Several directors of Hollinger International Inc. will come under strong criticism from the special committee of the firm's board when it releases its long-awaited report into alleged wrongdoing among company executives.
Getting the most heat among the directors will be U.S. Defence department adviser Richard Perle, who will be singled out among the group, sources say.
"Perle is in a category by himself," said one source who is familiar with the contents of the report.
Mr. Perle's venture capital company, Trireme Partners LP, received a $2.5-million (U.S.) investment from Hollinger International, according to securities filings.
He was also chairman of Hollinger Digital LLC, an arm of the firm that allegedly paid millions of dollars in inappropriate bonuses to executives, according to a suit filed by the special committee.
The committee's report, which is more than 400 pages, will be filed with a Chicago court and the U.S. Securities and Exchange Commission.
It was prepared by three members of the Hollinger International board who were not directors when the alleged wrongdoing occurred.
The report will include far more detail on allegations made public earlier when the special committee filed a lawsuit against former Hollinger chairman Conrad Black and several of his colleagues in Chicago earlier this year.
In that suit, the committee accused Lord Black and others of "fraudulently extracting excessive management fees and bogus 'non-competition' payments" from the company.
But the report will also contain new information and allegations.
It will deal with the role of Hollinger International's directors in approving those payments, and examine other allegations of conflict of interest among board members.
The Hollinger directors will be divided into different groups depending on their roles in the company, sources say.
While Mr. Perle will draw the most fire, former U.S. secretary of state Henry Kissinger and Israeli businessman Shmuel Meitar will not receive the same kind of criticism, a source says. Mr. Kissinger and Mr. Meitar attended few board meetings and didn't serve on key committees.
There will be another group "in the middle," the source said, including directors such as former U.S. ambassador to Germany Richard Burt and former Illinois governor James Thompson. Mr. Burt, Mr. Thompson and Marie-Josée Kravis (who quit as a director last October), were on Hollinger International's audit committee when the controversial payments to Lord Black were made.
In addition to examining the role of the directors, the special committee's final report will also shed light on some issues that were not included in the $1.25-billion (U.S.) lawsuit it filed earlier this year against Lord Black and others in the U.S. district court for the Northern District of Illinois.
For instance, it will examine Hollinger International's purchase of papers relating to Franklin Delano Roosevelt.
The company spent several million dollars on the purchase, while Lord Black was writing a book about the former president. Lord Black said that was a "complete coincidence," and that the purchase was a good investment for the company.
While the special committee has not hesitated to file suits against Lord Black and other company executives, it is not clear if it will now follow up its final report with litigation against any of the directors.
The committee has been negotiating with some directors about a possible financial settlement, although a source familiar with the talks said discussions are still in the early stages. "They are nowhere near a point where you can say it's going to work or not."
The talks also include the insurance company that provides Hollinger International with directors' and officers' insurance. Proceeds from that insurance could be part of a settlement package.
One Hollinger investor, who did not want to be identified, said he does not think there will be any significant return of funds to the firm in the short term, because litigation or negotiated settlements will take considerable time to play out.
"Investors are looking at any potential recovery as an extra bonus [further down the road]" he said.
The huge Chicago lawsuit, for instance, is expected to take many months to conclude. There have been some tentative settlement talks with Lord Black, but these have not progressed very far, sources say.