed a motion with Judge St. Eve to have the deal struck from the record on these grounds. It'll be decided on next month.
An update of the story contains six paragraphs at its bottom that report on the cross-examination of Ms. Stitt so far. It notes that Ms. Stitt admitted, while being questioned by Mark Kipnis' defense lawyer Michael Swartz, that the Chicago office of KPMG worked on the Hollinger Int'l account, not the Toronto one that she's with. She further testified that she personally worked on the account of Hollinger Inc., the parent company of Hollinger Int'l.
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Mark Steyn has his own take on Ms. Stitt's testimony, in which (in addition to making fun of prosecutorial inconsistencies) he pokes fun at generally-put-up-with accounting standards: "As I understand it, the upshot [on Generally Accepted Auditing Standards] is: just because you’ve had it audited doesn’t mean it will withstand an audit."
More seriously, Steve Skurka mentions, in the opener to a blog entry on the Sherry Sherrett case, that Ms. Stitt's claim, that an auditor is not expected to ferret out fraud, is flat-out wrong.
Also: Douglas Bell's latest entry in the Toronto Life Conrad Black trial blog has a long excerpt from the diary of Chris Silvester, of the Independent, and adds an unkind thing to say about the British view of the world after done with the excerpt.
Conrad Black, along with his new biography of Richard M. Nixon, have gotten a mention in "Nixon, Bush and the Writing of History" by the Century Foundation's Peter Osnos.
1. Rudolph Bush of the Chicago Tribune sums up Ms. Stitt's testimony during direct examination.
2. The Belleville News-Democrat has webbed the AP report on Ms. Stitt's testimony so far, including the cross-examination of her by Mark Kipnis' counsel.
3. WQAD.com has webbed a much briefer AP recap, which doesn't mention any cross-examination.
4. The Sydney Morning Herald's wrapup includes a note that Ms. Stitt asked the members of the audit committee to confirm the amount of the individual non-compete payments, which they did.
5. 1130 News has a CP note which mentions that Ms. Stitt's cross-examination isn't over yet. It was posted right at the stroke of midnight, Pacific time.
6. The New York Post has a Bloomberg four-paragraph recap.
7. The Edmonton Sun has webbed the more detailed CP write-up. It ends with: "Had there been any questions about whether the non-competes were not actually required by the buyers, as prosecutors argue, KPMG may have found otherwise, [Ms. Stitt] told prosecutor Julie Ruder."
8. Jennifer Wells of the Toronto Star conveys the impression that Ms. Stitt's testimony was actually exciting. Her report recaps not only Ms. Stitt's testimony under direct examination, but also an admission that she made under cross-examination by Michael Swartz, Mr. Kipnis' counsel. It begins with congratulating Ms. Stitt for going down to Chicago and testifying in person, and contains a quote from Conrad Black about KPMG's services: "In a letter he wrote 3 1/2 years ago, Conrad Black said that KPMG had every opportunity over the years to question the payments. Their 'failure' to do so was not, he intoned, 'a flattering reflection of their thoroughness.'"
9. The Montreal Gazette has a report by Therea Tedesco and Peter Brieger, which reports that Ms. Stitt's notes about her meeting with the audit committee recalled that she took their silence as giving assent to the non-competes.
10. The Globe and Mail has a summary of Ms. Stitt's testimony yesterday, written by Paul Waldie, which focuses on her testimony under direct.
11. So does the Chicago Sun-Times, written by Mary Wisniewski. It ends with a mention of a "'pregnant pause'" after Ms. Stitt heard no objections to the non-competes from the two members of the audit committee she had met with, those being Richard Burt and James R. Thompson.
12. Sun-Times columnist Michael Sneed has a mention of the notorious "possessed" cell phone of Patrick Tuite. "Tuite told Sneed, 'I think they thought it would keep the prosecutor demons away from our Hollinger clients.'"
13. Mr. Waldie has another report, webbed in the Globe, which details a new minority-shareholder-based legal action, launched by Conrad Black against David Radler's settlement with both Hollinger International and the SEC. That agreement also committed Horizon Publishing; Horizon's second-largest shareholder is Mr. Black. He also filed a motion with Judge St. Eve to have the deal struck from the record on these grounds. It'll be decided on next month.
An update of the story contains six paragraphs at its bottom that report on the cross-examination of Ms. Stitt so far. It notes that Ms. Stitt admitted, while being questioned by Mark Kipnis' defense lawyer Michael Swartz, that the Chicago office of KPMG worked on the Hollinger Int'l account, not the Toronto one that she's with. She further testified that she personally worked on the account of Hollinger Inc., the parent company of Hollinger Int'l.
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Mark Steyn has his own take on Ms. Stitt's testimony, in which (in addition to making fun of prosecutorial inconsistencies) he pokes fun at generally-put-up-with accounting standards: "As I understand it, the upshot [on Generally Accepted Auditing Standards] is: just because you’ve had it audited doesn’t mean it will withstand an audit."
More seriously, Steve Skurka mentions, in the opener to a blog entry on the Sherry Sherrett case, that Ms. Stitt's claim, that an auditor is not expected to ferret out fraud, is flat-out wrong.
Also: Douglas Bell's latest entry in the Toronto Life Conrad Black trial blog has a long excerpt from the diary of Chris Silvester, of the Independent, and adds an unkind thing to say about the British view of the world after done with the excerpt.
Conrad Black, along with his new biography of Richard M. Nixon, have gotten a mention in "Nixon, Bush and the Writing of History" by the Century Foundation's Peter Osnos.
Monday, April 23, 2007
What A Standard Financial Statement Certification Looks Like
What should appear at the end of any financial statement, in any annual or quarterly report, is an Unqualified Opinion. As the Wikipedia article just linked to states, this kind of external auditor's Opinion Report carries three paragraphs, which are exactly the same except for particulars. Paragraph 1 states the scope of responsibility of management and the auditors, Paragraph 2 describes the audit method, and Paragraph 3 gives the opinion. It's worth quoting in full:
"In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20XX, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in (the country where the report is issued)."
If you don't see exactly that, with the appropriate particulars filled in, then the company's in some sort of difficulty.
In the 2002 meeting with Jack Boultbee over the 2001 Hollinger Int'l annual report, Marilyn Stitt threatened to issue a Qualified Opinion because of the non-competes. Ostensibly, a Qualified Opinion is no big deal, as it simply states that one or more accounts either don't conform to generally-accepted accounting principles (GAAP) or else it's impossible to tell. A Qualified Opinion says that the statements do not contain any material misstatements nonetheless.
Legally, this says that there was no chicanery afoot as of the time the audit was conducted and to the best of the auditor's knowledge; an adverse opinion may indicate crookedness somewhere. From an investor's standpoint, though, a Qualified Opinion says that the company is keeping a sloppy set of books. Hence its status as a warning flag, whose flagpole points to the "Exit" door.
"Fine; I sold my shares through no fault of my own."
"In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20XX, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in (the country where the report is issued)."
If you don't see exactly that, with the appropriate particulars filled in, then the company's in some sort of difficulty.
In the 2002 meeting with Jack Boultbee over the 2001 Hollinger Int'l annual report, Marilyn Stitt threatened to issue a Qualified Opinion because of the non-competes. Ostensibly, a Qualified Opinion is no big deal, as it simply states that one or more accounts either don't conform to generally-accepted accounting principles (GAAP) or else it's impossible to tell. A Qualified Opinion says that the statements do not contain any material misstatements nonetheless.
Legally, this says that there was no chicanery afoot as of the time the audit was conducted and to the best of the auditor's knowledge; an adverse opinion may indicate crookedness somewhere. From an investor's standpoint, though, a Qualified Opinion says that the company is keeping a sloppy set of books. Hence its status as a warning flag, whose flagpole points to the "Exit" door.
"Fine; I sold my shares through no fault of my own."
Monday With The Auditor
Paul Waldie was just interviewed on BNN and detailed the testimony of Marilyn Stitt, a partner with KPMG. She testified about a 2002 meeting she had had with Jack Boultbee, wherein she found out about the individual non-compete payments. She wondered why they had not been disclosed, and told him that they should be disclosed. Mr. Boultbee said that they weren't related-party transaction according to the then-current meaning of the term, but Ms. Stitt got her back up and said that the audit report (found at the end of the financial statements of a shareholders' quarterly or annual report) would be modified if those payments were not disclosed. (Any modification of the standard auditor's report is considered a red flag; it isn't taken lightly by the investment community.) She then had raised questions about board approval and buyer knowledge of the payments, as it would have affected the audit. When today's morning sitting ended, Mark Kipnis' lawyer was cross-examining her. The defense will likely ask questions about why Ms. Stitt didn't dig deeper into the records, as those payments had been disclosed at other times and in other places. With regard to David Radler testifying, there are only rumours as of now. It seems sensible, Mr. Waldie related, to expect that the other members of the audit committee will testify before Mr. Radler goes on the stand.
[His report has been webbed by the Globe and Mail. It notes that Mr. Boultbee, according to Ms. Stitt, "was quite forceful and the two engaged in a debate about the issue." The ending has this significant snippet of testimony, given under direct examination: "Ms. Stitt said that an audit is only an opinion based on selective testing of a company's financial transactions and management representations. She also said that fraud is difficult to detect because it involves an intentional intent to deceive auditors are not generally looking for fraud when they carry out an audit."]
Romina Maurino has filed a report, as webbed by 680 News. It explains why Mr. Boultbee refused to disclose those payments in the 2001 annual report, which was what the 2002 meeting was about. "Stitt said Boultbee told her the company did not consider the CanWest payments fell under the related-party transaction category because Hollinger International 'was just acting as an agent' to help distribute the money to individual executives named in the agreements. " Ms. Stitt also testified that she gave a "clean" audit for the 2001 financial statements once the payments were disclosed in the annual report, as she believed that the audit committee had approved the payments. The report ends with a note that Richard Burt is expected to testify that the audit committee was misled, which would tie his testimony in with hers for the prosecution.
Bloomberg's report, written by Joe Schneider and Andrew Harris, has a summary of Ms. Stitt's testimony. It notes that she was "surprised'" that the non-compete payments were disclosed to regulators in a first-quarter 2001 filing, but doesn't note if she said so under direct or cross-examination. [It also notes that another non-compete agreement, for newspapers sold to Osprey Media and another party (presumably Community Newspaper Holdings Inc.) in exchange for $16.1 million, was brought into evidence by the prosecution.]
Ms. Maurino's report has been updated, with some of the cross-examination of Ms. Stitt near the end of it; it's been webbed by 680 News too. She describes Michael Swartz, defense lawyer for Mark Kipnis, making the point that KPMG staff could have brought up any suspicious items to the audit committee themselves, and that "various experienced, high-priced accountants had vetted Hollinger's results."
A further updated Bloomberg report has more details on the cross-examination. When asked by Csr. Swartz if she knew that other KPMG accountants had seen evidence of the non-compete payments associated with a sale of newspapers to CHNI, Ms. Stitt admitted that she hadn't. Coverage of the direct testimony has also been webbed by Reuters.
[His report has been webbed by the Globe and Mail. It notes that Mr. Boultbee, according to Ms. Stitt, "was quite forceful and the two engaged in a debate about the issue." The ending has this significant snippet of testimony, given under direct examination: "Ms. Stitt said that an audit is only an opinion based on selective testing of a company's financial transactions and management representations. She also said that fraud is difficult to detect because it involves an intentional intent to deceive auditors are not generally looking for fraud when they carry out an audit."]
Romina Maurino has filed a report, as webbed by 680 News. It explains why Mr. Boultbee refused to disclose those payments in the 2001 annual report, which was what the 2002 meeting was about. "Stitt said Boultbee told her the company did not consider the CanWest payments fell under the related-party transaction category because Hollinger International 'was just acting as an agent' to help distribute the money to individual executives named in the agreements. " Ms. Stitt also testified that she gave a "clean" audit for the 2001 financial statements once the payments were disclosed in the annual report, as she believed that the audit committee had approved the payments. The report ends with a note that Richard Burt is expected to testify that the audit committee was misled, which would tie his testimony in with hers for the prosecution.
Bloomberg's report, written by Joe Schneider and Andrew Harris, has a summary of Ms. Stitt's testimony. It notes that she was "surprised'" that the non-compete payments were disclosed to regulators in a first-quarter 2001 filing, but doesn't note if she said so under direct or cross-examination. [It also notes that another non-compete agreement, for newspapers sold to Osprey Media and another party (presumably Community Newspaper Holdings Inc.) in exchange for $16.1 million, was brought into evidence by the prosecution.]
Ms. Maurino's report has been updated, with some of the cross-examination of Ms. Stitt near the end of it; it's been webbed by 680 News too. She describes Michael Swartz, defense lawyer for Mark Kipnis, making the point that KPMG staff could have brought up any suspicious items to the audit committee themselves, and that "various experienced, high-priced accountants had vetted Hollinger's results."
A further updated Bloomberg report has more details on the cross-examination. When asked by Csr. Swartz if she knew that other KPMG accountants had seen evidence of the non-compete payments associated with a sale of newspapers to CHNI, Ms. Stitt admitted that she hadn't. Coverage of the direct testimony has also been webbed by Reuters.
Brief note concerning the Intrade Conrad Black trial contracts
They haven't changed at all over the last week or so, and the FTPredict ones are showing the same stagnancy. I'm not going to bump the post date forward to match the checking of the data any more unless some data has changed. Today, nothing has, so the update entry is floating downwards.
Media Roundup: Enter The Audit Committee
The sixth week of the Conrad Black trial is about to begin; here are the media reports anticipating Richard Burt's testimony today:
1. From 680 News, a Canadian Press report outlining what Mr. Burt's testimony is supposed to bring to the prosecution's case: proof that Mr. Black and the other defendants lied to the Hollinger Int'l audit committee. A rearranged and slightly paraphrased version of the same report has been webbed by Accountancy Age.
2. From Bloomberg, a much longer article discussing David Radler, by Erik Schatzker and Michael Janofsky. Although it notes that Mr. Radler agreed to his plea bargain largely out of pragmatism, it also hints at a reason for a falling out between the two. The article also notes that the plea bargain has yet to be approved by Judge St. Eve.
3. Also from Bloomberg, a story of the conviction of Joseph Nacchio, of insider trading. He's one of several CEOs convicted in the last several years; they are also named in the write-up. Conrad Black is mentioned too.
4. The Globe and Mail's Paul Waldie has an anticipatory article of his own, but it anticipates what Ms. Stitt will be testifying about. There has already been controversy over her expected testimony, as the defense has alleged that her purpose is to insinuate the existence of fraud(s) that never took place.
5. From The Age, a note in the "Business Day" column, entitled "R-day for Conrad Black," which predicts that David Radler will testify this week.
1. From 680 News, a Canadian Press report outlining what Mr. Burt's testimony is supposed to bring to the prosecution's case: proof that Mr. Black and the other defendants lied to the Hollinger Int'l audit committee. A rearranged and slightly paraphrased version of the same report has been webbed by Accountancy Age.
2. From Bloomberg, a much longer article discussing David Radler, by Erik Schatzker and Michael Janofsky. Although it notes that Mr. Radler agreed to his plea bargain largely out of pragmatism, it also hints at a reason for a falling out between the two. The article also notes that the plea bargain has yet to be approved by Judge St. Eve.
3. Also from Bloomberg, a story of the conviction of Joseph Nacchio, of insider trading. He's one of several CEOs convicted in the last several years; they are also named in the write-up. Conrad Black is mentioned too.
4. The Globe and Mail's Paul Waldie has an anticipatory article of his own, but it anticipates what Ms. Stitt will be testifying about. There has already been controversy over her expected testimony, as the defense has alleged that her purpose is to insinuate the existence of fraud(s) that never took place.
5. From The Age, a note in the "Business Day" column, entitled "R-day for Conrad Black," which predicts that David Radler will testify this week.
Sunday, April 22, 2007
Three Period Pieces, And Another "Prediction Market."
Presented are three blogs that have discussed the Conrad Black trial, plus another "prediction market" that uses play money and an algorithm:
1. From "Toronto Estate Lawyer," an April 11 comment, on why Mr. Black seems to be turning things around for himself: "perseverence in the face of adversity." The author of it, Justin De Vries, argues that such an attitude is the key to getting through an unavoidable litigation.
2. The Law Blog of the Wall Street Journal has a category on Conrad Black - one that was frequently updated until March 23rd, but has fallen into disuse since.
3. A pre-opening (Mar. 7) entry in the blog of veteran Canadian business reporter Diane Francis, which describes Chicago as a town that is blue-collar at heart, respects self-made success, disdains ostentation and roots for the underdog. She concludes that Mr. Black will have a tough time with a Chicago jury - common-sensical in its time but now unusual, given how the defense has really fared. Edward Genson may be the man credited for the reversal in the courtroom; the most obvious candidate for the turnaround in the media would be Mark Steyn.
Also: a small prediction market, run on play money, has a contract on the outcome of the Conrad Black trial: "Will former Sun-Times owner Conrad Black be found innocent in federal court in Chicago?"
1. From "Toronto Estate Lawyer," an April 11 comment, on why Mr. Black seems to be turning things around for himself: "perseverence in the face of adversity." The author of it, Justin De Vries, argues that such an attitude is the key to getting through an unavoidable litigation.
2. The Law Blog of the Wall Street Journal has a category on Conrad Black - one that was frequently updated until March 23rd, but has fallen into disuse since.
3. A pre-opening (Mar. 7) entry in the blog of veteran Canadian business reporter Diane Francis, which describes Chicago as a town that is blue-collar at heart, respects self-made success, disdains ostentation and roots for the underdog. She concludes that Mr. Black will have a tough time with a Chicago jury - common-sensical in its time but now unusual, given how the defense has really fared. Edward Genson may be the man credited for the reversal in the courtroom; the most obvious candidate for the turnaround in the media would be Mark Steyn.
Also: a small prediction market, run on play money, has a contract on the outcome of the Conrad Black trial: "Will former Sun-Times owner Conrad Black be found innocent in federal court in Chicago?"
Media Roundup: Earth of the Salt
There are only three stories on the Conrad Black trial posted overnight. One summarizes what's happened so far, another discusses the current status of the Conrad Black home away from home [and the third spells out what Richard Burt is expected to add to the prosecution's case]:
1. From Mary Wisniewski of the Chicago Sun-Times, a quick recapping of all the evidence shown up to now. She compares the trial to a jigsaw puzzle, with the prosecution entering "pieces" into evidence as well as fitting them with others already introduced, and the defense attempting to show that the prosecution is jamming misfit pieces into places of its liking.
2. A profile of the Black house, at 1930 S. Ocean Blvd, in the Palm Beach Daily News, with the notification that it has been withdrawn from sale. "Two people who have spoken with him recently say that's because he expects to be acquitted and return to the estate." Both are quoted in the rest of the story.
3. Romina Maurino details that the prosecution has to prove some sort of intent to mislead, and that Richard Burt, expected on the stand tomorrow after Marilyn Stitt is done with, is expected to provide ear-witness testimony that Peter Atkinson confessed to misleading the board. Mr. Burt has had brain surgery, and the expectation is that the defense will use it to show that he misremembered, as Mr. Atkinson denies ever saying it. (This report has been webbed by 570 News.)
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Mark Steyn's latest on the trial is uncharacteristically quiet for him. Its theme is that he and a couple of other Black defenders have, with respect to the press, turned out to be the vanguard. One of the reasons for this change of heart, as he notes, is the impression that Conrad Black has been underrated as a CEO, specifically with regard to his dealmaking skills. This underrating brings up the suspicion that he's been hauled into the docket largely as a result of malice. (Mr. Steyn is careful to note that these points are irrelevant to the trial process itself.)
1. From Mary Wisniewski of the Chicago Sun-Times, a quick recapping of all the evidence shown up to now. She compares the trial to a jigsaw puzzle, with the prosecution entering "pieces" into evidence as well as fitting them with others already introduced, and the defense attempting to show that the prosecution is jamming misfit pieces into places of its liking.
2. A profile of the Black house, at 1930 S. Ocean Blvd, in the Palm Beach Daily News, with the notification that it has been withdrawn from sale. "Two people who have spoken with him recently say that's because he expects to be acquitted and return to the estate." Both are quoted in the rest of the story.
3. Romina Maurino details that the prosecution has to prove some sort of intent to mislead, and that Richard Burt, expected on the stand tomorrow after Marilyn Stitt is done with, is expected to provide ear-witness testimony that Peter Atkinson confessed to misleading the board. Mr. Burt has had brain surgery, and the expectation is that the defense will use it to show that he misremembered, as Mr. Atkinson denies ever saying it. (This report has been webbed by 570 News.)
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Mark Steyn's latest on the trial is uncharacteristically quiet for him. Its theme is that he and a couple of other Black defenders have, with respect to the press, turned out to be the vanguard. One of the reasons for this change of heart, as he notes, is the impression that Conrad Black has been underrated as a CEO, specifically with regard to his dealmaking skills. This underrating brings up the suspicion that he's been hauled into the docket largely as a result of malice. (Mr. Steyn is careful to note that these points are irrelevant to the trial process itself.)
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