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This story is about how Hollinger was systematically manipulated and used by its controlling shareholders for their sole benefit, and in a manner that violated every concept of fiduciary duty. Not once or twice, but on dozens of occasions Hollinger was victimized by its controlling shareholders as they transferred to themselves and their affiliates more than $400 million in the last seven years. The aggregate cash taken by Hollinger’s former CEO Conrad M. Black and its former COO F. David Radler and their associates represented 95.2% of Hollinger’s entire adjusted net income during 1997–2003.
Between 1996 and 2001, Black acquired presidential papers and other memorabilia of President Franklin D. Roosevelt for a total cost of more than $9.6 million. These purchases can be summarized as follows:
HOLLINGER INTERNATIONAL
Summary of FDR Purchases
| Date | Collection | Price | Comments |
| Nov. 1996 | FDR Carmichael Collection: First Installment (FDR books, notes, other correspondence) | $235,000 | Hollinger paid an undertermined portion of the purchase price |
| Jan. 1997 | Correspondence between FDR and Margaret Lynch Suckley | $400,700 | Paid by Hollinger |
| May 1997 | FDR Carmichael Collection, Second Installment, and FDR/Harold Ickes Correspondence | $650,000 | Hollinger paid one-half of the purchase price |
| July 1997 | March of Dimes contribution check signed by FDR | $11,500 | Paid by Hollinger |
| Dec. 1997 | Inaugural papers; White House Christmas collection; misc. others | $103,250 | Hollinger paid one-half of the purchase price |
| May 1998 | Roosevelt: How I Will Conduct My Responsibilities | $90,000 | Paid by Hollinger |
| May 2000 | USS Houston photo album, silver prints and other papers | $27,500 | Paid by Hollinger |
| Aug. 2000 | Various FDR, Theodore Roosevelt and Winston Churchill papers | $94,100 | Paid by Hollinger |
| Jan. 2001 | FDR Grace Tully Collection | $8,000,000 | Paid by Hollinger |
| TOTAL | $9,612,050 |
Black arranged for Hollinger to pay for at least $8.9 million of the above purchases. He never sought prior Audit Committee or Board approval of these purchases, and sought a “ratification” only of the $8 million Grace Tully Collection purchase more than two years after the acquisition occurred. The majority of these items were displayed or stored in Black’s residences, not in Hollinger’s offices. Black did not obtain an independent appraisal of these items before using Hollinger funds to purchase them, and the items that are displayed in Hollinger’s New York offices were recently appraised for auction at a value substantially less than what Black caused Hollinger to pay for them. During the period that Black made these purchases, he was writing a biography of President Roosevelt, which was published in November 2003.
All of Hollinger’s and Black’s purchases of FDR memorabilia were arranged through Glenn Horowitz, owner of Glenn Horowitz Booksellers Inc., a New York-based dealer in rare manuscripts and other collectibles, whom Black met in the summer of 1996. Between 1996 and 2001, Black purchased a series of FDR memorabilia, and in each case caused Hollinger to pay all or most of the cost. For example, in November 1996, Sotheby’s listed for sale at auction a collection of correspondence between FDR and Margaret Lynch Suckley, one of FDR’s closest companions during the last years of his life (Black was on the Board of Sotheby’s at the time, but has since resigned). The collection did not sell at the auction, and according to Horowitz, a Sotheby’s representative called him and asked whether he knew anyone who might be interested in purchasing the collection. Horowitz contacted Black, who bought (using Hollinger’s funds) the entire collection of 42 letters privately. Horowitz received a commission of approximately $15,000 for brokering this sale.
Black told a Fortune journalist in a July 3, 2003 e-mail that he split the cost of the Suckley collection with Hollinger:
[t]he entire collection of letters from FDR to Margaret Suckley came up at less than half the previously agreed price at which it would be purchased and donated to the Library at Hyde Park…So I bought half of them personally and the company bought the other half to have something to put on the walls.
Substantial evidence, however, suggests that Hollinger paid the entire amount. The Sotheby’s invoice indicates the collection was purchased on November 12, 1996 for $400,700. There were two versions of the Sotheby’s invoice: one version listed Black as the customer to bill and showed Black’s 26 Park Lane Circle (Toronto) address as the shipping destination. The other version of the invoice listed Joan Maida (Black’s personal assistant in Toronto) as the customer to bill, and showed 10 Toronto Street (the Ravelston/HLG building) as the shipping destination. The HIPI Depreciation Expense Report (This standard internal report lists all fixed assets purchased by HIPI) as of December 31, 2002 listed “FDR collectibles” placed in service on January 30, 1997, at an acquired value of $400,700, thus indicating that the entire payment was made with Hollinger funds. (The Special Committee believes that $400,700 represents the total purchase price for this collection; however, there is some ambiguity because a May 25, 1999 memo from Jan Akerhielm (Black’s personal assistant in New York) to Joan Maida indicated that the $400,700 may only reflect a portion of the overall cost. Akerhielm told the Special Committee that she believes the memo refers to the costs of other FDR collections, rather than an additional cost for the Suckley collection).
A June 8, 1998 letter from Black to Horowitz suggests that Sotheby’s still possessed the Suckley letters and that Black planned to have Sotheby’s send the letters to Horowitz for framing. Black’s letter directs that 19 of the Suckley letters be displayed in either Canada or at Black’s Park Avenue residence, and that the remaining 23 letters be framed for display at Hollinger’s offices at 712 Fifth Avenue. In April 1999, Horowitz sent an invoice to Black in the amount of $20,845 (plus $2,084 in handling fees) for framing 41 Suckley letters (the entire collection, less one document). Healy initialed the invoice and Kipnis and Christina Schwartz co-signed a check from a HIPI account for $22,929 on June 4, 1999. Twenty-one of the framed Suckley letters are currently displayed on the walls of Hollinger’s New York office. (A November 19, 1999 letter from Horowitz to Joan Maida suggests that two pieces were sent to Black’s home in Toronto, on Black’s plane, at a cost of $700.)
With regard to the two-installment purchase of the FDR Carmichael Collection (so named because Horowitz acquired the pieces from a collector named Carmichael), Horowitz sent Healy copies of invoices for these purchases on July 2, 1997, with a note reminding him that the larger invoice (for the May 1997 purchase) had not yet been paid. In a July 21, 1997 memo, Healy asked Serota to have “Rich cut a check for one-half ($325,000) of the [larger] invoice.” A check, co-signed by Serota, for that amount was drawn on July 23, 1997 from a HIPI account and recorded on the HIPI Depreciation Expense Report on July 23, 1997. Some of these items are displayed in Hollinger’s New York office.
The Special Committee was told that Black funded a “Special Account,” which he used to pay certain personal expenses related to Hollinger’s business. Black’s Special Account bank statements and checks from 1999 through February 2004, however, do not reflect any payments for FDR memorabilia purchases. Nor do the invoices relating to the FDR collection reflect instructions to make any payments from the Special Account or from any other Black personal account. The Special Committee did not find any documentary evidence that Black personally paid for any of the FDR papers. Horowitz recalled some instances in which he received payments directly from Black, but could not recall the specific purchases or dates.
Hollinger’s most substantial purchase of FDR memorabilia was the 2001 $8 million acquisition of the Grace Tully Collection. According to Horowitz, Grace Tully (FDR’s personal secretary) left her collection of correspondence with FDR to her niece. When the niece died, a retired Colonel inherited the collection. The Colonel sold a partial interest in the collection to two other individuals. Thereafter, the three individuals who held the collection sold it to Horowitz through a broker. Horowitz said he negotiated the price down by excluding from the sale those pieces that he did not consider valuable. He conceded that he sold the collection to Black for a price much higher than his purchase price, and, while he wouldn’t provide details, he did acknowledge that information reported in The New York Times that his purchase price was only $3.5 million was “not far off.”
According to Horowitz, he first approached Black about the Grace Tully Collection in the summer of 2000. Horowitz stated that Black is the only person at Hollinger with whom he negotiated this transaction. He said he romanced Black with the collection for six months before discussing values and pricing. During these months, Horowitz was digesting and cataloguing the collection, and occasionally enticing Black with photocopies of the collection’s pieces. Black was the only buyer Horowitz approached for this collection.
Horowitz said his initial offering price for the collection was $9 million and that Black negotiated him down to $8 million. He told Black during their negotiations that if he (Horowitz) were to sell the collection in individual pieces, he could obtain $12 to $14 million in total, but that he would give Black a “blockage discount” for the entire collection. Horowitz said he discussed with Black the values and pricing of each item in the collection, but does not have any documents to support his valuation because he calculated it “on the back of an envelope.”
By November 2000, Horowitz was confident that Black was going to buy the Grace Tully Collection, but he did not know when. On November 13, 2000, Horowitz wrote a letter to Black stating “I see in the papers reports of aggravations surrounding closure on the CanWest deal. I trust it doesn’t prevent you from accomplishing your ambitions.” (Horowitz admitted that he saw reports in the papers regarding possible difficulties with the CanWest negotiations, and that this caused him anxiety about Black’s ability to fund the $8 million purchase price. He stated, however, that CanWest never came up in conversations with Black. In fact, the $8 million acquisition was funded in the aftermath (and with proceeds) of the CanWest closing. In Black’s September 4, 2002 letter to his fellow Ravelston shareholders regarding his future plans for the Company, he describes the Roosevelt purchase as having been made “in the full flush of post-CanWest notions of prosperity.”)
On December 18, 2000, Horowitz wrote a “Grace Tully closing letter” to Black, and explained why he thought the collection was worth $8 million. Horowitz said the letter was intended to convey his final selling thoughts regarding the transaction, and was not written at Black’s request. Horowitz wanted to close the deal by the end of the year, and hoped that since Black had closed the CanWest deal, he would refocus on concluding the purchase.
Sometime in December 2000, Black told Horowitz that the Company would write him an $8 million check for the Grace Tully Collection. Horowitz recalled Black saying, in essence, “If you accept this offer, I will have the check issued in March. I just need to dot the i’s and cross the t’s.” Horowitz remembered Black mentioning that he needed to talk to Radler about the purchase. Horowitz said that he never discussed the purchase with Boultbee, Creasey, Atkinson or anyone else at Hollinger (other than dealing with Black’s personal assistants relating to administrative matters).
On January 8, 2001, the Company acquired the Grace Tully Collection for $8 million. The $8 million check was drawn on a HIPI account at a Chicago bank on March 9, 2001. The check was signed by Larry Spencer, although Creasey told the Special Committee that he signed the check on instructions from Boultbee.
In an August 8, 2002 e-mail to Atkinson, Black stated:
Glenn Horowitz, the dealer from whom the [Grace Tully] Roosevelt material was purchased, is preparing a catalogue and a “conservative” estimate of current value of $12-$15 million. I know something about this subject and the value will go straight up from there. I will be happy to guaranty personally against any downside from our purchase price. (Emphasis added.)
He also promised in that e-mail to reference the collection in his FDR biography as “the Hollinger Collection” rather than his personal collection.
In his September 2002 letter to Ravelston shareholders, Black again stated that he would obtain “a conservative valuation of $12-$15m,” and that the collection would only increase in value. Black also claimed in the September 2002 letter that Hollinger could obtain a tax credit much larger than the $8 million purchaser price upon a donation of the Grace Tully Collection to the FDR Library, of which he is a trustee. Additionally, in an October 14, 2002 e-mail to Atkinson, Black stated that “David and Richard thought an exhibition at Roosevelt University in Chicago would be good p.r. for the Sun-Times and that could certainly be arranged.” Neither of these ideas was ever implemented.
In a handwritten notation on a letter to Horowitz dated September 12, 2002, Black asked Horowitz to send him “a catalogue and an estimate along the lines we discussed.” On October 22, 2002, Horowitz sent Black a letter stating his opinion that the Grace Tully Collection “should be valued at between $12,000,000 and $14,000,000.” The letter enclosed a copy of the catalogue for the collection. Horowitz told the Special Committee that approximately two years after the sale, Black requested the letter to document the $12 to $14 million valuation that Horowitz spoke of during negotiations. Horowitz assumed that Black wanted the letter as backup for a Board meeting.
Horowitz told the Special Committee that his estimated valuation referred to the aggregate price he could get if he sold the collection in pieces, as opposed to selling the whole collection at a blockage discount. Horowitz believes that the Grace Tully Collection is worth even more today. In his opinion, the collection could sell for $15-$20 million, assuming that the sale didn’t occur under “fire sale” conditions. Horowitz’s assessment, however, is belied by subsequent events. As explained below, Hollinger recently accepted an offer of $2.4 million for the Grace Tully Collection, in a transaction brokered by Christie’s.
The Grace Tully Collection remained in Horowitz’s possession until December 19, 2002, when 90% of the collection (consisting of 14 boxes of books and manuscripts and five packages of framed items) was moved to Black’s New York residence at 635 Park Avenue. (However, a May 6, 2002 letter from Horowitz to Black suggests that Horowitz might have delivered parts of the collection to Black between May and December 2002.) The other collection pieces remained at Horowitz’s shop, including some items that were to be framed and a few boxes of three dimensional items, pending Black’s decision on where to send these pieces. In or around July 2003, one-third of the collection was moved from 635 Park Avenue to Black’s Toronto residence at 26 Park Lane Circle. In his February 13, 2004 deposition in the Delaware litigation, Black stated that the entire collection was located at 635 Park Avenue as of that date.
Horowitz told the Special Committee that after this deal concluded, his lines of communication with Black broke down. He thought that it would no longer be fruitful to offer Black additional FDR memorabilia or other collectibles in light of Black’s public legal (and apparent financial) problems.
Black sought after-the-fact Board approval for the acquisition of the Grace Tully Collection, and did not at any time seek approval of the other purchases of FDR memorabilia paid for with Company funds. The Board was not provided an opportunity to approve the acquisition of the Grace Tully Collection in advance, even though the Board had met on December 4, 2000, immediately prior to the purchase. Black implicitly admitted this fact in his September 2002 letter to Ravelston shareholders, but stated that he and Radler, “a technical quorum of the executive committee,” had approved the purchase. In his deposition in the Delaware trial, Black stated that this “approval” was over the telephone, “contemporaneous with the purchase” or “immediately before it.” No minutes or written consent document this purported Executive Committee “approval.”
According to Atkinson, he told Black in August 2002 that: (i) the Board needed to approve the purchase of the Grace Tully Collection; (ii) Hollinger must prepare a complete inventory of the acquisition; (iii) Hollinger needed to obtain proper insurance coverage for the collection; and (iv) the Board needed to approve of the papers remaining in Black’s possession. Indeed, in an October 29, 2002 e-mail to Beth DeMerchant at Torys, Atkinson expressed his view that: the Collection must stay in the US until the full board has approved the Exec Committee decision and a full inventory is in Mark’s [Kipnis’] hands. [Hollinger] should also have an agreement with CMB specifying exactly what he has and requiring him to return it on reasonable notice.
On October 14, 2002, nearly two years after the Grace Tully acquisition, and seven Board meetings after the acquisition date, the full Executive Committee (still comprised of Black, Radler and Perle) held a telephone conversation to “discuss and formally ratify the Executive Committee’s previous decision to acquire for $8 million the FDR—Grace Tully Archive collection of FDR’s manuscripts, typed scripts, letters, books and memorabilia…” That meeting only lasted for half an hour. The draft meeting minutes state in relevant part:
the Tulley [sic] Acquisition was bought, paid for and has continuously been owned by the Company notwithstanding that the original January 8, 2001 Glenn Horowitz Booksellers, Inc. invoice is directed to Conrad Black at Hollinger Inc.
The final meeting minutes are revised as follows:
the Tulley [sic] Acquisition was negotiated by J.A. Boultbee on behalf of the Company, bought, paid for and has continuously been owned by the Company since January 8, 2001.
This statement appears to be untrue, however, because Horowitz stated that he has never spoken to Boultbee, and that he negotiated the sale of Grace Tully Collection exclusively with Black.
The Executive Committee’s October 2002 “ratification” of the purchase of Grace Tully Collection was presented to the Board on December 4, 2002. That meeting was held through a teleconference and lasted for one hour and fifteen minutes, and several items were on the agenda. According to the meeting minutes, Black highlighted and summarized the Executive Committee approval of the acquisition, and the Board unanimously approved and adopted the resolution.
The Audit Committee met on December 14, 2002, and February 26, 2003, but Black did not present the Grace Tully acquisition for their consideration until March 13, 2003. At that meeting, KPMG reported to the Committee on related-party transactions, including the acquisition of the Grace Tully Collection. The Committee discussed the acquisition and determined that it was “on the same basis as the Forbe’s [sic] collection” (This is an apparent reference to the purchase of a valuable Fabergé egg collection by the Forbes publishing interests. Unlike Hollinger, however, Forbes is a privately owned company.) and had no compensatory benefit to Black. Burt told the Special Committee that members of the Audit Committee felt the acquisition was a fait accompli and that all they could do at that point was request that Black display some of the material in the office, and not just in his home. Kravis said she was led to believe that the entire collection was displayed on Hollinger premises.
Black displayed (or stored) the majority of the FDR pieces (and the entire Grace Tully Collection) in his private residences. Correspondence between Black and William vanden Heuvel, of the Franklin and Eleanor Roosevelt Institute, also portrays Black’s use of Hollinger’s FDR materials to advance his personal interests. For example, in one exchange with vanden Heuvel, Black wrote: “It was kind of you to think of the promotional aspect [of launching Black’s biography of FDR] and I would like to pursue this with you…When are you coming to Toronto? I have some Rooseveltiana there, and am getting ready to move the Grace Tully papers to Park Avenue. I would be delighted to show you both.”
Black always intended to keep the Grace Tully Collection in his home. As mentioned above, the collection was kept at Horowitz’s shop until December 2002, when Black instructed that the majority of the collection be moved to his 635 Park Avenue apartment (i.e., the apartment he unfairly had caused Hollinger to sell him at millions below its fair market value). In his September 2002 letter to the Ravelston shareholders, Black described his plan to:
deposit the valuation and catalogue with Mark Kipnis, arrange a formal executive committee approval of the purchase, and put the material, carefully segregated, in [his] home in New York or Toronto, where insurance and fire protection are already arranged. The company offices are not an appropriate place for this collection for security and access reasons. (Emphasis added.)
Thus, Black arranged for the Executive Committee resolution approving the purchase of the Grace Tully Collection to provide that the materials “may be lent out, shown or otherwise maintained at one or more locations, within or outside of the United States of America, including, but not limited to, residences of Senior Management of the Company.” (Emphasis added.) Black initially wanted to move the collection to his home in Toronto, but because of sales tax issues, decided instead to leave the collection in his New York home. In 2003, Black moved one-third of the collection to his Toronto home, and Hollinger’s insurance policy was changed to reflect this.
Although Black claimed that his home was more suitable than Hollinger’s offices to store the collection, he stated in November 5, 2002 and December 17, 2002 e-mails that he planned to build a special, locked case for the collection at 635 Park Avenue, and that a “responsible adult” would guard the FDR materials at 635 Park Avenue during the day. In his deposition in the Delaware action, Black stated that the entire collection was in his New York home, in a locked room, in sealed boxes.
In addition to whatever scholarly interest Black might have had in the FDR collection, he also had a more immediate commercial interest: Black was writing a biography of FDR during the time of the FDR acquisitions. The book was published in November 2003.
Horowitz said he knew that Black was writing a book on FDR from the day that he met him in 1996, but his understanding was that the memorabilia was not intended to be research material. He believes there are only three or four footnotes in the book that refer to materials in the Grace Tully Collection. Horowitz did acknowledge Black’s passion for the subject matter and said that he at all times viewed Black, not Hollinger, as his client. In fact, Horowitz often sent personal gifts to Black, as a gesture of appreciation for his (i.e., Hollinger’s) business.
Black has denied that the acquisition of the Grace Tully Collection was intended for his personal use. In an August 2003 e-mail exchange with a reporter, Black stated that the FDR papers:
provided two footnotes out of over 2,000 in the book I am about to publish and had no relevance to it at all. It is a complete coincidence I am writing on this subject…The suggestion that there is any connection between this acquisition and my book is, like most other allegations about our management recently, a lie unsupported by any basis in fact.
Moreover, Black insists that the book was already in the editing stage at the time of purchase of the Grace Tully Collection.
As of the date of this report, Hollinger is in the process of retrieving the entire FDR collection from Black’s personal residences. On May 28, 2004, Christie’s picked up the majority of the Grace Tully Collection from Black’s New York apartment. Christie’s informed the Special Committee that the following four items were missing:
- The inscribed photos of FDR and Eleanor Roosevelt
- The copy of “On Our Way” inscribed to Paula Tully
- Pierre Van Paassen, “The Time is Now,” inscribed by FDR to Grace Tully
- Bronze busts of FDR
Twenty-one of the Suckley letters are displayed in Hollinger’s New York office. As described above, Black and/or Hollinger purchased 42 Suckley letters. If Black purchased all 42 Suckley letters with Company funds, then Black still possesses 21 Suckley letters that belong to Hollinger because there are only 21 letters in Hollinger’s possession. Black also still possesses the following Roosevelt-related items that appear to have been purchased with Company funds: Letters from FDR to Harold Ickes and a large American flag that flew over the White House the day FDR died.
It appears that the FDR collections, such as the Suckley letters and the Grace Tully Collection, are worth substantially less than Black caused Hollinger to pay for them. As noted above, Black never sought an appraisal of any of the pieces he acquired prior to causing the Company to purchase them. The Company recently accepted an offer through Christie’s to sell the Grace Tully Collection for $2.4 million. The Special Committee is not optimistic that Black will leap to honor the August 2002 commitment he made in writing to Atkinson that he would “guaranty personally” that the Company was held harmless from any losses due to this acquisition, which cost Hollinger $8 million.