Hollinger International Inc. , in the midst of a probe into unauthorized payouts to former chief executive Conrad Black, said in a regulatory filing on Friday it overstated profit by $17 million over two years.
But neither executives nor its auditors signed off on the filing, meaning the numbers are incomplete and the company would have to file an amended report with the U.S. Securities and Exchange Commission.
Separately, Hollinger’s parent company, Toronto-based holding company Hollinger Inc. said on Friday evening that four members of its board of directors and audit committee resigned after a meeting in which recommendations on management and board changes were defeated by a vote of the full board.
Hollinger International is controlled by the Canadian-born Black through Hollinger Inc., which exercises control through multiple voting shares despite holding a minority equity stake.
In the filing with the SEC, Hollinger also said its chief financial officer found that the company’s “disclosure controls and procedures were ineffective” in quickly bringing necessary information to his attention.
The publisher of Britain’s Daily Telegraph, the Chicago Sun-Times and the Jerusalem Post said earlier this week that Black and other company officials collected $32 million in unauthorized or undisclosed payments from 1999 to 2001.
Hollinger has said it is exploring a possible sale, but until the company reports more complete financial data, its efforts to shed assets could be hampered, said Morton Pierce, chairman of the mergers and acquisitions group at law firm Dewey Ballantine LLP in New York.
“Clearly, they are not in great shape from a regulatory standpoint ... “ Pierce said. “I can’t see why potential buyers are going to go forward unless someone can represent to them that these are the right financials.”
Resigned under pressure
Black and other senior managers resigned under pressure this week.
The SEC has requested information from Hollinger, its audit committee and accounting firm KPMG related to the unauthorized payments.
Black, who sits in Britain’s House of Lords, has hired high-profile attorney David Boies to represent him, a person familiar with the matter told Reuters on Friday. Boies represented the U.S. government in its antitrust lawsuit against Microsoft Corp. and Democratic candidate Al Gore in his challenge of results in the 2000 presidential election.
Chicago-based Hollinger said in the SEC filing that the unauthorized payments resulted in a shortfall of income tax payments and an overstatement of retained earnings of about $17 million.
“The company believes that the aggregate impact of these payments is an understatement of income taxes payable and an overstatement of retained earnings of approximately $17.0 million. However, this estimate is subject to change based on further analysis,” the filing said.
A special committee of independent directors overseen by former SEC chairman Richard Breeden is reviewing executive pay and other matters at the company.
Hollinger also said KPMG has been unable to complete its audit of the financial statements and that the figures in the third-quarter report were not certified by interim CEO Gordon Paris and others in top management.
Because of that, “the staff of the SEC will take the position that this Form 10-Q is deficient ... “ the company said in the filing.
The company declined to comment beyond the filing.
Meanwhile, Maureen J. Sabia, Fredrik S. Eaton, Allan E. Gotlieb and Douglas G. Bassett resigned from the board of parent firm Hollinger Inc., leaving it without independent directors on its audit committee and putting it out of compliance with corporate law. Hollinger said it would try to comply with the law as quickly as possible.