Where's the money coming from?
By ELENA CHERNEY
July 21, 2006; Page A9
July 21, 2006; Page A9
TORONTO -- When disgruntled Hollinger International Inc. shareholders first pushed for a company probe into the pay and perquisites of Chief Executive Conrad Black, they were incensed by his lavish lifestyle, which included four elegant homes and the use of a company jet outfitted with exotic wood and French silverware.
Mr. Black, who is facing federal fraud and racketeering charges in the U.S. for allegedly diverting cash from Hollinger, has since lost his job and control over his majority voting stake in the Chicago-based newspaper-publishing company, which recently changed its name to Sun-Times Media Group Inc. But he hasn't lost his taste for the high life -- or his knack for getting into tight spots by spending a lot.
The former press baron, whose trial is scheduled to start next March in Chicago, is paying $95,000 a month in mortgage and property-tax payments for his Toronto estate, where he is living while out on bail. It is costing him $7,900 a month in gardening bills to maintain his 6½-acre property, which is valued by Ontario tax assessors at 8.57 million Canadian dollars (U.S.$7.56 million).
Now, Judge Amy St. Eve of U.S. District Court for the Northern District of Illinois is demanding that Mr. Black explain his spending. Prosecutors charge that he has violated the conditions of his $20 million bail bond by failing to disclose all of his income and by misrepresenting the value of his assets.
After receiving a revised financial affidavit from Mr. Black last week, Judge St. Eve asked him the question that has been circulating on the cocktail-party circuit among Toronto's upper crust for months: "Where's the money coming from?"
Lawyers for Mr. Black have until today to explain how Mr. Black is paying his monthly expenses. Prosecutors have asked the judge to require Mr. Black to put up an additional $6 million to secure his bond or to revoke his bail and send him to jail -- a scenario neither side believes will happen.
Mr. Black says that the prosecution's complaints that he failed to give an accurate picture of his finances "are bunk." In an email responding to a request for comment, he said, "I have made full disclosure at every stage...We will have no difficulty answering the judge's questions."
Eddie Greenspan, Mr. Black's primary lawyer, says that some money, such as $4.4 million that Hollinger paid Mr. Black this spring to cover some legal fees, was not originally disclosed because for tax purposes it would not be considered income. Mr. Black was being repaid money that was long overdue to him, Mr. Greenspan says.
|The main residence on Conrad Black's estate in Toronto's Bridle Path neighborhood|
Mr. Black's financial filings are to be sealed, but some people familiar with past probes into his dealings say they don't believe it's likely that the Canadian-born media baron, who holds a seat in the British House of Lords, stashed away secret hoards of cash during his peak earning years. Probes into Mr. Black's finances suggest that "he was always in need of cash" to pay his bills, even when his closely held holding company, Ravelston Corp., was being paid tens of millions to run Hollinger, according to a person familiar with the matter. "Ravelston was his bank," says one person with knowledge about the matter. "He was a frequent and heavy borrower."
Mr. Black disputes that he borrowed cash in the days before his legal troubles started. "I was never a personal borrower of money before this onslaught, and certainly not at high rates," he said in his email. "I am steadily reducing borrowings as we proceed toward the trial of the issues."
Mr. Black has repaid all the money that he owed to Ravelston, through which he controlled his stake in Hollinger, Mr. Greenspan says. Using proceeds from the $23 million sale of his London townhouse last year, Mr. Black has also repaid "most" of a $28 million loan he took out in 2004, Mr. Greenspan says. He has also recently paid his tab with Canadian tax authorities, who had placed a lien of over 13 million Canadian dollars (US$11.4 million) on Mr. Black's Palm Beach, Fla., mansion.
Mr. Black was able to pay his Canadian tax bill because he recently sold his shares in the Canadian arm of Horizon Operations, a closely held community newspaper company that he controlled with his former lieutenant at Hollinger, David Radler, for $16 million. Mr. Radler is cooperating with prosecutors in their case against Mr. Black and other executives, and has pleaded guilty to one count of fraud. Yet Mr. Radler is also the buyer of Mr. Black's shares, which Mr. Black previously valued in an affidavit at $3 million. Mr. Radler did not return a call seeking comment on the deal.
In some of his court filings, Mr. Black has indicated his money problems, stating in one that he had been reduced to borrowing $2 million from his wife, Barbara Amiel Black. According to an affidavit he made last fall, he had four Toronto bank accounts, all with balances of less than C$35,000, although in a more recent filing, one account increased to C$286,000.
But his life in Toronto at the home he purchased from the estate of his parents remains comfortable. The Blacks regularly attend social events around Toronto. Prosecutors noted in their filings that Mr. Black had reportedly pledged C$500,000 to the Canadian Opera Company. Mr. Greenspan told the judge that this came from the family charitable trust, which is not a personal asset of Mr. Black's.
Despite his diminished financial situation, Mr. Black has declined offers of assistance from friends, Mr. Greenspan says. "My understanding is that there have been offers by friends to help him out financially," Mr. Greenspan says. "He has not needed it."
Whatever the case, the restrictive conditions of Mr. Black's bail -- along with his mounting legal bills -- have crimped his jetsetting lifestyle. With the exception of his court appearances and visits to his Florida home, he's not allowed to travel outside Canada without the judge's permission.
In their heyday, after Hollinger's acquisition of London's up-market Daily Telegraph, the Blacks mingled regularly with glitterati on both sides of the Atlantic. Mr. Black was named to the British House of Lords as Lord Black of Crossharbour, while Mrs. Black, a columnist, was recognized as one of London's best-dressed women and glamorous hostesses. On one occasion, the couple used Hollinger's leased Gulfstream IV, which the company spent $3 million to refurbish, to travel to Bora-Bora.
According to documents filed by Mr. Black's lawyers that quote the real-estate agent who is now showing the Palm Beach house on South Ocean Boulevard, the Blacks' renovations to that property between 1998 and 2000 included "new additions such as a pool pavilion, a two-story guesthouse, a tower room with ocean views, movie theater with full kitchen, and pool with deck."
The house, which the Blacks tried to sell for $32 million last year, is part of the asset package backing the bail bond. The Canadian tax debt having been paid, officials are in the process of removing the lien, while Mr. Black is renegotiating his $10 million mortgage on the property, Mr. Greenspan says. In June, Mr. Black failed to make a payment on the mortgage, which carries a 16% interest rate.
While Mr. Black's agent continues to show the house, it is not on the market, and he has rejected two "lowball" offers, says Mr. Greenspan. "He is not going to sell the house for way under market value," the lawyer says. "He will entertain an appropriate offer."
Write to Elena Cherney at firstname.lastname@example.org