Shareholder Fraud

The former publisher of the Chicago Sun-Times, David Radler, the former top in-house counsel for Hollinger International, Mark S, Kipnis, and Raveslston Corp., a privately-owned company, were indicted on federal wire fraud and mail fraud charges yesterday.^[1] Each of the three defendants was charged with five counts of mail fraud and two counts of wire fraud stemming from accusations that the three cheated shareholders in the United States and Canada, as well as Canadian tax authorities, by diverting nearly $32 million by disguising it as noncompete fees connected to the sale of newspaper publishing groups.^[2]

According to prosecutors, Mr. Radler is cooperating with the investigation and is expected to plead guilty.^[3] The charges were announced by Patrick Fitzgerald, who is also conducting the investigation into the Valerie Plame identity leak.^[4] The FBI, the U.S. Postal Inspection Service, and the IRS Criminal Investigation Division conducted the shareholder fraud investigation under the auspices of the Corporate Fraud Task Force, created by President Bush in July 2002.^[5]

The Royal Canadian Mounted Police had conducted an investigation of alleged fraud relating to Hollinger International more than a year ago, but found nothing to warrant further investigation in Canada.^[6]

The allegations could mean trouble for publishing magnate Lord Conrad Black, who is the target of a civil lawsuit against Lord Black and other executives claiming that they colluded to divert hundreds of millions of dollars from Hollinger International.^[7] Mr. Radler was Lord Black’s “closest confidant,”^[8] and Mr. Radler’s willingness to cooperate with the federal government could lead to an indictment against Lord Black.^[9] Furthermore, the Ontario Securities Commission says it will seek hearing dates in October in its case against Mr. Black and three former Hollinger executives.^[10]

Wire Fraud
Wire fraud is a very versatile federal crime^[11], criminalized by 18 U.S.C. § 1343. It is a violation of the wire fraud statute for a person who has devised a scheme to defraud or obtain money by false pretenses, to transmit information over the wires for the purpose of executing the scheme to defraud.

Violating section 1343 can result in a punishment of up to $1 million, imprisonment for up to 20 years, or both.

Mail Fraud
Mail fraud, criminalized by 18 U.S.C. § 1341, embodies the same concept except that the mails are used to further the fraud, rather than the wires.

Violating section 1341 can result in a fine of up to $1 million, imprisonment for up to 20 years, or both.

The United States Attorney’s Office for the Northern District of Illinois states that the individual defendants in this case are facing five years in prison and a fine of $250,000 per count, and the corporation is facing a fine of $500,000.^[12] Alternatively, a maximum fine might be imposed of twice the loss to any victim, or twice the gross profits received by any defendant, whichever is greater.

---

[1] Maura Kelly Lannan, Ex-Sun-Times Publisher Charged with Fraud, Wash. Post, Aug. 19, 2005, available here.
[2] Id.
[3] Id. See also United States Attorney’s Office, Press Release: Two Hollinger Executives, Ravelston Company Accused of Self-Dealing in U.S. – Canada Corporate Fraud Indictment 3, Aug. 18, 2005, [hereinafter USAO] available here.
[4] USAO, supra note 3, at 3.
[5] Id.
[6] Tony Van Alphen, RCMP Ended Review of Black’s Firm After a Month; Offers Help to U.S. Officials, Associated Press, Aug. 18, 2005; see also News Staff, U.S. Attorney Indicts Two Ex-Hollinger Execs, CTV.ca, Aug. 19, 2005, available here.
[7] Stephanie Kirchgaessner, Conrad Black Ally Indicted on Charges of $32m Fraud, Fin. Times, Aug. 19, 2005 at 12, also available here.
[8] Id.
[9] News Staff, supra note 6.
[10] Id.
[11] For example, in the United States Supreme Court case, Pasquantino v. United States, 125 S. Ct. 1766 (2005) (No. 03-725), the Court held that the wire fraud statute could be used to prosecute individuals who had imported liquor into Canada without paying Canada’s excise taxes. Pasquantino at 1773.
[12] USAO, supra note 3, at 10-11.