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Former Illinois governor takes stand at Conrad Black trial

Former Illinois governor takes stand at Conrad Black trial

Former Illinois Governor James R. Thompson testified that key directors of Conrad Black's Hollinger International Inc. were kept in the dark while $15.2 million that should have gone to the shareholders was sent instead to a Black-controlled company in Toronto.
"Hollinger International should have received the non-compete payment but it went to somebody else," Thompson testified at Black's fraud trial Tuesday.
Black, 62, is charged with swindling the Hollinger International Inc. newspaper conglomerate he once controlled out of $84 million (euro61.7 million) by selling off hundreds of community papers and pocketing payments from the purchasers.
The payments were in exchange for promises not to return to the areas where the papers circulated and go into competition with the new owners.
So-called noncompete payments are commonplace in the publishing industry. But federal prosecutors say the money should have gone to Hollinger International shareholders and not into Black's pocket and those of two other former Hollinger International executives on trial with him.
Black and three co-defendants, John Boultbee, Peter Y. Atkinson and Mark Kipnis, maintain that nothing they did was illegal.
Thompson seemed relaxed and affable as he took the witness stand in the very courthouse where he himself was once the chief prosecutor. His record as a corruption-busting U.S. attorney in Chicago was the springboard that propelled him to four terms as governor of Illinois.
Assistant U.S. Attorney Eric H. Sussman asked Thompson if he had been familiar with the newspaper industry before joining Hollinger's board.
"Just as the subject of it," Thompson quipped. He said he learned the business side of the industry gradually on the board of directors.
Thompson eventually became the chairman of the board's audit committee, which was supposed to pass upon so-called related-party transactions _ deals in which Hollinger was doing business with a company in which someone in Hollinger's management had a financial stake.
Sussman began by focusing on Hollinger's decision to sell its American Trucker magazine to Primedia Inc. in November 1998. The deal resulted in $2 million of the sale price being sent to Hollinger Inc., a company with a name like Hollinger International but which was separate from it.
The Canadian company was largely owned by Black and used by the Canadian-born media mogul through a complex stock arrangement to gain a controlling interest in Hollinger International, based in Chicago.
Sussman asked Thompson if anyone in Hollinger International management had told him that $2 million in so-called non-compete money from the American Trucker deal was being funneled to the Toronto-based company.
"No," Thompson said.
"When did you learn that a transaction sending $2 million to Hollinger Inc. had occurred?" Sussman asked.
"Much later," Thompson said. Pressed by Sussman to be more specific, Thompson said it was only after the board of directors rebelled against Black's management and launched an outside investigation of the company.
Thompson was asked if top management should have made the audit committee aware that the money was going to Hollinger Inc.
"Yes, because it was a related party transaction," Thompson said.
Likewise, Thompson said the audit committee should have been told that Hollinger Inc. was to receive $12 million in non-compete payments from the $472 million sale of 45 Hollinger International-owned papers to Community Newspaper Holdings Inc. of Birmingham, Alabama, that occurred around the same time as the sale of American Trucker
But Thompson said he was never told about that either.
And he said he similarly was not told about $1.2 million in non-compete money sent to Hollinger Inc. as a result of the sale of Hollinger-International-owned newspapers to Horizon Publications Inc., a company in which Black himself held an ownership stake.
Thompson also said he once took his wife for a three-day stay at a plush London hotel at the expense of the Hollinger newspaper empire.
Black defense attorney Edward Greenspan tried to paint the trip as a lavish expense for shareholders, much like the two-week vacation by Black and his wife to the Pacific island of Bora Bora that prosecutors say was a shareholder ripoff.
Greenspan suggested that bringing the whole Hollinger board to London with spouses for a stay at Claridge's could have cost as much as $500,000, but that figure was no more than a loose estimate.