Evidentia

Will Conrad Black be acquitted of fraud, or will he be sent back to the slammer for three more years?

A lot of people are wondering what will happen, now that the US Supreme Court has invalidated Conrad Black’s convictions on three counts of fraud (on the grounds that the “honest services” statute was improperly applied during the 2007 criminal trial). The Supreme Court has now sent the case back to the 7th Circuit Court of Appeal in Chicago.

Will the Appeal Court judges, led by Judge Richard Posner, rule that Conrad Black’s convictions were tainted by the prosecution’s use of the honest services statute, and thereby end up acquitting him of fraud?

Or will they rule instead that sufficient evidence of Conrad Black’s conventional fraud was produced during his 2007 trial before jury to uphold his fraud convictions, thereby ordering Mr. Black back to the slammer?

A clue to how the Court of Appeal may rule is contained in Judge Posner’s ruling the first time around, on June 25th 2008.

Richard Posner is an Appeal Court judge in Chicago

Judge Posner, a leading American authority on economic crime, wrote: “Hollinger had a subsidiary called APC, which owned a number of newspapers that it was in the process of selling. When it had only one left – a weekly community newspaper in Mammoth Lake, California (population 7,093 in 2000, the year before the fraud) – defendant [Mark] Kipnis, Hollinger’s general counsel, prepared and signed on behalf of APC an agreement to pay the other defendants [Conrad Black, Peter Atkinson and John Boultbee] plus David Radler, another Hollinger executive and a major shareholder in Ravelston [a holding company controlled by Conrad Black, in which David Radler maintained a substantial minority interest], a total of $5.5 million in exchange for promising not to compete with APC for three years after they stopped working for Hollinger. The money was paid…

“Although Hollinger is a large, sophisticated, public corporation, no document was found to indicate that the $5.5 million in payments was ever approved by the corporation or credited to the management-fees account on its books. The checks were drawn on APC, though the evidence was that the defendants had no right to management fees from that entity, and were backdated to the year in which APC had sold most of its newspapers… And while management fees  were supposed to be paid to Ravelston as well as from a management-fee account, the payments were made to the defendants personally and came from the proceeds of a newspaper sale, facts that increase the implausibility of supposing that these direct payments to the defendants were a means of discharging a debt owed them by Hollinger…

When APC paid the “non-compete fees” it had only one remaining newspaper (average net paid circulation in October 2001: 5,974) in Mammoth Lake, California (population 7,093, altitude 2363m or 7800 feet)

“There is more. The defendants failed to disclose the $5.5 million in payments in the 10-K reports that they were required to file annually with the Securities and Exchange Commission. And they caused Hollinger to represent to its shareholders falsely that the payments had been made ‘to satisfy a closing condition.’

“There was still more evidence of the fraud, but there is no need to go into it… The evidence established a conventional fraud, that is, a theft of money or other property from Hollinger by misrepresentations and misleading omissions amounting to fraud, in violation of 18 USC § 1341. United States v. Orsburn, 525 F.3d 543, 545-46 (7th Cir. 2008). But the jury was also instructed that it could convict the defendants upon proof that they had schemed to deprive Hollinger and its shareholders  ‘of their intangible right to the honest services of the corporate officers, directors or controlling shareholders of Hollinger,’ provided the objective of the scheme was ‘private gain.’ That instruction is the focus of the appeals…

“So if the jury found such a misappropriation, this would mean that the defendants, having both deprived their employer of its right to their honest services and obtained money from it as a result, were guilty of both types of fraud… Nothing is more common than for the same conduct to violate more than one criminal statute… The defendants do not deny that they sought a private gain. But they presented evidence that it was intended to be a gain purely at the expense of the Canadian government… They are making a no harm-no foul argument, and such arguments usually fare badly in criminal cases…

“An error in jury instructions is subject to the harmless-error doctrine… Submitting an illegal theory [in this case, the honest services theory] may or may not be subject to it; it is an issue on which the courts of appeals are divided… But giving an instruction that omits a qualification required to make it unambiguously correct is different from submitting a case to a jury on an erroneous theory of criminal liability… Had the jury believed that the payments for the covenants not to compete were actually management fees owed the defendants, as the defendants argued, it would have acquitted them.

“If the jury had been given a special verdict that separated the two types of fraud, and had indicated on the verdict that the defendants were not guilty of an honest services fraud, the challenge to the instruction would be moot. The defendants were not required to request a special verdict. But there is a wrinkle in this case: the government requested a verdict that would require the jury to make separate findings on money or property fraud and on honest services fraud. The defendants objected – they wanted a general verdict. In effect, they wanted to reserve the right to make the kind of challenge they are mounting in this court.”

My reading of Judge Posner’s ruling is straightforward:

• he found that the evidence of conventional fraud presented in Mr. Black’s case was irrefutable;
• he considered that this evidence was adequate to convict Mr. Black;
• he noted that the defendants sought to combine money fraud and honest services fraud into a single verdict, so they could better appeal the conviction at a later date;
• if Judge Posner runs the appeal process this time around, and if he remains consistent with his previous ruling, Mr. Black’s fraud convictions are likely to be upheld.

The stakes are very big for Conrad Black. If he were acquitted of fraud, the Appeals Court could decide he had done enough jail time on the obstruction of justice charge, meaning his sojourn in prison would be over, and he could focus on all the other court cases he is involved with, both as plaintiff and defendant.

However, if his fraud convictions were upheld, he would have exhausted all appeals. He never appealed his conviction for obstruction of justice, and could have three more years to spend in prison. And from the gloomy vantage-point of a prison cell, his chances of success in numerous civil suits would in my opinion drop through the floor as a result.

If Conrad Black is sent back to prison, he will not soon be enjoying the bracing fresh air of Mammoth Lake, California – the place associated with his alleged fraud