IN III) UNITED STATES DISTRICT COUR T FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION In Re HOLLINGER INTERNATIONAL, INC, ) Cons, Civil Action No. 04-C-083 4 SECURITIES LITIGATION, ) JUDGE DAVID H . COAR This Document Relates To : ) ) ALL ACTIONS, ) CLASS ACTION THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Carol V, Gilden Jay W. Eisenhofer Katrina Blumenkrants John C. Kairls MUCH SHELIST FREED DENENBERG GRANT & EISENHOPER P .A. AMENT & RUBENSTEIN, P .C. Chase Manhattan Centr e 191 North Wacker Drive - Suite 1800 1201 North Market Street Chicago, Illinois 60606-1615 Wilmington, Delaware 19801 Telephone : (312) 521-2000 Telephone: (302) 622-7000 Facsimile : (312) 521-2100 Facsimile: (302) 622-7100 Liaison Counsel for the Plaintiff Clas s Attorneys for Lead Plaintiff Teachers' Retirement System of Louisiana, Class Representative Cardinal Mid-Cap Value Equity Partners, L,P . and Co-Lead Counsel for the Plaintiff Class Darren J. Robbins Travis E. Downs, III Scott PI. Sahara LERACH COUGHLIN STOIA & ROBBINS LLP 401 B. Street, Suite 1700 San Diego, CA 92101 Telephone: (619) 231-1058 Facsimile: (619) 231-7423 Attorneys for Plaintiff Washington Area Carpenters Pension and Retirement Fund, .Class Representative Cardinal Mid-Cap Value Equity Partners, L,P . and Co-Lead Counsel for the Plaintiff Class Case 1:04-cv-00834 Document 346 Filed 09/13/2006 Page 2 of 195 TABLE OF CONTENTS SUMMARY OF THE ACTION...................................................................................................................3 THE PARTIES..............................................................................................................................................8 NATURE OF ACTION AND JURISDICTION ........................................................................................18 FACTUAL BACKGROUND.....................................................................................................................19 A. LORD BLACK THE KING .............................................................................................19 B. PAYMENTS RECEIVED FROM NON-COMPETITION AGREEMENTS ..................23 1. Sales of U.S. Community Newspapers................................................................24 2. Sales to CanWest Global Communications Corp. ...............................................38 3. Sales to Osprey Media Group Inc........................................................................47 C. RAVELSTON MANAGEMENT SERVICES AGREEMENTS .....................................50 D. ASSET SALES TO AFFILIATED ENTITIES ................................................................62 1. Horizon Publications Inc. ....................................................................................62 a. Horizon’s Acquisition of Hollinger’s Community Newspapers.............64 b. Horizon’s Asset Exchange With Hollinger.............................................68 c. Hollinger Pays Horizon To Take Newspaper Assets From Hollinger....70 d. Hollinger’s Sale of Additional Community Newspapers to Horizon ...................................................................................................73 e. Horizon’s $1 Acquisition of Hollinger’s Mammouth Times Newspaper ................................................................................................................75 2. Bradford Publishing Company ............................................................................79 E. CANWEST’S MANAGEMENT SERVICES AGREEMENT WITH RAVELSTON ....84 F. UNDISCLOSED COMPENSATION ..............................................................................88 G. UNDISCLOSED PERQUISITES AND OTHER COMPENSATION.............................90 1. The Improper Swap Of Company And Lord Black Apartments .........................90 2. Staff, Housing And Other Personal Expenses Paid By The Company................91 -i- Case 1:04-cv-00834 Document 346 Filed 09/13/2006 Page 3 of 195 3. Black’s And Radler’s Personal Use Of Corporate Jets........................................93 4. The Company Pays For Lord Black’s Purchases Of FDR Memorabilia .............94 5. Charitable Gifts By Hollinger On Behalf of Black And Radler ..........................95 6. SEC Disclosures Relating To Perquisites And Compensation ............................96 H. THE TELEGRAPH GROUP AND OTHER SELF-DEALING TRANSACTIONS............................................................................................................99 I. HOLLINGER’S INFLATION OF CIRCULATION FIGURES ....................................100 J. THE TRUTH BEGINS TO EMERGE AND THE SPECIAL COMMITTEE AND THE SEC COMMENCE THEIR INVESTIGATIONS........................................108 K. THE SEC AND SPECIAL COMMITTEE FILE COMPLAINTS AGAINST THE COMPANY AND LORD BLACK........................................................................110 L. LORD BLACK ATTEMPTS TO SELL THE COMPANY IN AN ATTEMPT TO CONCEAL HIS FRAUD......................................................................112 M. HOLLINGER BRINGS SUIT IN DELAWARE TO ENJOIN BLACK’S PROPOSED SALE OF THE COMPANY...........................................................................................113 N. PLAINTIFFS OBTAIN COPIES OF THE TRIAL EXHIBITS AND OTHER DOCUMENTS PREVIOUSLY UNDER SEAL IN THE DELAWARE ACTION..................................................................................................114 O. HOLLINGER DISCLOSES THAT ITS CIRCULATION FIGURES WERE OVERSTATED..................................................................................................114 P. HOLLINGER PLANS TO RESTATE AND BLACK LEAVES HOLLINGER INC..........................................................................................................115 Q. THE FALL IN THE COMPANY’S STOCK PRICE FOLLOWING DISCLOSURE OF THE FRAUD ..................................................................................................................115 HOLLINGER’S FRAUDULENT ACCOUNTING PRACTICES...........................................................117 KPMG’S PARTICIPATION IN THE FRAUD........................................................................................132 INDIVIDUAL DEFENDANTS’ SCIENTER ..........................................................................................151 INAPPLICABILITY OF STATUTORY SAFE HARBOR .....................................................................158 APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET DOCTRINE .................................................................................160 CLASS ACTION ALLEGATIONS .........................................................................................................160 -ii- Case 1:04-cv-00834 Document 346 Filed 09/13/2006 Page 4 of 195 COUNT I VIOLATION OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b-5 PROMULGATED THEREUNDER ............................................................163 COUNT II VIOLATION OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b-5 PROMULGATED THEREUNDER ............................................................167 COUNT III VIOLATION OF SECTION 18 OF THE EXCHANGE ACT....................................................171 COUNT IV VIOLATION OF SECTION 18 OF THE EXCHANGE ACT....................................................172 COUNT V VIOLATION OF SECTION 20(a) OF THE EXCHANGE ACT ...............................................173 COUNT VI BREACH OF FIDUCIARY DUTY FOR INDUCING RETENTION OF HOLLINGER STOCK ..............................................................175 COUNT VII ASSERTED UNDER § 12(F), (G) & (I) OF THE ILLINOIS SECURITIES LAW OF 1953, 815 ILCS § 5/12.........................................................................177 COUNT VIII AIDING AND ABETTING BREACH OF FIDUCIARY DUTY WHICH INDUCED RETENTION OF HOLLINGER STOCK......................................178 PRAYER FOR RELIEF ...........................................................................................................................180 -iii- Case 1:04-cv-00834 Document 346 Filed 09/13/2006 Page 5 of 195 Lead Plaintiff, Teachers’ Retirement System of Louisiana (“Teachers”), and plaintiffs Washington Area Carpenters Pension and Retirement Fund (“Washington Carpenters”), Cardinal Mid- Cap Value Equity Partners, L.P. (“Cardinal”) and E. Dean Carlson (“Carlson”) on behalf of themselves and all other purchasers of Hollinger International, Inc. (“Hollinger” or the “Company”) securities (hereinafter collectively the “Plaintiffs”) between and including August 13, 1999 and December 11, 2002 (the “Class Period”), allege in this Consolidated Amended Class Action Complaint (“Complaint”) the following upon information and belief, except as to those allegations concerning Plaintiffs, which are based upon personal knowledge. Plaintiffs’ information and belief are based upon, among other things: (a) an investigation conducted by and through their attorneys; (b) review and analysis of filings made by Hollinger with the Securities and Exchange Commission (“SEC”); (c) review and analysis of filings made by companies affiliated with Hollinger such as Hollinger Inc., among others; (d) the complaint filed by the SEC against Hollinger in the United States District Court for the Northern District of Illinois, docketed as No. 04C 0336 (the “SEC Complaint”); (e) the subsequent SEC complaint and enforcement action filed on November 15, 2004 by the SEC against Lord Conrad M. Black (“Lord Black” or “Black”), F. David Radler (“Radler”) and Hollinger, Inc., in the United States District Court for the Northern District