Wells Notices for Hollinger Directors

The audit committee approved more than $275 million in payments to former Hollinger chairman Conrad Black, his business partners, and to Ravelston Corp., a separate company they controlled.

The Securities and Exchange Commission may charge directors who served on Hollinger International Inc.’s audit committee for allowing an alleged fraud to take place under their nose, according to Bloomberg, citing two people with direct knowledge of the matter.

The wire service reported that the SEC has sent Wells notices to James Thompson, Richard Burt, and Marie-Josee Kravis. Thompson, the chairman of law firm Winston & Strawn, had served as Hollinger’s audit committee chairman. He still serves on the board, as does Burt, a former U.S. ambassador to Germany. Kravis, a director of Ford Motor Co. since 1995 (and the wife of buyout icon Henry Kravis), resigned from the Hollinger board in 2003..

Under SEC procedures, a Wells notice indicates that the staff has made a preliminary decision to recommend that the commission bring a civil action; recipients have the opportunity to respond to the SEC staff before a formal recommendation is finalized. Representatives of the individuals and the SEC declined to comment to the wire service.

Bloomberg pointed out that the audit committee approved more than $275 million in payments to former Hollinger chairman Conrad Black, his business partners, and to Ravelston Corp., a separate company they controlled. Specifically, the SEC is concerned that the audit committee approved $218 million in management fees from 1997 to 2003 to Ravelston, according to the wire service.

“The SEC has talked for some time about bringing cases against outside directors who in the agency’s view have ignored clear signs of wrongdoing,” David Becker, a former SEC general counsel who is now at Cleary Gottlieb Steen & Hamilton, told the wire service. “If this goes forward, it will be a major case that will have a significant impact inside boardrooms throughout America.”

Last month, Hollinger announced that six directors will not stand for re-election, including Thompson, Burt, and Richard N. Perle. Perle served on the company’s audit committee until early 1998, according to Bloomberg, which added that the former Assistant Secretary of Defense received a Wells notice earlier this year.

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