-Caveat Lector- NY TIMES September 6, 2004 Under Attack, Director Says Hollinger's Black Misled Him By STEPHEN LABATON
ASHINGTON, Sept. 5 - Last fall, as the board of Hollinger International prepared to oust its founding executive, Conrad M. Black, the director most protective and supportive of him turned to a friend and balked. "This is a kangaroo court," a person recalled the director, Richard N. Perle, as saying in defense of Lord Black, who had been accused by investors of improperly siphoning millions of dollars to other companies he controlled. But last week, Mr. Perle's view of Lord Black changed. Issuing his first public statements since being heavily criticized in an internal report for rubber-stamping transactions that company investigators say led to the plundering of the company, Mr. Perle now says he was duped by his friend and business colleague. Mr. Perle, a top Pentagon official in the Reagan administration, wielded considerable influence in foreign-policy circles as recently as 2002 as an intellectual parent to the neoconservatives. He was named to the Hollinger board in 1994, joining other like-minded men selected by Lord Black, a self-made businessman from Canada who surrounded himself with conservative thinkers. He particularly did that at Hollinger, a global media company whose holdings at the time included The Chicago Sun-Times, The Jerusalem Post, The Sunday and Daily Telegraph and The Sydney Morning Herald. But the relationship between the two men was particularly special, friends and Hollinger officials recall. Lord Black approved plans that ultimately earned Mr. Perle more than $5 million - including a bonus formula that rewarded Mr. Perle for the successful investments he placed on behalf of a subsidiary of Hollinger but did not subtract for the losers. Mr. Perle served on a three-member executive committee of the board headed by Lord Black. The two men socialized frequently and traveled together extensively on the company jet, once going to see Prime Minister Benjamin Netanyahu of Israel. Even so, by 2002, Lord Black was complaining in internal company messages about Mr. Perle. Now, their relationship, which has come under scrutiny by federal regulators and investors, has decidedly changed. In the face of federal investigations and a scathing internal report for Hollinger by Richard C. Breeden, a former chairman of the Securities and Exchange Commission, Mr. Perle has broken ranks and turned on Lord Black. The report contends that Lord Black improperly took hundreds of millions of dollars for himself and associates - and that Mr. Perle was the enabler, approving some questionable transactions at the same time he was being heavily compensated at the direction of Lord Black. The report said that Mr. Perle told the committee he often signed documents without reading them, and it singled him out among the directors for conflicts of interest. "With the notable exception of Perle, none of Hollinger's non-Black group directors derived any financial or other improper personal benefit from their service on Hollinger's board," the report said. "It is, of course, possible for a conflicted board member to act at least somewhat responsibly. As a conflicted executive committee member, however, Perle did not. Rather, his executive committee performance falls squarely into the 'head-in-the-sand' behavior that breaches a director's duty of good faith and renders him liable for damages." >From his vacation home in southern France late Friday, issuing the outlines of his legal defense for the first time, Mr. Perle said that he was misled. "The special committee has concluded that Lord Black and other members of the Ravelston Management Group misled the directors of Hollinger, including me, concerning the scope of their compensation, the payment of noncompete payments and the related-party nature of several transactions," Mr. Perle said, referring to the holding company run by Lord Black that effectively controlled Hollinger. "As the report shows, critical information was either not revealed or obscured as matters were presented to the audit and executive committees and the full board of directors. "I did not participate in or profit in any way from the management agreements, related-party transactions or noncompete payments at issue," the Perle statement added. Mr. Perle's lawyer, Dennis Block, went further, saying that the Breeden report was libelous. "It is factually and legally inaccurate," Mr. Block said, declining to go into specific detail. Both the Breeden report and people who know Lord Black and Mr. Perle describe a symbiotic relationship. "Conrad Black, who I know well, thought Richard Perle was the font of foreign-policy wisdom," said Leslie H. Gelb, the president emeritus of the Council on Foreign Relations, who met Mr. Perle in the 1960's when both were aides to United States senators. Mr. Gelb said he came to know Lord Black at the council. "Once that happened, Black and Perle figured out how to work together to make more money." For Mr. Perle, the Breeden report is the latest of several setbacks in both policy and business arenas. Less than two years ago, he had forged a place for himself at the pinnacle of power where Washington policy-making and corporate money-making intersect. He advised George W. Bush on foreign policy during his 2000 presidential campaign and went on to become chairman of the Defense Policy Board, an influential advisory board to the Defense Department. His protégés were placed in important administration jobs; he was on the boards of several start-up companies and advised others about how to deal with the administration. He was preparing to open a venture capital fund, Trireme, to make investments in industries related to defense and homeland security. Hollinger made an initial investment of $2.5 million in the fund, but at last accounting it had lost $1 million in value. Now, Mr. Perle's position, both in the corporate world and in policy circles, has been shaken. In the Hollinger case, regulators are preparing to seek an order barring him and Lord Black from serving on boards of public companies, and the Justice Department has opened an inquiry to examine whether any criminal laws were violated. The Breeden report said that because Mr. Perle was a "faithless fiduciary," the company would seek to compel him to return the $5.4 million in payments he received as a director and as head of Hollinger Digital, the subsidiary that invested in Internet and new media ventures. In the last few months, Mr. Perle, 62, has also alienated former allies at the Pentagon for his continued defense of Ahmad Chalabi, the Iraqi opposition leader who has recently come under suspicion of leaking important intelligence information to Iran. Mr. Perle was forced to step down from the Pentagon advisory board after disclosures about his plans to work for Global Crossing and his meeting with a Saudi businessman, Adnan Khashoggi. Mr. Perle's friends say that he is the victim of unjustified attacks that are motivated more by policy vendettas than substance. "It is not surprising that the attacks on Richard have accompanied his rise to influence," said Jeane J. Kirkpatrick, who served as ambassador to the United Nations in the Reagan administration. She first met Mr. Perle when the two were advising Senator Henry M. Jackson, a Washington Democrat and staunch conservative on foreign-policy matters. She emphasized that she knew nothing of his business dealings, but was speaking about the criticism Mr. Perle has encountered over his policy positions. Other friends say they are confident that he will be vindicated. "Over the years, endless accusations have been made against him," said Michael A. Ledeen, a friend since the 1970's and colleague of Mr. Perle's at the American Enterprise Institute. "All have proven false, and I'm certain this one will be as well." But others who have known Mr. Perle over the years say that he has been a consummate risk taker in both his business dealings and in some of the foreign policies he advocated, and that he ultimately may have been lured by millions of dollars in compensation and benefits to put aside ethical considerations, as the Breeden report concluded. "Richard has always been willing to take the highest risks, playing for the highest stakes on policy issues over the years and often winning, but this is also really a story of being seduced by money," said Mr. Gelb, a former official at the State and Defense departments and a former columnist at The New York Times. "People in the foreign policy world do not make a lot of money. They go to think tanks, government, academe, and generally get $125,000 to $150,000 a year. When you are touched by lightning and manage to get into the inner sanctum to make money, the opportunities are delicious." Although friends of Lord Black and Mr. Perle describe a close relationship between the two, the Breeden report also suggests that the relationship was not always cordial. According to the report, after Mr. Perle, without the authorization of Hollinger's board, signed a document on Dec. 25, 2002, that appeared to commit Hollinger to invest $25 million in his venture capital fund, Trireme, Lord Black sent an e-mail message to the president of Hollinger Digital, in which he wrote, "As I suspected, there is a good deal of nest-feathering being conducted by Richard which I don't object to other than that there was some attempt to disguise it behind a good deal of dissembling and obfuscation. "My instinct told me that these two were trying to smoke one past us," Lord Black wrote, referring to Mr. Perle and an associate at Trireme. "I think they have done a good job rummaging all this together, but they should treat us as insiders with our hands cupped as the money flows down, and not as outsiders pouring in the money," he continued. According to the Breeden report, Mr. Perle signed the Dec. 25 document as "co-chairman, Hollinger Digital." But he told the special committee that he did not believe his signature would be binding and that he signed the document just as he was leaving for vacation in France, in anticipation of Lord Black's approval of the investment. The report suggests in one passage that Lord Black ultimately agreed to permit Hollinger to make a $2.5 million investment in Trireme to get Mr. Perle to resign as head of Hollinger Digital, telling three top Hollinger executives by e-mail messages that he was "well aware of Richard's shortcomings" and another that he was "well aware of what a trimmer and a sharper Richard is at times." In another e-mail message, sent to a Hollinger executive in early January 2003, he wrote: "I have been exposed to Richard's full repertoire of histrionics, cajolery and utilization of fine print. He hasn't been disingenuous exactly, but I understand how he finessed the Russians out of deployed missiles in exchange for noneventual deployment of half the number of missiles of unproven design." In February 2002, according to the report, Lord Black sent a letter to Mr. Perle complaining that Hollinger had been receiving expenses from an American Express card for $1,000 to $6,000 a month "and there is no substantiation of any of the items which include a great many restaurants, groceries and other matters. This is not a system that conforms to the standards being imposed in every area of this company." The report said it could not find a reply from Mr. Perle. 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