Conrad Black's company, Hollinger, hired Richard Breeden (a former SEC chairman) to investigate the frauds at the company on behalf of a special committee of the board of directors. Breeden's investigative team issued a report in August of 2004 that referred to the environment at the company as a "corporate kleptocracy." As is so often the case, where widespread corporate fraud occurs, it is because the directors had their heads in the sand.
Frauds are, by their very nature, self-concealing. So it's no surprise that a fraud -- even one at the highest levels within an organization -- would go undetected for some period of time. Eventually, though, others learn of the fraud as the fraudster must engage others to perpetuate it. Red flags also appear, such as over-the-top perquisites, fees to related companies that are not at arm's length, and resignations of individuals in key positions who may be getting wise to the fraud.
Conrad Black's fraud conviction substantiates the claims made in the Breeden report that "Hollinger wasn't a company where isolated improper and abusive acts took place. Rather, Hollinger was a Company where abusive practices were inextricably linked to every major development or action."
Transactions between Black and the company are judged under the Delaware standard of "entire fairness." Instead, what we saw at Hollinger is what Breeden described as "private behavior in a public company."