Conrad Black’s final battle

A stunning U.S. Supreme Court ruling has cast his conviction into doubt. Can Black’s lawyers turn it into a vindication that would see him walk free?

AP/ Canadian Press

An ardent student of history, Conrad Black knows about the long view. His own protracted battle with the U.S. government for his freedom and his reputation is turning into the kind of epic saga that could fill one of his loquacious tomes. The former newspaper magnate has drawn comparisons to Napoleon at Elba—in exile, unrepentant, his empire in tatters. And now, like his hero, he is plotting a return.

It has been more than two years since Conrad Black was locked up in a central Florida prison. But from behind bars the former media baron has soldiered on, determined to be vindicated from the charges that he looted Hollinger International at the expense of shareholders. He’s already dramatically recast the story line that was scrawled out against him. At the outset his accusers presented a straightforward yet lurid tale of unbridled greed and excess, in which Black ran a “corporate kleptocracy” and made off with US$400 million.

By the time the trial began that sum had been reduced to a volley of 13 criminal charges alleging a theft of US$60 million, and when it ended he was found guilty of just three counts of fraud totalling US$2.9 million and one count of obstruction of justice for removing boxes from his office. “We’ve dealt with three quarters of the charges and now we can deal with the rest,” he said defiantly.

Now, in a rare, unanimous decision from the U.S. Supreme Court, the law under which he was convicted of fraud has been sharply narrowed and his conviction thrown into doubt. Black was charged with defrauding Hollinger International of both money and the company’s “intangible right” to his “honest services” over non-competition payments the co-defendants made to themselves. The concept of honest-services fraud has become a staple of white-collar criminal prosecutions in recent years. But in a trio of appeals cases including Black’s, the U.S. Supreme Court ruled prosecutors have abused the honest-services law by employing an overly broad theory and chose to severely tighten its use.

Prosecutors contend the top court’s ruling won’t make much difference to Black’s fate. But some legal experts and Black’s lawyers—who defied naysayers in simply getting a hearing at the top court—argue the damage to the government’s case is beyond repair. If they’re right, Black could walk out of prison a free man, vindicated of the charges against him. “This was a clear overreach by the government and I don’t know if the government has enough left in its arsenal to go after him again,” says Bennett Gershman, a law professor at Pace University in New York who was one of the few to predict early on the Supreme Court would ultimately side with Black. “I don’t want to make too bold a prediction, but my guess is the case is over. Black is a free man.”

Black isn’t free, of course. At least, not yet. He remains holed up in the Coleman Federal Correctional Facility in Florida with another four-and-a-half years left on his 78-month sentence. But the next few weeks will be crucial in deciding his fate. Fresh off their Supreme Court victory, Black’s lawyers are hard at work crafting a strategy that they hope will extinguish the remaining convictions and ultimately set him free. It won’t be easy. But in fighting back against America’s powerful justice system, he’s accomplished nothing short of helping to rewrite U.S. law. “[Black] has never run away from these charges, he has called them ludicrous and silly, and so far the better view of how things have turned out is with him,” says Black’s attorney, Miguel Estrada. “He has met the government’s case.”

In early 2008 Black’s last hope of remaining free slipped away. After his conviction, but before his first day behind bars, Black’s lawyers launched a last-ditch effort to keep him out of prison pending his appeal. But Judge Amy St. Eve, who oversaw his four-month trial, rejected Black’s bid, ruling his lawyers failed to raise “substantial questions of law or fact” that were worthy of appeal. He later received an equally gruff rebuke from Judge Richard Posner of the Seventh Circuit Court of Appeals, a well-known conservative jurist, who described Black’s conduct at Hollinger as “ridiculous” and said none of the arguments raised by Black and his fellow defendants “has sufficient merit to require discussion.” Watching from the sidelines was Eric Sussman, the lead prosecutor in the case who is now in private practice. “I think at some point in time Mr. Black needs to take a hard look in the mirror and ask who it is that really doesn’t understand the conduct that took place in this case,” he told a reporter at the time. The courts have “taken a look at the facts and the law in a very detailed and time-consuming way, and they have all reached the same conclusion, which is that he stole money from this company and he tried to obstruct the investigation.”

It’s understandable why so many discounted Black’s chance of achieving an appeal at the Supreme Court. Each year the top court in the U.S. receives roughly 10,000 appeal requests yet grants hearings to only about 100 cases. Few other than Black ever conceived his case might make the cut. After all, despite fending off most of the charges brought against him, many of his efforts to avoid prison ended in deep disappointment.

In the lead-up to his trial, Black portrayed his ordeal as a play in three acts—the “official” but not moral downfall of he and his wife, Barbara Amiel Black, followed by the court battle in Chicago, and finally, upon his acquittal, a firestorm of righteous vengeance on his enemies.

Instead, in July 2007, Black, the former CEO of Hollinger International, which owned London’s Daily Telegraph, the Jerusalem Post, the Chicago Sun-Times and hundreds of smaller papers across North America, was found guilty of padding his pay in a series of newspaper deals in the 1990s. Black tried and failed in three subsequent appeals to have his conviction overturned, not to mention several efforts to seek bail. As former U.S. president George W. Bush prepared to leave office, Black’s lawyers even sought clemency from the departing commander-in-chief, only to be refused yet again.

For all his early bravado in the face of his accusers, the setbacks finally took their toll. In a recent commentary for the Wall Street Journal, Seth Lipsky, a friend of Black and founding editor of the New York Sun, described visiting him last year in prison and worrying that “Conrad was tempted to give in to bitterness.”

Black soon had reason to be encouraged, though. In January 2009 he, along with two of his co-defendants, Jack Boultbee and Peter Atkinson, appealed their cases to the Supreme Court. (Mark Kipnis, the fourth defendant wasn’t part of the appeal.) Just a few weeks later, in an unrelated case, Justice Antonin Scalia slammed the honest-services statute as a dangerous tool used to criminalize any action the government might deem unethical. “Carried to its logical conclusion,” he wrote, “it would seemingly cover a salaried employee’s phoning in sick to go to a ball game.” Suddenly Black’s bid for an appeal didn’t look like such a long shot after all.

In May 2009 the Supreme Court agreed to take on Black’s case. A few months later the court said it would also hear two additional appeals, one from former Enron CEO Jeffrey Skilling, currently serving a 20-year sentence for fraud, insider trading and conspiracy, and the other from Bruce Weyhrauch, a former lawyer who was convicted of honest-services fraud for failing to disclose his conflict of interest with an oil field services company while he served as a member of the Alaska state legislature. When the court met last December to hear oral arguments from lawyers for both sides, Judge St. Eve, who might once again be called on to oversee Black’s case, took a seat in the courtroom. What she saw was a high court with serious reservations about a key weapon in the government’s arsenal for prosecuting white-collar crimes.

The honest-services fraud law has been used by prosecutors since the 1970s, when it was employed to obtain convictions against public officials across the U.S. Eventually federal prosecutors began to use the fraud theory when chasing convictions in the private sector as well. In 1987, the Supreme Court struck down the use of honest services, since it wasn’t explicitly spelled out in America’s law books. That didn’t last long. The following year Congress injected a 28-word provision, called Section 1346, into the mail fraud statute to resurrect prosecutors’ favourite pet theory. “For the purposes of this chapter, the term ‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.” It did not explicitly define honest services, but that didn’t matter.

Prosecutors promptly resumed their hunt for dishonest public officials and white-collar wrongdoers, and have relied on the honest-services theory for thousands of fraud convictions.

The government’s rampant use of the nebulous theory continued to raise the ire of defence lawyers. “They used deprivation of honest services in such a sweeping way they could indict you if you failed to return a ballpoint pen to the office,” says Douglas McNabb, a Washington defence attorney at McNabb Ferrari.

In a series of pointed exchanges with government lawyers during Black’s Supreme Court hearing, the justices said much the same thing. Justice Stephen Breyer argued that under honest services it is a crime to do anything the Attorney General deems wrong. “It may be you would never prosecute it,” he told the government lawyers. “It may be a jury would never convict. But that isn’t the basis for having a statute that picks up 80 or 100 million people.”

By the time the justices released their decision on the morning of Thursday, June 24, no one was laughing at Black’s appeal any longer. Honest services was too broad a prosecutorial tool that infringed on the constitutional rights of defendants, the court declared. Using the Skilling case to deliver their full argument, the justices unanimously restricted the use of honest services to cases of bribery and kickbacks, a definition that would exclude less explicit incidences of self-dealing. Two of the justices said the honest-services theory should be scrapped altogether. Moments later the justices released their verdict in Black’s case. Given the new, tighter restrictions on honest services, the trial judge erred in her instructions to the jury, they said.

It wasn’t a slam dunk victory. The defendants had asked the Supreme Court to vacate their convictions, but instead the justices sent their cases back to the Seventh Circuit Court of Appeals to be reviewed.

Prosecutors did the best to spin the decision in their favour. “While we are disappointed that today’s Supreme Court decisions narrowed the honest-services statute, we are pleased that the Court upheld many of the core provisions that have been used for decades to prosecute corrupt public officials and corporate executives who have breached their duties to their constituents, clients, and investors,” Tracy Schmaler, a spokeswoman for the U.S. Department of Justice said in a statement.

Even so, the decision has already begun to have repercussions in other cases. The Supreme Court has ordered a review of the fraud convictions of former Alabama Gov. Don Siegelman and ex-HealthSouth CEO Richard Scrushy based on the honest-services decision. Former Louisiana congressman William Jefferson, who is serving 13 years for accepting bribes after agents found $90,000 in cash stashed in his freezer, is appealing his conviction on several counts of honest-services fraud. Several people in the Jack Abramoff lobbying and influence-peddling scandal had pleaded guilty to honest-services fraud. Former Democratic Illinois Gov. Rod Blagojevich, who is currently on trial for attempting to sell the Senate seat vacated by President Barack Obama, also faces numerous honest-services charges. “The government has used this statute very widely and broadly and a lot of the convictions are now in jeopardy,” says Pace University’s Gersh­man. Going forward, prosecutors will have to work far harder to secure convictions. Or, as Black’s friend Lipsky predicts, “This Supreme Court case is going to be remembered for decades, for centuries.”

Not everyone applauded the Supreme Court decision. “The decision is a boon for corrupt officials everywhere,” says Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington, a non-profit organization that is urging lawmakers to retool the statute. “Corporate officers will come up with more and more creative ways to rip off their shareholders.”

As Black’s legal position has been strengthened by the Supreme Court decision, so too has his public image. In an abrupt about-face, the Wall Street Journal editorial page apologized to Black for its earlier coverage of his case. [Prosecutors] know the media won’t write about the legal complexities, and they know juries are often inclined to find a rich CEO guilty of something,” the paper stated. “We regret that in the case of Mr. Black, that failure of media oversight included us.”

As for Black, who once labelled prosecutors “Nazis” and “pygmies,” he’s been uncharacteristically subdued about his victory. “The judgment of my appeal by the Supreme Court of the United States is immensely gratifying,” he said in a brief statement. “This has been a long struggle and a difficult time.”

The task facing Black’s legal team, which hopes to take the Supreme Court’s ruling and turn it into a total vindication, is challenging. But no less so than getting the Supreme Court to grant “cert”—in other words, to agree to hear the case in the first place—and then winning a unanimous decision. Black’s lawyer, Miguel Estrada, who had been one of George W. Bush’s nominees to an appellate court (but was blocked by Democrats) is considered one of the elite litigators in the U.S. “Estrada did a brilliant job of getting a case that really was not obviously cert-worthy to the court’s attention,” says Daniel Richman, a criminal law specialist at Columbia Law School.

The question that will now go back to the Seventh Circuit Court of Appeals is whether the trial judge’s erroneous instructions to the jury contaminated the entire verdict—both on the fraud counts and on the obstruction of justice count. The crime of fraud in the U.S. has two components—deprivation of money and, separately, the deprivation of honest services. When the 12 men and women in Chicago pronounced the defendants guilty on three counts of mail fraud, no one but the jury knew for sure what they were being found guilty of—outright theft, simple dishonesty or both. (Prior to deliberations, the prosecution asked for the jury to fill out a form explaining the reason for their verdict should they find the defendants guilty of fraud, but Black’s legal team successfully objected, arguing it would give jurors a road map to convict him.)

The case will likely be heard by the same panel of three judges that earlier rejected Black’s appeal. But now the burden will be on prosecutors to prove beyond a reasonable doubt that when the jury convicted Black of fraud, they did so because they found him guilty of depriving Hollinger of money or property, and not only of breaching his duty of loyalty. The U.S. Supreme Court has said a verdict can be set aside in cases where the verdict is “supportable on one ground, but not on another, and it is impossible to tell which ground the jury selected.”

Ironically, for Black, an zealous capitalist, that Supreme Court declaration came about in 1957 in a decision that protected the free speech rights of Communist activists who wanted to overthrow the government. Yet it appears to apply here, too. “They have to demonstrate to the court beyond a reasonable doubt that in telling the jury they could pick A or B, that the jury picked A and not B,” says Estrada. “It seems unlikely that the government can meet the burden.”

Black’s lawyers will argue that the evidence introduced on the honest-services charge could have influenced the jury on both the property fraud and obstruction charges. They’ll argue that much of the evidence prosecutors threw at the jury in order to make their case seem stronger would not have even been admissible. In much the same way, they’ll argue the evidence introduced on the honest-services charge unfairly influenced the jury to conclude Black had “corrupt intent” when removing the boxes from his office. Black has long contended he took the boxes simply because he was being evicted from his office. Without the evidence on honest services, the jury may have more readily accepted the innocent explanation, says Estrada.

If the appeals court finds enough ambiguity, it could send the case back to Judge St. Eve for a retrial in front of a new jury. Then it would be up to prosecutors to decide whether to prosecute the more limited case against Black. “In many high profile cases, when the government has come away with as little as they did here, it has concluded that a better use of public resources is to move on to next case,” says Estrada.

But there are many obstacles. “He won, but he could still lose,” says Peter Henning, a law professor at Wayne State University. For one thing, in restricting honest-services fraud cases to bribery and kickbacks, the Supreme Court still left plenty of wiggle room for prosecutors. Unlike bribery, which is a specific crime, a kickback doesn’t have a fixed meaning. “Prosecutors could argue the payments to Black were a type of kickback if he was skimming off the deal money for himself,” says Henning.

The appeals court, which has already said there was clear evidence of money fraud, could conclude that it was sufficient to convict him. Even in a retrial, a jury could conclude Black stole money from the company without ever having to consider honest services. Sussman, who prosecuted Black, has dismissed the chances of victory. The Supreme Court decision “will have very little impact on Black or Skilling’s convictions in the long run,” he wrote on the Globe and Mail’s website.

The Justice Department has already indicated it will proceed aggressively. “They want Black. They’ll fight hard in the Seventh Circuit, and if they lose, they’ll want to refight it. They might be willing to take a deal, but Black would have to plead guilty, and I don’t ever see that happening,” says Henning. He also says that a second trial would likely only focus on Black and could be a far briefer, and much less costly two-week affair. Meanwhile, this week Black’s lawyers will seek his release on bail while the appeal process proceeds. A decision could take days to weeks. But in the interest of justice, says the Pace University law professor Gershman, the courts must move quickly. “We’re talking about a fairly rapid development here,” he says. “With the Supreme Court’s decision, any day that Black is in jail unjustly is unfair.”

It’s worth stepping back for a moment to consider what’s been won, and lost, in this epic battle between Black and his adversaries. Most notable for Black has been the loss of his reputation and freedom. While in prison—which he has referred to as an “arrangement with my gracious temporary hosts”—Black has attempted to maintain at least the public illusion of normalcy despite his private nightmare, writing regular comment­aries for the National Post, the newspaper he founded in 1998, and other publications. He’s continued to work on his upcoming book about his experience within the U.S. legal system, The Fight of My Life, which is due out this fall. Meanwhile Black has been tutoring fellow inmates in history and English, recently handing out high school diplomas to several of his students. Even so there’s been no escaping the realities of his dismal surroundings. Earlier this year a riot broke out at the Coleman Federal Correctional Complex, sending eight to hospital with gun and knife wounds.

But the fallout has been felt far beyond just the defendants’ lives. When Chris Browne, a fund manager, fired off an angry letter to Hollinger International in 2001 demanding answers about non-compete payments, the aim among institutional investors was to force Black to back down and unlock the untapped value in Hollinger’s stagnant shares. But Black famously fired back at Browne’s “self-pitying” complaints, setting in motion all that followed—the appointment of a special committee chaired by former Securities and Exchange Commission head Richard Breeden, Black’s ouster as chairman, the infamous Breeden report and the decision by prosecutors to lay criminal charges.

But if there was once a buoyant sense that in rising up to overthrow Black and his cronies, investors could finally put into practice all the lofty promises of corporate governance, that feeling was soon shattered. Under the leadership of Black’s replacement, CEO Gordon Paris, an investment banker with no newspaper experience, Hollinger changed its name to Sun-Times Media Group, but that was by far the most productive decision of the new regime.

Steadily Sun-Times ceased to be a company that focused much on newspapers, and morphed into a litigation fund, and a bad one at that. Over the years Sun-Times has spent much more in fees to lawyers, advisers and investigators than it has recouped from Black, Radler et al. Even as the legal bills piled up, revenue went into free fall. No doubt the shifting sands of the media business played a roll in Sun-Times’ struggles. But only to a point. In the years since Black’s ouster, nearly hundreds of millions in shareholder value has been wiped out. Sun-Times filed for bankruptcy protection last year, yet still continues to blame Black for the disastrous state of its operations. In the company’s most recent annual report, Black, along with his wife Barbara, appear fully 90 times in the 115-page filing. The word “profit” shows up only twice. No wonder, last year Sun-Times lost US$344 million on revenue of $324 million.

As for Browne, who passed away in December, he told Maclean’s back in 2007 that if he had a chance to do it all over again, he’d take a pass. “It’s the old saying, you sleep with dogs, you wake up with fleas.”

Perhaps because things went so badly after Black’s ouster, because of his success at fighting his criminal convictions or because he has steadfastly refused to concede his guilt, Black has slowly begun to find a more sympathetic ear within the establishment circles he once roamed.

Hal Jackman, the former lieutenant-governor of Ontario and Black’s friend, who told a newspaper in 2003 Black had a “death wish” because of his apparent need to constantly push the envelope, still stands by his assessment, to a point. “I’ve know him for 20 or 30 years, and there’s probably a lot of things he should have done differently, but that’s all in the past,” he says. “I don’t quite see how anything can be served by keeping him locked up anymore.”