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United States v. Black

December 10, 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, following approximately four months of trial, a jury convicted Defendants Conrad M. Black, Peter Y. Atkinson, John A. Boultbee, and Mark S. Kipnis of three counts of mail fraud, in violation of 18 U.S.C. §1341, including the deprivation of the intangible right to honest services, in violation of 18 U.S.C. §1346.*fn1 Currently before the Court is the government's Motion for a Preliminary Order of Forfeiture (the "Motion"), which seeks to hold Defendants Black, Boultbee, Atkinson, and Kipnis jointly and severally liable for the forfeiture of $16,925,000 pursuant to 28 U.S.C. §2461(c), 18 U.S.C. §981(a)(1)(C), and Federal Rule of Criminal Procedure 32.2. For the reasons stated below, the Court grants the motion in part and denies it in part.

BACKGROUND

I. The Charged Fraud Scheme

As the Court has detailed previously, the Superseding Information (the "Information") charged Defendants with participating in a scheme to defraud Hollinger International and its shareholders in connection with the sale of International's so-called "U.S. community newspapers," a process that began in May 1998 and continued through 2001. See United States v. Black, 469 F. Supp. 2d 513 (N.D. Ill. 2006).*fn2 The key entities involved in the scheme were (1) Hollinger International, Inc. ("International"), a Delaware corporation that was publicly traded on the New York Stock Exchange, (2) Hollinger Inc. ("Inc."), a Canadian corporation that was publicly traded on the Toronto Stock Exchange, and (3) The Ravelston Corporation, Ltd. ("Ravelston"), a privately-held Canadian company. (R. 407-1, Information at ¶1.) Defendants Black and Boultbee, and co-schemer Radler were officers of all three companies and each had ownership interests in Ravleston.*fn3 (Id.) Defendants Atkinson and Kipnis were attorneys and officers of International. (Id.) Atkinson also was an officer of Inc. and had an ownership stake in Ravelston. (Id.) As charged, Defendants' scheme aimed to obtain money and property from International, and to deprive International and its shareholders of Defendants' honest services.

The Information alleged that Defendants used various methods to accomplish the charged scheme. In particular, the Information charged that Defendants: (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 (4) created non-competition agreements that were not connected to the sale of the community newspapers. (Id. at 8-27.) Count One of the Information sets out the specifics of the entire charged scheme, which included the following transactions:

American Trucker and Mine and Quarry Trader: On May 11, 1998, International, through its subsidiary, sold American Trucker and Mine and Quarry Trader to Intertec Publishing Corp. for $75 million. (Id. at 10, ¶4.) The closing documents provided that $2 million would be paid to International to obtain a non-competition agreement. (Id.; Gov't Exs. Trucker 7, 8.) In January 1999, approximately eight (8) months after the sale, Black, Boultbee, and Radler decided to divert to Inc. the $2 million that International received for the American Trucker non-competition agreement. (Id. at 10, ¶5.)

CNHI(I): On February 1, 1999, International sold certain newspaper assets to CNHI for approximately $472 million. (Id. at 11-12, ¶8.) The deal letter for the CNHI transaction, executed in December 1998, provided that International would sign a non-competition agreement in exchange for $50 million. (Id.) After that deal letter, in January 1999, Defendants Black, Boultbee, and Radler, decided to insert Inc. as a non-competition covenantor, and decided that Inc. would receive $12 million of the $50 million originally slated for International's non-competition agreement. (Id. at 12, ¶9; see also Gov't Ex. CNHI 10 and 14.)

Horizon: Black and Radler owned substantial interests in Horizon, a privately-owned newspaper company. (R. 407-1, Information at 14, ¶14.) In an agreement dated March 31, 1999, International agreed to sell certain publications to Horizon for $43.7 million. (Id.) Black, Boultbee, and Radler decided that the amount of the non-competition agreement accompanying the transaction would be $5 million, split between International and Inc. (Id.; see also Gov't Ex. Horizon 4.)

CNHI(II): In November 2000, International sold another batch of newspapers to CNHI, this time for $90 million. (Id. at 17-18, ¶22.) Pursuant to the established "template," Kipnis inserted Inc. into the CNHI asset purchase agreement as a non-compete covenantor. (Id.) The asset purchase agreement allocated $3 million of the purchase price to International and Inc.'s non-competition agreements -- $2.25 million to International and $750,000 to Inc. Black, Radler, Boultbee, and Atkinson also received approximately $9.5 million of the transaction proceeds labeled as non-competition agreements. (Id. at 18, ¶24; see also Gov't Exs. CNHI 18-23.)

Forum and Paxton: On September 30, 2000, International entered into an Asset Purchase Agreement to sell newspapers to Forum Communications Co. for $14 million, $500,000 of which was allocated to non-competition agreements. (R. 407-1, Information at 16, ¶17; see also Gov't Ex. Forum 10.) On October 2, 2000, International entered into an Asset Purchase Agreement to sell newspapers to Paxton for $59 million, $2 million of which was allocated to non-competition agreements. (R. 407-1, Information at 16, ¶17.) At the time of these deals, Radler thought that Kipnis had included Radler, Black, Boultbee, and Atkinson as additional non-compete covenantors and that 3% of the proceeds from each transaction had been set aside to fund the non-compete payments to the International officers. (Id. at 17, ¶19.) In fact, these amounts had not been set aside. (Id. at 17, ¶20.) Thereafter, on April 9, 2001, Black, Boultbee, Atkinson, Radler, and Kipnis caused an International subsidiary to pay $600,000 to Black, Boultbee, Atkinson, and Radler, as "supplemental non-competition payments." (Id. at 17, ¶21.) None of Defendants, however, actually had signed a non-compete agreement. (Id.; see also Gov't Exs. Supp Payment 1-6.)

APC: In February 2001, Black, Boultbee, Atkinson, and Radler received $5.5 million from APC, a subsidiary through which International had owned its U.S. community newspapers outside the Chicago area, in the form of purported non-compete payments.

(R. 407-1, Information at 20, ¶¶28-29; see also Gov't Exs. APC 9, 12, 14, 16.) By the time Defendants executed the agreements, American Publishing owned only one community paper, a weekly newspaper in Mammoth Lake, California, that International was at the time trying to sell. (R. 407-1, Information at 20, ¶29.)

The Information describes each of these transactions in detail in Count One, but the mailing associated with that count pertains only to the February 2001 Federal Express delivery of the APC non-competition agreements. (R. 407-1, Information at 22.) The remaining counts related to this scheme charged mailings or wire communications pertaining to the following transactions: Forum (Count II), Paxton (Count III), CNHI(II) (Counts IV and V), APC (Count VI), and the Supplemental Payments (Count VII). (Id.) Although the American Trucker, CNHI(I), and Horizon transactions formed part of the alleged scheme, there were no counts charging specific mailings or wire communications associated with those transactions. (Id.; see also, R. 915-1, Gov't Reply at 5.) The jury convicted Defendants on Counts I, VI, and VII*fn4 -- counts that were either not related to a sale of newspapers (Counts I and VI) or were separate from the transaction and not pursuant to non-competition agreements (Count VII). Although Defendants had the right to a jury trial on certain forfeiture issues following the jury's verdict, each Defendant waived that right and agreed instead to have the Court resolve issues relating to forfeiture. (R. 811--1, 820-1, 824-1, 830-1.) See also United States v. Tedder, 403 F.3d 836, 841 (7th Cir. 2005) ("[T]he sixth amendment does not apply to forfeitures . . . Although Fed. R. Crim. P. 32.2 offers the defendant a jury trial, this provision (unlike the sixth amendment) is limited to the nexus between the funds and the crime; Rule 32.2 does not entitle the accused to a jury's decision on the amount of the forfeiture." (parentheses in original))

II. The Relevant Forfeiture Count

As required under Fed. R. Crim. P. 32.2, the Information provided notice of the government's intent to seek forfeiture "as part of any sentence imposed in connection with a conviction on Counts One through Seven." (R. 407-1, Information at 72.) Specifically, Forfeiture Allegation One of the Information charged that:

[D]efendants [ ] did engage in violations of Title 18, United States Code, Sections 1341 1343 thereby subjecting to forfeiture to the United States, pursuant to Title 28, United States Code, Section 2461(c), and Title 18, United States Code, Section 981(a)(1)(C), all property constituting, or derived from, proceeds the defendants obtained directly or indirectly, as the result of such violations, namely $32,00,000, including but not limited to:

a. $8,558,035, which represents the net proceeds from BLACK's sale of the Second Floor Apartment that was seized by the United States in October 2005;

b. BLACK's residence at 1930 S. Ocean Boulevard in Palm Beach, Florida, both of which [sic] are pledged to secure BLACK's bond in this case;

c. $2,620,746.69 that represents BLACK's purchase of a 26 carat diamond ring from Graff Diamonds Limited purchased on or about November 21, 2000; and

d. $604,435 that represents BLACK's purchase of an antique pearl and diamond bow brooch from S.J. Phillips Ltd. on or about November 21, 2000.

Pursuant to Title 28, United States Code, Section 2461(c), and Title 21, United States Code, Section 853(p), if any of the property described above as being subject to forfeiture . . . it is the intent of the United States to seek forfeiture of any other property belonging to defendants up to the value ...


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