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How does a general counsel stay out of jail if he’s been accused of helping company executives line their pockets with millions of shareholder dollars? If he’s Mark Kipnis, the former legal chief at Hollinger International Inc., he pleads lack of experience and shifts the blame to the company’s outside counsel. In a few weeks Kipnis will find out whether this defense strategy worked. Kipnis, 59, is currently on trial in Chicago federal district court along with three other former Hollinger officials, including ex-CEO Conrad Black. Prosecutors say that Kipnis “facilitated” a series of deals that wrongfully routed millions of dollars to his codefendants (though none to himself). At press time Kipnis had yet to take the stand in the trial, which is expected to last through the end of June. Ronald Safer, a former U.S. attorney in Chicago now at Schiff Hardin, heads Kipnis’s legal team. Safer laid out his defense strategy in his opening statement on March 21. One, Kipnis didn’t know anything about public companies and securities law when he became Hollinger’s vice president, corporate counsel, and secretary in 1998. Two, Kipnis was told that he could rely on Hollinger’s law firms to provide the expertise that he lacked. Three, the outside counsel also failed to raise a red flag on the company’s problematic deals. (Safer declined to comment for this article.) Pointing the finger may get Kipnis off-he faces up to five years in prison and a $250,000 fine for each of the seven counts of mail and wire fraud in the government’s indictment. But some experts say that Kipnis’s defense is the equivalent of career suicide. “He’s not going to find it easy to find employment elsewhere,” says John Coffee, a law professor at Columbia University who has written extensively about legal ethics. “You can’t come back from his position. “From 1999 to 2001, Chicago-based Hollinger (now known as Sun-Times Media Group, Inc.) sold off hundreds of community newspapers in order to concentrate on its flagship publications. Prosecutors say that these transactions-following a common newspaper industry practice-were set up so that the buyers had to pay a fee in exchange for a pledge that Hollinger wouldn’t compete against its former properties in the future. According to the government, a total of $60 million in noncompete fees on six of these sales was routed to an entity controlled by Black and three other executives. Prosecutors maintain that the shift cheated Hollinger’s shareholders, since the fees should have gone to the company instead. Though Kipnis didn’t receive any of the fees, prosecutors say that he still breached his fiduciary duties by helping craft the deals. Assistant U.S. attorney Jeffrey Cramer, in his March 20 opening statement, said, “It was Mark Kipnis that inserted [Black and the other three executives] into these deals . . . [and] who made sure the money got transferred to . . . these individuals.” The government also says that Kipnis should have told Hollinger’s audit committee that the fees had to be treated as compensation for the four executives. Safer, in his opening statement, argued that Hollinger’s top executives, led by Black, made all the decisions about the terms of the newspaper sales-Kipnis just followed orders. As for the audit committee, Safer said, “It was not [Kipnis's] job to go looking for things to present to the board and the audit committee.” According to Safer, Kipnis knew nothing about securities law when he left his real estate practice at a Chicago law firm to become Hollinger’s legal chief. And that was okay, he said, because Kipnis was told that Hollinger had expert outside counsel at Toronto-based Torys and Cravath, Swaine & Moore in New York. But the outside specialists also made the wrong call on the noncompete fees, Safer said. In particular he focused on the 2000 sale of most of Hollinger’s Canadian papers to CanWest Global Communications Corp. Kipnis asked lawyers at Torys whether the noncompete fees in the deal should be reported as executive compensation to either Hollinger’s audit committee or the Securities and Exchange Commission. Torys attorneys, including Beth DeMerchant, said that was unnecessary, according to Safer. In a videotaped deposition played at the Hollinger trial in April, DeMerchant said that she now realized she made the wrong call. According to the Toronto Sun, she said she was “sorry the ball had been dropped.” Speaking on behalf of DeMerchant and Torys, firm spokesman Stuart Wood told Corporate Counsel, “The majority of the charges [in the Hollinger trial] relate to transactions where Torys did not act. . . . We are confident that the facts will demonstrate that Torys acted in good faith and with integrity at all times.” Some experts who are watching the trial say that Kipnis can’t escape all of the blame. These observers say that he violated his professional responsibility when he became Hollinger’s legal chief. “He took on work that he was not competent to do,” says Jeffrey Lipshaw, ex-GC at the former Great Lakes Chemical Corporation. Lipshaw, who is now a law professor at Suffolk University and Tulane University, adds, “Kipnis was a guy who was in way over his head.”

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