Hollinger Inc., Conrad Black's former Toronto-based holding company, is co-operating with U.S. prosecutors who indicted the former press baron in exchange for avoiding possible charges in connection with the diversion of funds.

A lawyer representing Lord Black dismissed yesterday's public disclosure of the deal as "mere window dressing," saying Hollinger has been co-operating fully with U.S. officials for 18 months "under the intimidating threat of prosecution."

According to a written agreement between Hollinger and the U.S. Attorney for the Northern District of Illinois, Hollinger agreed to co-operate after it was notified by U.S. prosecutors of evidence former officers and directors had "violated federal criminal law in a manner that implicates [Hollinger] Inc. criminally."

Last year, the U.S. government accused Lord Black, former chief executive of Hollinger, and a handful of associates, of several counts of fraud linked to newspaper sale transactions.

According to U.S. prosecutors, US$16.55-million in "non-compete" payments was diverted to Hollinger from Hollinger International, the Chicago-based newspaper subsidiary.

The money was repaid in 2004, partly by the company and partly by Lord Black. Around the same time, Lord Black mortgaged his mansion in Toronto's ritzy Bridle Path neighbourhood for $32.3-million at a hefty interest rate of 12.68%.

Under yesterday's agreement with prosecutors, Hollinger agreed to hand over documents and make staff available to help the investigation, in exchange for avoiding charges in connection with newspaper sales between 1998 and 2000.

None of the allegations has been proven in court. A criminal trial against Lord Black, Peter Atkinson, Jack Boultbee and Mark Kipnis is set to begin in Chicago in March.

Randy Benson, Hollinger's chief restructuring officer, said the Canadian company's co-operation agreement with the U.S. Attorney's Office "provides a clear distinction between the company and the actions of its former directors and officers."

He said it will also provide shareholders with "certainty that the company will not be prosecuted by the U.S. government."

But Edward Greenspan, Lord Black's Toronto-based criminal lawyer, said the deal "is in no way indicative of the guilt or the innocence of the defendants" in the case.

"We will prove that our client did nothing wrong," he said.

Mr. Greenspan accused Hollinger's management of "trying to distract shareholders' attention" from a plunging stock price that followed Lord's Black's failed attempt to privatize the company before his ouster.

Lord Black and Mr. Boultbee were removed from Hollinger's management and board of directors last year. The board has also been "reconstituted" to ensure the remaining directors are independent of Lord Black.

Hollinger is not the first to avoid or reduce penalties by agreeing to co-operate with U.S. justice officials.

David Radler, Lord Black's former right-hand man, agreed to co-operate with prosecutors last year while pleading guilty to a single count of fraud. His deal is expected to net him 29 months in jail and a US$250,000 fine.

Hollinger's legal troubles began in November of 2003 when internal investigators found US$32.2-million in non-compete payments tied to newspapers sales that were not authorized by the board.

bshecter@nationalpost.com

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