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United States v. Black

November 5, 2007

UNITED STATES OF AMERICA, PLAINTIFF,
v.
CONRAD M. BLACK, JOHN A. BOULTBEE, PETER Y. ATKINSON, AND MARK S. KIPNIS, DEFENDANTS.



The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge

MEMORANDUM OPINION AND ORDER

On July 13, 2007, after extensive pretrial proceedings, approximately four months of trial, and two weeks of jury deliberations, a jury convicted Defendants Conrad Black, John Boultbee, Peter Atkinson, and Mark Kipnis on several counts in the Superseding Information, and acquitted them on multiple counts, as well. Defendants now seek judgment of acquittal pursuant to Rule 29 of the Federal Rules of Criminal Procedure or a new trial pursuant to Rule 33 of the Federal Rules of Criminal Procedure. Defendant Black's, Boultbee's and Atkinson's motions are denied in their entirety. Defendant Kipnis' motion for judgment of acquittal is denied in part and granted in part as to Count Seven. Defendant Kipnis' motion for a new trial is denied.

BACKGROUND

I. Hollinger International, Inc. and The Defendants

Defendants were executives at Hollinger International, Inc. ("International"), a Delaware corporation with an office located in Chicago, Illinois. Defendant Conrad M. Black ("Black") served as Chief Executive Officer and Chairman of the Board of International. He also indirectly owned approximately 15% of International though his ownership in Hollinger Inc. ("Inc."), a holding company. Defendant John A. "Jack" Boultbee, ("Boultbee"), a Canadian citizen and a Chartered Accountant in Canada, served as Executive Vice President and, for a period of time, Chief Financial Officer of International. Defendant Peter Y. Atkinson ("Atkinson"), a Canadian citizen and licensed attorney in Canada, served as Executive Vice President of International. Defendant Mark S. Kipnis ("Kipnis"), a United States citizen and an attorney licensed to practice law in Illinois, served as Vice President, Corporate Counsel and Secretary of International. Defendant F. David Radler ("Radler") was a Canadian citizen who served as the President and the Chief Operating Officer of International. Defendant Radler pled guilty on September 20, 2005 to Count One of the Indictment, agreed to cooperate with the government, and testified at trial. (R. 21-1).

Defendant the Ravelston Corporation Limited ("Ravelston") was an Ontario, Canada corporation with its principal office located in Toronto, Canada. Ravelston was a privately held corporation, with 98.5% of its equity owned by officers and directors of International and Inc., and 1.5% owned by the estate of a former Inc. director. Ravelston had a controlling interest in Inc. Through this interest in Inc., Ravelston was the controlling shareholder of International. Ravelston pled guilty to Count Two of the Third Superseding Indictment pursuant to a written plea agreement on March 5, 2007. (R. 503-1).

During the relevant time period, International was publicly traded on the New York Stock Exchange. International, through its operating subsidiaries, owned and published newspapers around the world, including the Chicago Sun-Times, The Daily Telegraph in the United Kingdom, the National Post in Toronto, Canada, the Jerusalem Post in Israel, and numerous community newspapers in the United States and Canada.

II. The Charges

On August 17, 2006, a grand jury returned a seventeen-count Third Superseding Indictment (the "Indictment") against Defendants Black, Boultbee, Atkinson, Kipnis, and the Ravelston Corporation Limited. On January 10, 2007, the government filed a Superseding Information (the "Information") removing some allegations from the Indictment. (R. 407-1). The Information charged Defendants with committing the following offenses: (1) mail and wire fraud, in violation of 18 U.S.C. §§1341, 1343, including the deprivation of the intangible right to honest services, in violation of 18 U.S.C. §1346; (2) money laundering, in violation of 18 U.S.C. §1957; (3) obstruction of justice, in violation of 18 U.S.C. §1512(c)(1); (4) racketeering, in violation of 18 U.S.C. §1962(c); and (5) criminal tax violations, in violation of 26 U.S.C. §7206(2). Before turning to the merits of Defendants' motions, the Court will generally address the substance of the charges in the Information in order to put the evidence at trial in context.

A. The Non-Competition Agreement Charges

Counts One through Nine charged mail and wire fraud schemes, including the deprivation of the intangible right to honest services. The thrust of the government's evidence at trial pertained to these counts which involved a scheme to defraud International through the execution of non-competition agreements. The non-competition agreements were executed by Defendants in connection with International's sale of its United States community newspaper assets. In connection with the sale of these assets, International executed non-competition agreements in which it agreed not to acquire or establish a newspaper within a certain geographic distance from the newspapers it sold for a certain period of time after the sale at issue. The government charged that Defendants abused this process to benefit themselves at the expense of International's shareholders by misappropriating non-competition fees that should have, and otherwise would have, been paid exclusively to International. The Information alleged that Defendants used various methods to accomplish the charged scheme: (1) improperly diverted money from a non-competition agreement with International; (2) improperly inserted Inc. into the non-competition agreements associated with International's sale of assets; (3) improperly inserted themselves as individual officers into non-competition agreements in connection with the sale of International's assets; and/or (4) created non-competition agreements that were not connected to the sale of the community newspapers.

B. The Perquisites Scheme

Counts Ten through Twelve charged Defendants Black and Boultbee with a scheme to defraud International and its shareholders by abusing certain perquisites, including International's corporate residence in New York City, International's corporate jet, and International's reimbursement of Black's business-related entertainment expenses, including a birthday party for his wife. At the close of the evidence, the Court granted part of Defendant Boultbee's motion for judgment of acquittal regarding these counts. (Trial Transcript ("Tr.") at 13421-22.)

C. Money Laundering

Count Thirteen of the Information charged Defendant Black with money laundering, in violation of 18 U.S.C. § 1957. On May 30, 2007 after the close of the government's case, the government moved to dismiss Count Thirteen of the Information, and the Court granted the motion. (R. 683-1).

D. Obstruction of Justice

Count Fourteen*fn1 charged Defendant Conrad Black with obstruction of justice by concealing documents from an official proceeding, in violation of 18 U.S.C. § 1512(c)(1). The evidence pertained to Defendant Black's removal of 13 boxes of documents from his office at 10 Toronto Street in an attempt to conceal the documents from an "official proceeding."

E. RICO

Count Fifteen charged Defendant Black with a RICO violation, alleging that he conducted and participated in the conduct of the affairs of an enterprise through a pattern of racketeering activity. This charge was premised on the non-competition agreements in connection with the sale of International's community newspapers.

F. Tax Charges

Finally, the remaining counts charged Defendants with willfully procuring and assisting in the preparation of false and fraudulent United States corporation tax returns for International. At the close of the evidence, the government dismissed the tax charge in Count Sixteen of the Information against Defendant Atkinson only.

G. The Verdict

The jury commenced its deliberations on June 27, 2007. (R. 772-1.) After two weeks of deliberations, the jury returned its verdict on July 13, 2007, finding as follows:

* Defendant Conrad Black guilty of Counts One, Six, Seven and Thirteen, and not guilty of Counts Five, Eight, Nine, Ten, Eleven, Twelve, Fourteen, Fifteen and Sixteen;

* Defendant John Boultbee guilty of Counts One, Six, and Seven, and not guilty of Counts Five, Eight, Nine, Ten, Eleven, Twelve, Fifteen, and Sixteen;

* Defendant Peter Atkinson guilty of Counts One, Six and Seven, and not guilty of Counts Five, Eight, Nine and Sixteen; and

* Defendant Mark Kipnis guilty of Counts One, Six and Seven, and not guilty of Counts Two, Three, Four, Five, Eight, Nine, Fifteen and Sixteen.

In other words, Defendants were found not guilty of six of the nine non-competition agreement charges, all of the perquisites charges, the RICO charge and all of the tax charges. The jury found Defendants Black, Boultbee, Atkinson, and Kipnis guilty of the non-competition charges relating to non-competition agreements with Radler, Black, Boultbee and Atkinson and American Publishing Company, and the "supplemental payments" from the transactions with Forum Communications and Paxton. The jury also found Defendant Black guilty of obstruction justice.

ANALYSIS

I. Judgment of Acquittal

Each Defendant asserts that he is entitled to a judgment of acquittal pursuant to Federal Rule of Criminal Procedure 29 ("Rule 29"). Under Rule 29, a court must enter a judgment of acquittal if, after considering all the evidence in the light most favorable to the Government, it concludes that "the record contains no evidence, regardless of how it is weighed, upon which a rational trier of fact could find guilt beyond a reasonable doubt." United States v. Cummings, 395 F.3d 392, 397 (7th Cir. 2005) (internal citation and quotation omitted). Where the defendant challenges the sufficiency of the evidence presented at trial, the court must "consider the evidence in the light most favorable to the prosecution, drawing all reasonable inferences in the government's favor," and a "[r]eversal is appropriate only when, after viewing the evidence in such a manner, no rational jury could have found the defendant to have committed the essential elements of the crime." United States v. Macari, 453 F.3d 926, 936 (7th Cir. 2006) (internal quotation omitted). See United States v. Emerson, __ F.3d. __ , 2007 WL 2566005, at *3 (7th Cir. 2007) ("[w]e must determine whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.)"

Defendants argue that they are entitled to judgment of acquittal on each count of conviction. Defendants cannot meet their heavy burden under Rule 29, with the exception of Mark Kipnis on Count Seven.

A. Judgment of Acquittal is Not Appropriate on Counts One and Six

The jury convicted Defendants or the mail fraud counts charged in Counts One and Six of the Information. Regarding both counts, the government pursued two separate theories: (1) a theory of participating in a scheme to obtain money or property by means of materially false pretenses, representations, or promises; and (2) a theory of participating in a scheme to deprive Hollinger International and its public shareholders of their intangible right to the honest services of the corporation's officers, directors and/or controlling shareholders.

In order to prove mail fraud, the government must prove the following beyond a reasonable doubt: (1) a scheme to defraud; (2) an intent to defraud; and (3) use of the mails or wires in furtherance of the scheme to defraud. See United States v. Sloan, 492 F.3d 884, 890 (7th Cir. 2007); United States v. Leahy, 464 F.3d 773, 786 (7th Cir. 2006). In order to establish that the scheme or artifice to defraud involved the deprivation of the intangible right to honest services, the government must prove that the defendant misused his position for private gain. See United States v. Thompson, 484 F.3d 877, 883-84 (7th Cir. 2007); see also United States v. Segal, 495 F.3d 826, 834-35 (7th Cir. 2007).

1. The Evidence Supports the Verdict

Both Counts One and Six pertain to mailings in connection with non-competition agreements between American Publishment Company ("APC") and Defendants Black, Boultbee, and Atkinson and co-schemer Radler, totaling $5.5 million. Viewing the evidence in the light most favorable to the government, these payments were bonus payments fraudulently disguised as non-competition payments. Specifically, the evidence established that APC was a subsidiary of International. (Tr. at 3127.) In February 2001 -- after receiving over $25 million in non-competition payments from the sale of International's community newspapers to various companies -- co-schemer Radler and Defendants Black, Boultbee, Atkinson executed individual non-competition agreements to enrich themselves in the amount of $5.5 million. They labeled these payments as non-competition payments -- instead of bonuses -- in order to take advantage of potential tax benefits under Canadian tax laws. Yet unlike the other non-competition agreements that Defendants executed in connection with the sale of community newspapers and the other charges in the Information, the APC agreements did not involve the sale of any of International's assets. There was no seller, no buyer, no closing, and no transaction. Instead, Defendant Kipnis drafted non-competition agreements for the four individuals, and those individuals pocketed $5.5 million in purported non-competition payments. Furthermore, neither the Audit Committee or International's Board of Directors asked for, or knew about, the non-competition agreements -- Defendants initiated and executed the fraudulent non-competition agreements on their own.

Of the $5.5 million, Black and Radler each received $2,612,500, (Gov. Exs. APC 9, 10, 11, 12), and Atkinson and Boultbee each received $137,500. (Gov. Exs. APC 14, 16.) Although the transaction took place in 2001, the checks were back-dated to December 31, 2000, at co-schemer Radler's direction. (Gov. Exs. APC 5, 9, 10, 12, 14.)

The evidence demonstrated that Kipnis prepared the agreements and signed them on behalf of APC. The agreements -- back-dated to December 31, 2000 -- provided that Defendants Black, Boultbee, and Atkinson, and co-schemer Radler would not compete with APC for three years after they left International's employ. (Gov. Exs. APC 8, 11, 13 &15.) Significantly, at the time they signed these "non-competition" agreements with APC, APC only owned one small weekly community newspaper in Mammoth Lake, California, that APC planned to sell, and eventually sold for only one dollar plus working capital. (Tr. at 7941, 7943-44, 9624-25; Gov. Ex. APC 18). Moreover, APC did not intend to re-enter the community newspaper business in the United States. In other words, Defendants received $5.5 million not to compete even though there was essentially nothing to compete against. Furthermore, the non-competition agreements were executed with International's own subsidiary, APC. In essence, Defendants paid themselves not to compete with themselves.

International's Audit Committee had the responsibility to review and approve related-party transactions. (Tr. at 5384, 6033-34.) Nonetheless, Defendants did not present the APC payments to the Audit Committee for approval before they were made and the Committee did not approve them. (Id. at 5552, 5574-75, 5806, 6095-99, 6761, 6784, 3780-81.) In fact, the Audit Committee members were unaware of the agreements and payments. (Id.) Defendants acted in their own best interests by taking $5.5 million in a related-party transaction without approval from the Audit Committee or Board of Directors, not in the best interest of International despite the fact that they had a duty ...


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