CORPORATE CRIME REPORTER
Connect
the Dots: KPMG, Hollinger, Breeden
20 Corporate Crime Reporter 6(1), January 30, 2006
Let’s play connect the dots.
Richard Breeden is the former chair of the Securities and Exchange Commission
(SEC).
Breeden is currently an independent monitor at KPMG.
In August 2005, KPMG admitted to criminal wrongdoing in a massive tax shelter
fraud and entered into a deferred prosecution agreement with the Justice Department
that resulted in Breeden being appointed independent monitor.
Last week, Breeden was appointed as special monitor to Hollinger International,
the owner of the Chicago Sun-Times newspaper.
Breeden was counsel to a special committee of Hollinger International.
Breeden’s committee wrote a 513-page report released in August 2004 that
detailed how “Hollinger was systematically manipulated and used by its
controlling shareholders for their sole benefit, and in a manner that violated
every concept of fiduciary duty.”
Breeden’s committee wrote that a “corporate kleptocracy” –
led by former CEO Conrad Black (under indictment) and his former right hand
man F. David Radler (pled guilty, cooperating with the government) had looted
Hollinger of $400 million – 95.2 percent of Hollinger’s entire adjusted
net income during 1997 to 2003.
And guess who was Hollinger’s auditor during that same period?
KPMG.
And guess what Hollinger International voted to do last week?
Not pursue claims for damages against KPMG.
Joe Loughran thinks this is an “astonishing and troubling development.”
Loughran is a self-described corporate watchdog based in northern Virginia.
“Hollinger International's decision not to pursue a lawsuit against KPMG
raises far more questions than answers for anyone who has studied closely Hollinger
International's Special Committee Report,” Loughran said. “Yet a
strong argument can be made that this is but the latest, and presumably not
the last, grotesque betrayal of Hollinger International's non-controlling shareholders.”
“It is inconceivable that KPMG, while serving as Hollinger International's
auditor throughout the entire 1997 to 2003 period, failed to discern the systematic
manipulation of Hollinger International on dozens of occasions by which its
controlling shareholders transferred to themselves fully 95.2% of Hollinger
International's entire adjusted net income,” Loughran wrote in an e-mail
to Corporate Crime Reporter.
Year in and year out, KPMG had signed off on "clean fairness opinions."
“Was KPMG's inability to recognize anything whatsoever amiss a matter of abject and sustained incompetence?” Loughran asked. “If so, shouldn't abject and sustained incompetence alone have sufficed to sue KPMG for damages in the wake of a $400 million fraud it overlooked entirely?”
KPMG issued a statement last week saying that it “stands behind its work
for Hollinger International.”
But Loughran asks – does KPMG stand by its work for Ravelston Corporation Limited?
“As it happens, KPMG – as well as Torys, Hollinger International's
law firm – not only represented Hollinger International from 1997 through
2003, but also represented Hollinger, Inc. and the Ravelston Corporation Limited,
the corporate kleptocracy's two corporate lynchpins controlled by Black and
Radler and used to perpetrate their alleged $400 million fraud against Hollinger
International's non-controlling shareholders,” Loughran wrote. “Does
KPMG in fact ‘stand by’ its work on behalf of the Ravelston Corporation
Limited now that Ravelston stands indicted of seven counts of mail and wire
fraud for its involvement in the looting of KPMG client Hollinger International?"
The Breeden committee’s 513-page report on the matter noted that Hollinger
International Audit Committee members "knew or should have known that the
views of KPMG and Torys could be 'tempered or compromised' by their work for
Hollinger Inc and Ravelston."
Loughran asks:
Did the Breeden committee ever ask any of the Audit Committee members whether
or not they had been advised explicitly of KPMG's contemporaneous and extraordinarily
conflicted representation of Hollinger International, Hollinger Inc. and Ravelston?
If not, why not? If so, why didn't the Special Committee and counsel Breeden
report their explicit responses to this critical question?
Did KPMG ever advise any of Hollinger International's Audit Committee or Board
members at any time that it simultaneously represented Hollinger International
on the one hand and Hollinger Inc. and Ravelston – the corporate entities
that participated in virtually every related-party transaction victimizing Hollinger
International's non-controlling shareholders? If not, why not?
“No less surprising than KPMG's simultaneous representation of Hollinger
International on the one hand and Hollinger, Inc. and Ravelston on the other,
throughout seven years' alleged looting of Hollinger International was the Special
Committee's and Counsel Breeden's failure – or refusal – throughout
their 513-page report to consider in a systematic fashion the impact and implications
of KPMG's astonishing conflict of interest within the context of the overall
Hollinger International scandal,” Loughran wrote.
Breeden reportedly recused himself from the discussions leading to Hollinger
International's decision not to sue KPMG.
But Loughran says that Breeden’s role in “downplaying KPMG's efforts
on behalf of Hollinger International, Hollinger Inc. and Ravelston throughout
the 513-page Special Committee Report remains as unclear as it is significant.”
Breeden did not return calls to his Connecticut office seeking comment for this
article.
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