U.S. authorities claim press baron skirted securities laws to prop up share price

Conrad Black engaged in insider trading with the help of Toronto-based Brascan Corp. in 1998 in order to prop up the share price of Hollinger International Inc., according to allegations filed in court yesterday.

The filing alleges that Lord Black split profits from the trading with a group of associates and Brascan, and that he circumvented securities laws.

The documents were filed as part of an expanded series of allegations against Lord Black by prosecutors in the U.S. Attorney's office in Chicago. Lord Black and three other former Hollinger International executives face a variety of criminal charges over allegations they took more than $80-million (U.S.) from the company. All four have pleaded not guilty. None of the allegations has been proven.

Based in Chicago, Hollinger International was the main operating company in Lord Black's newspaper empire. He headed the company and controlled it through a private Toronto company called Ravelston Corp. Ltd.

Lord Black's long-time business partner, David Radler, has pleaded guilty to one charge and is co-operating with prosecutors. Much of the material filed yesterday appears to be based largely on what Mr. Radler is expected to say during testimony against Lord Black at the trial. The trial is slated to begin in March, but two other defendants have asked for a two-month adjournment. Some other allegations filed yesterday mirror those raised in several civil lawsuits involving Lord Black and others.

The documents include allegations that Lord Black instituted a policy to limit information given to company directors and that he allegedly used an online chat room to promote Hollinger International's share price in 1998.

Lord Black also allegedly used money from Hollinger International for a $5-million gift he made to Toronto's Hospital for Sick Children in 1998. In return for the gift, the hospital created The Black Family Foundation Wing.

The insider trading allegedly took place in 1998, when Lord Black was concerned about "short sellers" driving down the share price of Hollinger International on the New York Stock Exchange. Short selling involves selling borrowed stock in the hope of buying it back later at a lower price and then returning the stock.

The documents allege Lord Black and his associates, through Ravelston, worked out an agreement with Brascan that it would buy Hollinger International shares whenever they fell due to short selling. "While Brascan used its own funds to purchase the shares, Black guaranteed their downside and interest rate, and also guaranteed their profit," according to the filing.

Prosecutors allege that Ravelston made money on the arrangement and split the profits with Brascan. Lord Black and Mr. Radler, who co-own Ravelston, were among those who allegedly received money from the deal. Prosecutors allege the arrangement was not properly disclosed to investors and circumvented securities laws.

At the time, Lord Black was a director of Brascan, which is now called Brookfield Asset Management. He stepped down from the board in 2004. Officials at Brascan were unavailable for comment.

Lord Black has vigorously denied any wrongdoing at Hollinger International, and he has addressed many of the allegations raised in the civil lawsuits with counterclaims.

In yesterday's filing, prosecutors allege that in May, 1998, someone posted a message on the Yahoo Finance message board asking why the company's stock "was not moving?" Lord Black told Paul Healy, vice-president of investor relations, to respond to the message, according to the filing.

Mr. Healy drafted a reply that said the company's share price moved according to a variety of factors including "global market concerns." He allegedly told Lord Black that U.S. regulators did not permit selective disclosure to individuals and that his draft reply was "as far as we can go."

Lord Black allegedly rejected Mr. Healy's draft and told him to post something anonymously. "Paul, don't be so straitlaced. . . . Get our story out," he allegedly told Mr. Healy in a note. "What you wrote is worse than no response at all and makes us seem like jerks."

The documents allege that Mr. Healy will testify at the trial that he refused to post the message. Instead, Lord Black allegedly posted a message under the name "enspector" that said the company's share price was being impacted by short selling and other factors. He added that the issues had been reviewed by company management during a conference call with analysts and that "this activity will likely stop in the next few weeks so that the company's 70-per-cent rise in share price over the last year will resume."

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