Conrad Black case goes back to court (UPDATED)

Lawyers for Conrad Black return to court today in Chicago in what could be the climax of his long legal battle for his freedom.

They have already achieved the improbable – persuading the United States Supreme Court to take up Black’s appeal (the court grants only about four percent of petitions that come its way) – and the more unlikely still, getting a 7-2 decision in their favour. Today they are seeking to use the new precedent from the top court to have the convictions reversed. Black is has been out of prison on bail pending the decision. He has served more than two years of a six and a half year sentence.

On June 24, the US Supreme Court ruled that part of the law used to convict Black, along with other Hollinger executives, Peter Atkinson, John Boultbee and Mark Kipnis, of fraud, was so broad as to be unconstitutionally vague. The court remanded the case back to the appeals court to decide whether a jury instructed on the narrower definition of fraud, and faced with more limited evidence, would have still convicted Black and the others, or whether the legal error was merely “harmless.”

The case comes down to this: the jury had been instructed that fraud had two aspects to it: the theft of money from the corporation and the denial to the corporation of the “honest services” of its executives. The Supreme Court said that the honest services theory of fraud had come to be defined too broadly in American law. In a June opinion, the Supreme Court said that to be convicted of honest services fraud there has to be evidence of a bribery or kickback scheme – neither of which were alleged in the case of Black and his associates.

The jury that convicted the defendants did not explain what theory of fraud it based its convictions on: theft, denial of honest services, or both. Black’s lawyers have asked the Seventh Circuit Court of Appeal to reverse the convictions of the executives’ on the grounds that it is possible that the jury found them guilty on the theory of fraud that the Supreme Court has now said was incorrect. Federal prosecutors argue that the evidence of theft was “overwhelming” and that the legal error in the jury instruction on honest services would not have made a difference. In other words, that the error was “harmless.”

Below are several of the basic disagreements presented in the legal briefs that the court will have to sort out:

1. What does the government have to prove to show the error was “harmless”?

• a. The government says it needs to show that “rational jury would have found the defendant guilty absent the error.”
• b. Black’s lawyers argue that the government must prove that not even one juror voted to convict based on the incorrect theory of fraud. The court must reverse the convictions “if there is a reasonable possibility that the error complained of might have contributed to the conviction.”

2. Was the jury told that they could convict for a denial of “honest services” even if they did not find evidence of theft?

• a. Black’s lawyers argues that prosecutors incorrectly led the jury to believe that they could convict of honest services fraud if the defendants had failed to make proper disclosures to the Board and its Audit Committee, thus “permitting a guilty verdict even if no juror through that the defendants schemed to steal money.” They argued that rather than stealing money, the defendants falsely categorized millions of dollars in management fees (that were rightfully owed the defendants) as non-compete payments in order to escape Canadian taxes, but that this did not defraud shareholders.
• b. The government responds that it never told the jury that they could convict in the absence of theft. The government had argued that “defendants stole Hollinger International’s money by making false representations, that is, by disguising money they stole as non-competition payments.” Prosecutors say they never argued that there was an “independent, stand-alone honest services violation that the jury should use to convict defendants.”

3. Was the jury so persuaded by the government’s evidence of theft that they would have convicted regardless of the definition of honest services?

• a. Blacks’ lawyers argue no.
  • i. The fact that the jury acquitted the defendants on 9 fraud counts, two tax counts, and (Black only) a racketeering charge that “turned on theft” shows that “the jury in this case was deeply skeptical of the government’s witnesses and theories.” The jury’s “sweeping rejection of the government’s theft theories” implies that the jurors convicted on the basis that the defendants violated “honest services” by failing to make purportedly required disclosures or by not placing corporate interest above all else.
  • ii. The government’s “own star witness,” David Radler, said there was no theft in the transaction at issue. Payments that the government argues were fraudulent non-compete payments were merely management fees disguised as non-compete payments because such payments had recently been made tax-free by Revenue Canada.

• b. The government makes the case that there was strong evidence that executives pocketed millions in fake non-compete payments from a company that owned only a tiny paper called the Mammoth Times and lied about it to the company. (The defense argues that the non-competes covered all affiliated newspapers, which numbered in the hundreds.)
  Further, prosecutors told the jurors they could only convict if they found “unfair dealing” or an “unfair price” in the transaction. Therefore, if the jurors believed that the money was merely mis-labeled management fees owed to the defendants, there was no unfair dealing or unfair price and they would not have found fraud. The convictions therefore imply that the jurors did not believe the defendants explanations regarding the payments and must have considered them to be stolen money.
  The government responds that Radler was hardly their star witness and that the jury was told they could conclude he was lying and still convict.

4. Did the evidence on honest services make the jury more likely to view Black’s removal of 13 boxes from his Toronto office as an attempt to obstruct justice?

• a. Black has maintained all along that he was removing the boxes because he was being evicted from the premises. He had no criminal intent, he argues. He had already complied with five document requests, producing more than 112,000 pages of documents. Lawyers had already spent weeks photocopying everything in the office. His lawyers had not told him that a new document request had been made by the Securities and Exchange Commission so he could not have been trying to hide the documents.
• b. The jury’s view of his actions was tainted by the reams of evidence that established his non-disclosure which now is not a crime.
• c. If the fraud convictions are struck down, his lawyers ask for the 78-month sentence to be lowered.
  The government argues that the evidence of obstruction is “strong”: “Everything the defendant did in sneaking out the boxes was evidence of corrupt intent.”

UPDATE:

First impressions….

It was a mixed bag for Conrad Black’s legal case this morning judging by the questions asked by the three judges in a rapid-fire oral argument that lasted just over 40 minutes.

• The judges seemed skeptical that his obstruction of justice conviction should be overturned. In one instance Judge Posner said bluntly, “I don’t see a connection” between honest services fraud and the obstruction conviction.
• Judge Posner repeatedly expressed doubts about overturning a fraud conviction relating to $600,000 in payments pocketed by the defendants in deals with Paxton and Forum.
• Judges Posner and Sykes seemed more sympathetic to reversing the fraud conviction relating to $5.5 million in fees paid to the defendants in the deal with APC.

More to come…