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Few things gave Maxwell more pleasure than his new Gulfstream, capable of flying the Atlantic without refuelling (unlike his Gulfstream 2, which he nevertheless retained in event of emergencies). For hours he had discussed the G4’s interior design with Captain Hull. In the end, he had settled upon a light-cream carpet, six seats covered in light-brown leather and six in cream cloth. The brown suede walls offset the gold fittings. Flying at 35,000 feet, the passenger relished the pampering he received from Carina Hall, the stewardess, and Simon Grigg, his valet. At the merest intimation that his finger might flick, he could be assured of instant service. The food in the plane’s kitchen – cheddar cheese, smoked salmon, caviar and chicken – had been sent ahead by Martin Cheeseman. Krug and pink champagne were in the fridge. Thoughtfully, Hull always provided a selection of new video films – his employer especially liked adventure stories such as The Hunt for Red October. Sometimes, Maxwell would read biographies or work through a case of papers. Music was rarely played. Facing him on this occasion was the empty place where Andrea had sat in the past, her feet often resting on his seat, tucked under one of his massive thighs. Beyond was where the divan could be set up for him to sleep. Captain Hull had noticed on flights across the Atlantic that sometimes both Maxwell and Andrea slept on it – quite innocently, he stressed.
The new Gulfstream was more than a toy. It was a testament to Maxwell’s importance and wealth. The telephone was fixed next to his seat. One night he telephoned Roy Greenslade, then the editor of the Daily Mirror. ‘Where am I?’ he boomed.
‘I don’t know, Bob. Israel? Russia …?’
‘I’m above you!’ Greenslade looked up at the ceiling. ‘I left Montreal this morning. I was in New York this afternoon. Now I’m going to Hungary. Not bad for a pensioner, eh?’
Constant travel was Maxwell’s way of escaping from reality. Over the following twelve months, the Gulfstream would fly 800 hours, more than double an average pilot’s duties. Other than New York, no other destination was more welcoming than Jerusalem’s small airport surrounded by the Judaean hills.
Ever since Gerald Ronson, the British businessman, had taken the Publisher on Maxwell’s own private jet to Israel in 1985 to reintroduce him to his origins, the erstwhile Orthodox Jew had abandoned his repeated, vociferous denial of his religion, which had even prompted him in the 1950s to read the Sunday lesson at an Anglican church in Esher. Considering the anti-semitism still lingering among Britons after the war, that denial had seemed a natural ploy for an ambitious foreigner, dishonest about so much else. But with his recent achievement of financial security and the decline in overt anti-semitism, Maxwell had grown closer to London’s Jewish community.
Tears had welled in Maxwell’s eyes on that first trip with Ronson. ‘Thanks for bringing me here,’ he repeated as they toured the country, visiting the major powerbrokers, including Yitzhak Shamir, the prime minister. ‘I want to do things and be helpful,’ Maxwell told Shamir as they posed for the photographer accompanying him. ‘I’m going to be a big investor.’ Ronson smiled at the prospect of collecting millions for charity, ‘I want to be buried here,’ Maxwell confided that night over dinner in the King David Hotel.
Thereafter on Friday nights, Maxwell occasionally travelled to Ronson’s home in north-west London to eat the Sabbath dinner or celebrate Jewish holidays. Gail Ronson, Maxwell acknowledged, cooked like his mother, especially chopped liver. He also appeared at Jewish charity functions, mixing with Trevor Chinn, Cyril Stein and Lord Young, the politician, who had invited Maxwell to his daughter’s wedding. His presence in that community had been welcomed, although some feared that his financing of a Holocaust conference in 1989 signalled an attempted take-over. After all, his urge to dominate was indiscriminate.
The interest in his Jewish background had been encouraged by his wife Betty. Together in Israel they had met Chanan Taub, a childhood friend from Solotvino, Maxwell’s impoverished birthplace on Czechoslovakia’s eastern border with Russia and Romania. ‘Poor, hungry and unmemorable’ was the Publisher’s emotional recollection of the muddy pathways, ramshackle, overcrowded dwellings and suffocating destitution there. Sixty years earlier, he reflected, he had shared a solitary pair of shoes with a sister. In 1939 Taub had swum illegally from a ship ashore to Palestine as a penniless Zionist – unlike Maxwell, who had escaped from his homeland, on the eve of Nazi Germany’s invasion, to make his way overland through Hungary and the Balkans to Palestine and then by sea to Britain as a member of the Free Czech Army. When they met again nearly fifty years later, Taub had become one of Israel’s richest diamond dealers. Yet the contrast between the two former Orthodox Jews was striking. While Maxwell boasted of wealth he did not possess, Taub concealed his enormous bank balance beneath dishevelled clothes and a twenty-six-year-old, dented and dirty Chevrolet. Ever since their first reunion, Taub had been mesmerized by Maxwell’s extraordinary transformation from the thin, small boy with pious ringlets swinging along his cheeks who uniquely arrived at Zionist classes in their village clutching a book and stuttering Yiddish phrases. Now Maxwell was ein Mensch, possessed of riches, power, influence and a large family.
Their childhood reminiscences helped to fill a void in Maxwell’s life. Israel further calmed his turbulent emotions, enabling the refugee to put down roots of a kind. In particular, he would become transformed when he entered the presidential suite of Jerusalem’s King David Hotel. Throwing open his windows, he would gaze at the old city of Jerusalem, mentioned so long ago in his itinerant father’s daily prayers at home in Ruthenia. The serenity evoked by the sunlight glinting from the Dome of the Rock above the Wailing Wall, that sacred shrine for Jews through two millennia, seemed to testify to the historic endurance of the Jews. Even he, the bulldozer, would tremble with emotion as the spectacle reawakened memories of his Orthodox childhood, the history of the diaspora, and stirred the survivor’s guilt for escaping the gas chambers.
That evening, 7 November, Maxwell dined with Ariel and Lily Sharon, the former military commander, minister and leading right-wing member of the Israeli parliament. To Sharon, as to so many other Israelis, Maxwell was ‘a friend – a Jew who had finally come home’. Their conversation concentrated upon politics, especially the question of Israel’s relations with the Arabs. The visitor glowed with pride that his opinions should be taken seriously.
Maxwell’s schedule the following day confirmed his importance in the country. After breakfast with Ehoud Olmert, the health minister and a friend with whom he shared a passion for football, he spent half an hour with Yitzhak Shamir, the prime minister. Their regular meetings were welcomed by the diminutive former terrorist. Maxwell had not only committed himself to substantial investments in Israeli industry, newspapers and football, but he had established a direct link between Shamir and Mikhail Gorbachev, the Soviet leader. The benefit to Israel had been considerable. Through Maxwell’s efforts, 300,000 Soviet Jews had been allowed to emigrate to Israel. He had also flown dozens of Soviet children afflicted by Chernobyl’s 1986 radioactive blast to Israel for treatment. In 1990, he had stood among the guests of honour at a solemn reunion of 1,000 Czech Jews, blessed by the presence of Václav Havel, the Czech president, and senior Israeli politicians.
That morning, at Shamir’s request, Maxwell had telephoned Gorbachev’s direct number in the Kremlin from the prime minister’s office. Speaking in halting Russian, he had passed on Shamir’s greetings and his request that the Soviet leader should remove an obstacle in Soviet – Israeli relations. The warmth of the conversation reconvinced Shamir of Maxwell’s importance. Emerging into the sunlight, the Publisher returned to a hectic schedule of meetings with his employees and advisers, interrupted only by lunch with David Levy, the junior foreign minister, and dinner with Yitzhak Modai, the finance minister. That night, as he lay in his room reflecting upon his importance, his financial troubles in London appeared thankfully remote. In one of those characteristic moments of rashness, he pondered first whether to buy El Al, Israel’s beleaguered national airline, or the Israeli Discount Bank, and even about bidding $11 billion for Paramount film studios.
After a short nap, at 4 a.m. on 9 November Maxwell flew to Frankfurt. There he lunched with George Shultz, the former US secretary of state whose memoirs Macmillan had published at enormous financial loss and whose company Maxwell often sought. He also met Ulrike Pöhl, the wife of the German central banker, a woman upon whom Maxwell was able to unburden his emotions and whose company he eagerly sought.
By nightfall, Maxwell had returned to London for dinner with Shimon Peres, the Israeli foreign minister. The two men, with a common ancestry in Eastern Europe, had deepened their bond when, with Peres’s approval, Alisa Eshed, his vivacious personal assistant for twenty-two years, had been appointed Maxwell’s coordinator and representative in Israel. These were the close relationships to which Maxwell had long aspired in Britain. But other than the occasional meeting with Margaret Thatcher, the prime minister, an occasional lunch with Norman Lamont, or conversations with other government ministers at charity parties, Maxwell could satisfy his frustrated political ambitions only by meeting leaders of the Labour Party.
Overcoming their antipathy, both Neil Kinnock and Roy Hattersley, Labour’s leader and deputy leader, accepted Maxwell’s invitations to meetings and meals in order to secure the continuing support for their beleaguered party of the Mirror Group’s newspapers – the Daily Mirror, the Sunday Mirror and the People. In Maxwell’s dining room, the entertainment manager, Douglas Harrod, would overhear both of them seriously seeking his advice and on one occasion listening to his request for a peerage. ‘It’s normal for a newspaper owner,’ Maxwell urged, expecting a positive response. Both visitors had smiled benignly, without committing themselves.
The delivery of the proofs of that night’s Daily Mirror interrupted the dinner with Peres. It was a familiar ritual, enjoyed by Maxwell as a means of demonstrating his influence. To emphasize to any doubters his unquestioned authority, he would push a button on the telephone to hear the editor’s attentive voice on the intercom. After he had barked an order and pushed the button again to cut off any possible response, his eyes would shine. His irrepressible pride was expressed in this telephone terrorism, harassing employees regardless of the time by insisting on their constant availability to his summons. To Peres, like so many others who saw the ritual with the proofs, his host seemed truly potent. But Maxwell’s life in his glossy apartment had in fact become a torment.
His forty-six-year marriage to Betty had effectively terminated long before. Ever since their first wedding anniversary after a whirlwind romance in wartime Paris, he had sporadically tired of the older French woman, but her devotion and his loneliness had always compelled his return. Her patience during his long absences and the regular arrival of new children had compensated for his irritation with her cold, unhumorous, unJewish demeanour. While most voiced warm respect for Betty, chiming that she was the sane, modest, reasonable and honest side of the unlikely duo, marvelling at her forbearance as her husband changed from being a muscular, brave, handsome charmer into an obese tyrant, he believed that their wartime romance should have been brought to an end after their first passion. Their markedly disparate backgrounds were not suited for an enduring relationship. Unlike Robert Maxwell, with his impoverished Jewish childhood, Betty Maxwell had been born into the tranquil, even dull, Protestant comfort of a large house in the French countryside, supported by the wealth of a silk manufacturer.
Not surprisingly, the small, plain woman with the rasping French accent had enjoyed the partying and jet-setting around the world’s most exclusive hotels and beaches, paid for by her husband. She had even tolerated appalling rows caused by his inexplicable emotional outbursts whenever his financial pressures seemed overwhelming. For years she had concealed her repeated humiliation in private by uttering public declarations of passion and loyalty. ‘Our love for each other’, she had told She magazine in 1987, ‘is not in doubt, it is the rock and rudder of my life.’ Few doubted her. Yet seven years later, in her autobiography, she would accuse her late husband of taking ‘sadistic pleasure’ in behaving during their long marriage in a ‘harsh, cruel, uncompromising, dictatorial, exceedingly selfish and inconsiderate fashion’. During his life her concealment of this truth had been near perfect. Annually, she had chosen and collected within a new leather-bound scrapbook all the newspaper cuttings and letters reporting her husband’s activities, presenting the volume to him on his birthday.
So by 1987 a woman described by an Oxford don as ‘sharp as a knife. All brain,’ could be in no doubt about the myriad accusations of fraud, deceit and dishonesty which he had attracted. Yet, rejecting the accumulated evidence and as an additional gift that year, she presented her husband as testimony to his ‘boundless energy and originality’ with a green volume listing the 2,418 bundles of documents used by one of Britain’s most litigious individuals in his lawsuits between 1945 and 1983. Prefaced by a quotation from Abraham Lincoln, Maxwell’s self-styled ‘personal archivist’ recalled how his ‘opponents dragged out every skeleton they could find from every cupboard imaginable … The British press and the British establishment have a nasty habit of never letting sleeping dogs lie and their attacks have to be nailed every time.’ In particular, she recalled the ‘seemingly unending bleak, sombre days’ of the ‘infamous DTI inspectors’ disgraceful attacks on your reputation’ and how their lives were ruined by ‘iniquitous’ High Court judges and ‘Trotskyites’ in the Labour Party’s ‘grotesque kangaroo court’. There were years, Betty recalled, when the number of loyal friends ‘could be counted on the fingers of one hand’ and when ‘Every morning, the slim thread holding the Damocles sword seemed to have frayed a little more.’ That loyalty had been rewarded by her appointment as a director of Headington Hill Investments, a controlling company linking the London & Bishopsgate companies (among other constellations) to Maxwell’s worldwide empire and to the Liechtenstein trusts. But Headington was separate and deliberately unconnected to the Robert Maxwell Group and its subsidiaries. (See company plan after notes.) Blessed, according to Betty’s own account, with high intelligence, some would think that she could not be ignorant of the developing financial crisis. Yet, for Maxwell, whether she was aware or not was irrelevant.
For twenty-five years, he had proposed separation from Betty. During the early 1950s he had fallen in love with Anne Dove, his secretary. Her lightheartedness, efficiency and typically English attractiveness, in contrast to Betty’s plodding worthiness, had resulted in a long, passionate affair. The relationship’s termination when Dove exiled herself to the Indian Himalayas had led to an uneasy reconciliation with Betty, which, after his fraud as a book wholesaler had been exposed in 1954, was interrupted by ferocious rows, complete with renewed demands for separation.
In the 1960s, he had enjoyed the company of Jean Baddeley, another devoted secretary. Pleasant looking and efficient, Baddeley had dotingly remained with Maxwell throughout the dark years after the DTI inspectors’ 1971 condemnation and had organized his office after his resurrection in the 1980s. ‘My love for him’, she would explain, ‘was based on huge respect and deep affection for someone who was very important to me.’ But when her looks declined and her imperious, jealous manner earned her the nickname ‘Queen Bitch’, Maxwell shuffled her to a side office.
By 1990, the pressure of his continuing deceit had made the demands of marriage intolerable. Effectively, he had separated from Betty. On her visits to London, she would sleep either in a hotel or with friends. Other than his occasional return on a Friday night to Headington Hill Hall, the Oxford mansion he had leased in 1959 from the council for a fixed £2,000 per annum and used as an office and family home, he barely lived under the same roof as his wife. Typically, on Saturday, 10 November, after sleeping one night in his own bedroom in Oxford, he summoned Captain Cowley to fly him back to Holborn.
For the following day, Maxwell had invited Professor Fedor Burlatsky, a well-connected Russian historian, and his wife Kira Vladina, a journalist, to lunch. To impress the couple, he sent his maroon Rolls-Royce to collect them from the Waldorf. The gesture was more rewarding than he could have anticipated.
As usual, he kept his guests waiting. His eventual appearance was dramatic: ‘If only I’d known it was you waiting for me, I wouldn’t have taken such a long time getting here.’ Maxwell was staring at Kira Vladina, a shapely forty-seven-year-old blonde. For her part, already awed by the display of wealth, Vladina was struck by the giant figure which was apparently filling an enormous living room.
Over lunch, Maxwell could hardly take his eyes off the woman. At the end of the meal, they agreed to continue their conversation, because she wished to interview him for a Moscow newspaper. Professor Burlatsky departed, Maxwell cancelled his other appointments and Vladina, accustomed to her small, sparsely furnished apartment in Moscow, relaxed in the company of the noticeably admiring billionaire. Their conversation soon switched from Maxwell’s customary bombast and inventions about his wartime heroism – ‘I escaped from Czechoslovakia on a raft at dawn with German bullets flying over me,’ he claimed, forgetting that he had simply boarded a train in peacetime – to an intimate outpouring of his misery, his loneliness and his forlorn search for affection. ‘I love the dawn,’ he murmured in Russian, correctly guessing that his listener would be impressed by sensitivity.
‘You have everything in life,’ said Kira.
‘Not love,’ replied Maxwell.
‘But everyone loves you.’
There was a long pause. ‘I don’t believe that. It’s my money they love.’ Maxwell paused again and moved closer to the Slav, so different from the women he usually met. ‘I absolutely adored my mother. With all my heart. And that’s why I always dreamt of loving and being loved in return.’
‘Are you happily married?’
‘Well, she’s French. You know how the French are. What they love more than anything is money. I never sensed any of the warmth or affection I got from my mother in my own family and which I gave to the world around me.’
Kira moved closer, responding to and even sharing Maxwell’s emotion. The man was ‘sad and lonely’, she realized, ‘even within his family’. Yet she was unable to change anything.
Maxwell continued talking about Betty: ‘She’s so calculating. A calculating Frenchwoman, putting up a good front, but she gives me no love. Not the love I got from my mother.’
Naturally, Kira knew nothing of the tempestuous rows which took place between Maxwell and Betty. Instead she noticed only the Publisher’s vulnerability: ‘His big, piercing, fatal wound’. It was already nightfall. Kira felt an intimacy towards a man who was ‘overweight, old and plain’. He spoke of his love for Russia and the culture which was his own. ‘I sympathize,’ she whispered. ‘I understand.’ Letting his imagination run wild, Maxwell had become infatuated with the woman.
Some time later that evening, he spoke of his children. ‘They’re very good at spending the money I earn. They’re not like me. They don’t work hard and take risks.’ Maxwell was clearly bothered by his seven surviving children. His favourite, Michael, he confessed, had died in 1968 after being kept alive for seven years on a support system following a motor accident. His new favourite was his son Ian, conceived in 1955 when Maxwell had been mistakenly told by a doctor that he was dying of cancer. ‘I adore him. He’s a bit like me.’ Pause. ‘But not in work. And I love my youngest daughter, Ghislaine. The rest are a cold lot. Like their mother; and they want to live off what others earn.’
Kira returned late to her hotel and her husband. Maxwell’s last words had been memorable: ‘Kira, I would so like to be in your suit of clothes or, even better, your skin.’ He had been, she thought, so tender, so trusting. The whole intimate experience had been ‘a fantasy which took hold of our hearts’.
Alone once again in his penthouse, Maxwell might have reconsidered his description of his children. He unashamedly doted upon Ghislaine, his youngest daughter, naming his luxury yacht after her and financing her unprofitable corporate-gifts business, though he would not tolerate the presence of her boyfriends, whom he suspected were hoping to benefit from a piece of the action. His relationship with Ghislaine was becoming increasingly intense, some would say indulgent. He no longer had much interest in his twin daughters, Isabel and Christine, born in 1950. Of Anne, his daughter born in 1948, he had quipped to colleagues, ‘What have Anne and Pope John Paul in common? Both are ugly and both are failed actors!’ His eldest son Philip, born in 1947, a donnish, decent man, disliked his father, and the sentiment was reciprocated. When he married in South America, his father refused to attend the ceremony. Some suspected that Maxwell had always resented the death of his elder son Michael and the survival of Philip.
Maxwell often spoke to Ian, a joint managing director of MCC and a director of over eighty private companies, but he permitted him few responsibilities, despite his annual income of £262,000 plus practically unlimited expenses. Ian, it was agreed by most, was a charming, easygoing playboy, sought by many young, attractive women, whom he tended to address as ‘princess’. But there was also an arrogance. On one occasion, Ian had told Bob Cole, Maxwell’s spokesman, to collect a suit from his London flat. Cole arrived to find the chaotic evidence of the previous night’s revelry. Scattered on the bedroom floor lay several used condoms. Ian clearly expected his Filipina maid to clear everything. A similarly casual attitude affected Ian’s responsibilities to work. Educated at Marlborough College and at Balliol College, Oxford, he understood the legal requirements expected of directors of companies but adopted his father’s cavalier attitude towards those laws, smoothing things over with a modicum of charm.
Robert Maxwell, however, noting that Ian lacked an astute appreciation of finance, engaged in the real conversations with Kevin. As the empire’s finances became perilous, it was Kevin whom he increasingly trusted. But there was little intimacy, and frequently, as in the past, he ignored his son’s advice, not least when Kevin urged that they renegotiate all their loans with the banks. ‘They’ll eat us alive,’ snapped Maxwell each time he raised the issue. All those bankers, lawyers and other professionals visiting the Publisher were appalled by the father’s treatment of his son. ‘Shut up, you don’t know what you’re talking about!’ Maxwell would yell. The eyewitnesses to those humiliating outbursts, admirers of Kevin’s talent, would gaze stupefied as his father ‘treated him like dirt’. None was more surprised than Bill Harry, Macmillan’s tax adviser. At a celebratory party on board the Lady Ghislaine in July 1989, Harry was explaining the tax implications of the company’s recent merger with McGraw-Hill when Kevin asked a question. His father exploded: ‘Don’t ever interrupt a tax expert!’ A chastened Kevin fell silent, while the others present stared at their shoes.
Yet at 7 a.m. most days during 1990, Robert Maxwell was ensconced alone in his office with Kevin, taking the place of his son’s early-morning German lessons. Dignified with the label ‘prayer meetings’, their encounters allowed them to plot and plan their agenda.
So much in Kevin’s life had changed in the last months. In 1988, his father had dispatched him to New York to manage Macmillan and their new American empire. There, to Robert Maxwell’s irritation, he had been joined by Pandora Warnford-Davis, his tall, thin, toothy, aggressive, thirty-year-old wife, whom he had met at Oxford and whose assertions of independence both before and since their wedding in 1984 had not endeared her to Robert. ‘What shall I call you?’ she had coldly asked Dick Cowley, the helicopter pilot, on first meeting. ‘You can call me Captain,’ he replied. Robert Maxwell was never able to establish that advantage over a woman he regarded as spoilt and foolish. For his staff, the defining moment of Pandora’s attitude towards her father-in-law had occurred one day when the Gulfstream was parked on the tarmac at Le Bourget airport outside Paris. Maxwell was fuming because Kevin and his wife were late for take-off. ‘Fuck them! Let’s go!’ he shouted eventually, sending Terry Gilmour, the chief steward, to deposit their passports at immigration. At that moment the couple arrived, only to be tongue-lashed by a furious Maxwell. To his astonishment, Pandora then turned on him and snarled, ‘Who the fuck do you think you are?’ Silenced, Maxwell stared out of the window until touch-down in London. The relationship worsened as the financial crisis grew, with the helicopter being frequently dispatched to collect Kevin from Hailey, his Oxfordshire country home near Wallingford. Unintimidated, Pandora once mockingly threatened to ‘use a gun [on her father-in-law] if you disturb our life again’. Her outbursts won only temporary respite. Like most bullies, Maxwell retreated when challenged but soon resumed his egotistical behaviour, demanding total obedience to his needs.
By the autumn of 1990, Kevin had abandoned his New York residence and was commuting from London on the 9.30 a.m. Concorde to New York, cramming up to twenty-one meetings into one day before sleeping on the overnight British Airways 747 flight home, with a helicopter hop to Maxwell House at 6.30 in the morning. During that year, his use of conventional airlines within Europe had declined. Under increasing pressure, he flew on chartered jets, accompanied by Carolyn Barwell, his lively assistant – to Zurich for lunch, to Hamburg for dinner, or on one occasion overnight to see his father in Istanbul, returning the following day to London. He had also more or less abandoned watching his own Oxford United football club on Saturdays or playing with his children, Tilly, Teddy and Chloe. His regular cultural outings organized by Pandora – to the theatre, Covent Garden or the Festival Hall, followed by dinner in London’s fashionable restaurants – also tended increasingly to be cancelled, prompting frequent absences from their chaotic home in Jubilee Place, Chelsea. Despite Pandora’s shrill complaints about the working hours her father-in-law required from Kevin, she enjoyed the perks of Maxwell’s fortune. Even her family shared the benefits. John Warnford-Davis, her father employed by Maxwell, used the helicopter to avoid the traffic to Newmarket, while her brother Darryll, employed at brokers Astaire and Partners, regularly approached Kevin with ‘business propositions’ in return for monitoring and buying MCC shares.
Initially, Kevin had not complained about the pressure. No other man of his age in London could helicopter from the city centre to land alongside Concorde, receiving special dispensation from customs and passport control. Like his father, he revelled in the exercise of power, seeking acceptance from the establishment as befitted an old boy of Marlborough College and a graduate of Balliol College, Oxford. He even used a barber at the Savoy, a custom Robert Maxwell had adopted more than forty years earlier. He had not complained when his summer holidays in 1990 had been forsaken. While his friends were relaxing in expensive resorts, his August days had been filled by endless meetings with bankers, lawyers, accountants, analysts and staff. His most frequent visitors were Colin Emson, the managing director of Robert Fraser, a merchant bank chaired by Lord Rippon, an independent director of MCC; Neil Taberner, a senior partner of Coopers, the empire’s accountants; Scott Marden and Andrew Capitman of Bankers Trust; Michael von Clemm of Merrill Lynch, a friend anxious to win some of the business; Sir Michael Richardson of Smith New Court, MCC’s stockbrokers, and reputedly close to the prime minister; and Thomas Christofferson of Morgan Stanley. These men were unified by more than their financial profession and their proximity to the Maxwells. Individually, each was contributing to the Maxwells’ appearance of probity and financial security.
Another group of visitors, his employees, members of the inner sanctum, the heart of the operation, were probably more important. By the end of September 1990, to help him to cope with the financial crisis, they were being summoned by Kevin to daily meetings. All were men and women of unquestioning obedience and unremarkable technical competence, closely associated with the empire’s finances. The overriding criteria for their employment were their loyalty and their readiness to become beholden to their employer in return for their over-generous salaries. Among them were Deborah Maxwell, a thirty-three-year-old dark-haired lawyer who was not related to her employer, although outsiders sometimes mistakenly believed there was a connection; Mark Tanzer, a ‘poor man’s Peter Jay’; Robert Bunn, forty-two years old, an accountant and RMG’s finance director, of whom Maxwell irreverently joked, ‘I could order him to rob the Midland Bank!’; Basil Brookes, the acting finance director recruited from Coopers; and Albert Fuller, the head of the treasury.
As the crisis deepened, Kevin included in those meetings Michael Stoney, an ambitious accountant, and Jean-Pierre Anselmini, a forty-eight-year-old Frenchman and former director of Crédit Lyonnais, who in 1988 had helped to organize the $3 billion Jumbo Loan to the Maxwells and had been flattered by the subsequent invitation to join MCC as deputy chairman. Although blessed in Maxwell’s propaganda as ‘brilliant’, Anselmini was the fullest embodiment of his state-owned bank’s naivety. ‘The bank which could never say “no”’ had lent Maxwell $1.3 billion, its accumulated bad debts now totalling over £20 billion. For the Frenchman, wilfully ignorant of Maxwell’s past, his new employer was ‘a fairy tale everyone needed to believe in’, especially because he proclaimed himself a socialist while offering an entrée into the giddy world of the media. ‘I wanted to believe in Maxwell’s success,’ Anselmini later confessed. He was hypnotized by Maxwell’s ‘star quality, and I loved the Maxwell family’. That same warmth was reflected by Sam Pisar, Maxwell’s French lawyer and business representative engaged in deals in Russia and Israel and had become a close confidante: ‘We needed myths and heroes in those dark times.’
One of the recent casualties of that trusted group was Ron Woods, a director of MCC whom Maxwell had inherited as a tax consultant (just as he had inherited the deputy managing director Richard Baker) on his spectacular relaunch into business in 1980 when he bought the British Printing Corporation. The forty-seven-year-old from the Rhondda Valley fell under Maxwell’s spell and came to regard him with a mixture of awe and fear as a ‘hero and father-figure’. To his delight, Woods had discovered that his new employer was hyper-sensitive about taxation and wished him to deploy his skill to minimize the tax liabilities on the empire’s purchases, take-overs and disposals. Little pleased Woods more than to work on his computer to produce an innovative tax scheme. The empire, he knew, was ‘tax-driven’ and he more than anyone understood its complexity. According to a senior company auditor, ‘Only Woods could explain why it was so complex.’ The challenge, Woods would attest, was ‘very exciting’. It was also legal and ethical. There was no need to resort to the criminal evasion of taxes. Maxwell’s empire was ultimately owned in Liechtenstein, so few taxes were unavoidable and they could be neutralized if, by careful anticipation, MCC and the 400 private companies accumulated the appropriate debts and losses. When he bought Macmillan, $1.8 billion of the $2.6 billion purchase price was charged to Macmillan itself so that the interest charges could be offset against the profits, thereby avoiding all taxation. Indeed, Maxwell’s only serious liability was advance corporation tax (ACT) on dividends. ‘I don’t want to pay taxes,’ he had told Bill Harry, his American tax adviser, ‘but I don’t want to go to prison either.’ This was a reference to the fate of Leona Helmsley, recently jailed in New York for tax evasion, a poignant moment for Maxwell, who regularly occupied the presidential suite in her Manhattan hotel.
Although with hindsight Woods would regret his own simplicity, he had never suspected his employer, even though he personally negotiated with the two lawyers responsible for the Liechtenstein trusts: Dr Werner Rechsteiner in Zurich and Dr Walter Keicher in Vaduz, the principality’s capital. With awe, Woods retold Maxwell’s fanciful story of how, dressed in a British army uniform, he had met Keicher’s father in Zurich all those years before and had had the savvy to lay the foundations of his empire. The Liechtenstein Anstalts, the impenetrable trusts, Woods knew, did not contain any cash, only shares. Maxwell’s claim in 1988 at the time of the launch of his authorized biography that they boasted funds of £1 billion, a figure calculated by Woods himself, referred only to Maxwell’s shareholding in his own companies, including MCC, not to his cash. With Woods’s compartmentalized knowledge, those shares were always used as collateral to raise private loans, liable to be sold by the lending banks if the Publisher defaulted.
Maxwell had trusted Woods to override the rigid compartmentalization between his private and public companies, moving from one to the other. Although during 1990 the tax expert, seeing through the maze of figures, had realized that the private companies were ‘short of cash’ and that Maxwell was making an effort ‘to prevent MCC’s share-price fall’ by purchasing his own shares through Liechtenstein, he remained faithfully silent. His loyalty was all the more remarkable given that their relationship had been fractured ever since Maxwell had used one of his private companies (Hollis) to buy AGB, a research company, in the summer of 1988. Woods’s protest to Maxwell, who was at the time sailing on his yacht, was rebuffed with the words, ‘It’s not your business to question my judgment. Just obey your orders.’ To break the impasse, Kevin had driven to Woods’s home on a Saturday morning and, after going through the figures, had understood his criticism. Both men had telephoned Maxwell to protest. But their appeal was in vain. That deal, recalled Woods, was the first sign of Maxwell’s bad judgment. The Macmillan deal in October 1988 was the second.
In the midst of the Macmillan saga, Woods had cautioned Maxwell about the price. ‘Don’t worry,’ smiled the Publisher, touching Woods on the knee, ‘I won’t offer more than $80 a share.’ Shortly afterwards, he paid $90.25, nearly $1 billion more than the company was worth, just to secure a place in history. Woods was appalled and invoked the innovation of which he was proudest – a computer programme capable of predicting Maxwell’s profits. On the eve of that final bid, he had unfolded over his employer’s desk a spread-sheet forecasting the consequence of the Macmillan purchase. ‘You’ll be liable for surplus ACT,’ he said, referring to heavy exposure to taxation. ‘That’s going to hit profits. And that’s going to hit MCC’s share price.’
For a moment, there was silence. None of the usual telephone calls interrupted Maxwell. ‘Very interesting,’ he murmured at last. ‘Has anyone else seen this?’
‘No,’ replied Woods, understanding the reason for the question. ‘If MCC’s share price falls, it will affect the private-side companies’ – many of whose loans were secured against MCC shares.
Again there was silence. Woods added, ‘I’m predicting a five per cent to eleven per cent growth rate – at best.’
Maxwell folded the paper: ‘I’ll get twenty per cent.’ Woods was dismissed from the room.
Days later, Maxwell borrowed a further £170 million from Lloyds Bank to part-finance his purchase of the Official Airline Guides. For Woods, it boded another tax nightmare, with more harmful consequences for MCC’s share price.
Ever since then, Woods’s fears had grown as he observed Maxwell’s efforts to prop up MCC’s profits. In October 1990 he offered Kevin an unorthodox solution. If MCC’s share price fell further, said Woods with an air of self-congratulation, the family would be able cheaply to buy (through the Mirror Group, still privately owned by Maxwell) the remaining 40 per cent of MCC shares owned by the public. ‘That’s an interesting idea,’ answered Kevin, recognizing Woods’s naivety about the state of the family’s finances. ‘I hadn’t thought of that.’ To his relief, the real crisis had not yet penetrated even into the inner sanctum.
Woods’s misgivings had been interpreted by Maxwell as evidence of disloyalty, the cardinal sin in the dictator’s eyes. Maxwell’s displeasure was aggravated when a secretary in Woods’s department was suspected of leaking to the satirical magazine Private Eye stories of a sexual affair between herself and Maxwell.
‘Sack her,’ ordered Maxwell, doubly outraged by the association with the magazine he had successfully sued for defamation. Woods refused. ‘She’s innocent,’ he insisted. But he was proved wrong. The secretary had forged letters and had invented the relationship. Woods was deemed to be a traitor. ‘Kick him out of his room,’ instructed Maxwell. Woods was removed from his plush office and dispatched to the equivalent of a dungeon, a shabby room in an outbuilding without a secretary. He hinted that he would resign his directorships, but Maxwell gambled correctly that his tax expert, like so many employees, would bear the embarrassment to avoid losing his high salary.
Of all those people in autumn 1990, few were as trusted by Robert and Kevin Maxwell as Larry Trachtenberg, an excitable, thirty-seven-year-old Californian international relations graduate who until 1985 had sought a PhD at the London School of Economics. During his period at the LSE, Trachtenberg had been renowned as the legman, the gofer amiably operating a photocopying machine late into the night to please a tutor, until he abandoned his studies to earn his fortune. In 1987, his babbling self-salesmanship had beguiled both Robert and Kevin Maxwell into believing him to be a talented investor and, keen to become rich, he had wilfully lent himself as the Maxwells’ tool. The American’s misfortune was his ignorance about the rules governing behaviour in the City. Untrained in finance, he casually assumed an expertise he lacked.
Almost every day, after the 7 a.m. ‘prayer meeting’ with his father, Kevin awaited Trachtenberg in his office. Together they agreed the implementation of Robert Maxwell’s orders: principally to use the £700 million plus in the pension funds to finance the empire’s difficulties. In Maxwell’s opinion, it was a stroke of genius to delegate to an underling under his own and Kevin’s supervision the negotiations being undertaken with banks over the use of the pension funds. By removing himself from personal contact, Maxwell could always deny any knowledge of any wrongdoing and maintain his worldwide profile as one of the globe’s media moguls. Concealing reality was, he knew, vital for survival.
Maxwell had begun using pension fund money as a temporary palliative in 1986. In that year he borrowed £1.5 million from MCC’s pension fund. In 1987 he borrowed £9 million. Both sums were repaid. His alleged legal authorization flowed from the ‘Powers of Investment’ clause in the fund’s deed of trust. But the clause stipulated that the trustees could only ‘lend money on such security as the Trustees think fit to any person except an Employer’. Accordingly, Maxwell was breaking the terms of the trust from 1986 onwards. Only the Publisher understood the irony of the presence in his wooden bookcase of a book called ‘Creative Accounting’ by Ian Griffiths. Chapter 4 was entitled, ‘How to pilfer the pension fund’.
In 1988, two of Maxwell’s financial ambitions coalesced. He wanted common management for the nine pension funds under his control – Mirror Group Pension Scheme, Maxwell Communication Staff Pension Plan, Maxwell Communication Works Pension Plan and six private pension schemes – and he aspired to own a bank. Both ambitions would allow him to authorize investments of other people’s funds for his own personal benefit. He prided himself on being a shrewd investor, in currencies and gilts as well as shares. In 1986, he boasted that he had earned £76 million by buying and then breaking up the Philip Hill Investment Trust, an operation which had earned him genuine acclaim from cynical City observers. His genius was that he had not paid a penny. Instead he issued 112.6 million MCC shares worth £306 million. He then sold off most of the Trust’s assets and used the cash to finance a buying spree in North America. Among the purchasers of the shares owned by the Trust was his own staff pension fund.
On Maxwell’s instructions, the pension fund bought from Philip Hill 12.4 million shares in Beechams, the pharmaceutical company. Three months later, just before a take-over bid for Beechams was announced, he ordered that the same shares be sold to MCC. When the news of the bid broke, the share price soared. Then, in March 1987, just before the end of the company’s financial year, MCC sold the same shares back to the pension fund and pocketed £17.4 million in profit. That ploy allowed Maxwell days later to boast that MCC had earned ‘record profits’. Only after his death would he be accused of receiving insider knowledge about Beechams, enabling him to manipulate the ownership of the shares and steal from the pension funds.
Over those ensuing years, Maxwell’s personal investments in banks – Ansbacher, Guinness Peat, Singer and Friedlander, the Midland and Robert Fraser – reflected his ambition to earn a fortune by controlling other people’s money. In his dream, he was emulating Lord Stevens, another newspaper baron and in Maxwell’s opinion ‘a spectacular success,’ who with Lord Rippon had transformed Invesco MIM into a £2 billion investment management fund. Hence in 1988 Maxwell established a new framework for the management of the pension funds. He had few qualms about his use of the funds. Soon after buying the Mirror in 1984, he had told Ken Angell, a former Mirror Group employee, ‘I own the pension fund.’ Angell, knowing that pension funds are vested in trustees on behalf of their beneficiaries, was surprised, but, when challenged, Maxwell logically explained his assertion. Since he personally owned the Mirror Group, and the pension fund effectively came under his control, he ‘owned’ the pension fund. To his delight, the funds were always in surplus.
The instrument for Maxwell’s control of the pension funds was BIM’s manager Trevor Cook, born in Northumberland in 1949, who had obtained a first-class degree in mathematics from Newcastle University. Appointed on 2 October 1985 as manager of the Mirror Group Pension Scheme, the inoffensive Cook was a pension fund administrator, not an accountant. Maxwell’s grounds for the selection were easily established: Cook willingly complied with his employer’s demands in return for a handsome salary. Having engineered an unusually close relationship, the Publisher insisted that he be notified in advance of all Cook’s movements. ‘Maxwell regarded his time as one hundred times more valuable than anyone else’s – so he wanted to talk at his convenience,’ recalled Cook, who made himself available to his employer’s telephone calls at all hours, knowing how much he relished disturbing his minions. Cook had proved himself malleable and easily impressed by Maxwell’s investment prowess, convinced that he ‘was a safe pair of hands’. Having asserted his ‘ownership’ of the pension funds, Maxwell directed the investments to suit his requirements. To Cook it appeared that the Publisher’s investments were astute and profitable, even if unconventional.
In March 1988, Maxwell had pooled four pension funds – benefiting at the peak 23,400 employees and worth over £700 million – into one Common Investment Fund (CIF). The management of CIF was entrusted to another Maxwell creation, Bishopsgate Investment Management (BIM), a non-profit-making organization. Both inventions had been established under the 1986 Financial Services Act with the permission of the Investment Management Regulatory Organization (IMRO), the government-appointed regulator. Given Maxwell’s history, John Morgan, IMRO’s director, should have been cautious. On his original written application, Maxwell had written that BIM was owned by the Pergamon Foundation Stiftung, a charitable body based in Liechtenstein. After reading the application, an IMRO official asked Cook for the Liechtenstein accounts. Cook asked Ron Woods, who in turn asked Maxwell. ‘Impossible!’ screamed Maxwell. ‘They can’t have them!’
‘They won’t authorize BIM without the accounts,’ pleaded Woods. But Maxwell was implacable – for good reason. The Foundation had no staff and no premises and produced no accounts to prove that it controlled any money. It was a legal fiction managed by his Swiss lawyers, who were paid to refuse answers to any questions. Maxwell was chairman of the trustees and, in his opinion, beyond mortal scrutiny. ‘There are no Liechtenstein accounts,’ Cook wrote to IMRO. Surprisingly, there was no reaction.
Maxwell’s escape from the potential trap had been effortless. Since the law required that BIM be owned by a registered charitable trust with proper accounts, he just invented one. The figment of his imagination was called the Maxwell Charitable Trust, its creation partly supervised by Deborah Maxwell, his legal adviser. Under the proposed structure, the Trust would control BIM, although neither actually employed any staff. The Trust was effectively just Robert Maxwell, without any trustees appointed by the pension funds, though including one trustee, David Corsan, a retired Coopers auditor who was also an IMRO director. BIM’s manager Trevor Cook and his staff were employed by Headington Holdings, a subsidiary of Headington Hill Investments. That extraordinary structure was ignored by the government’s regulator after the initial application was withdrawn, and on 6 April 1988 BIM received formal approval to manage the pension funds of over 20,000 employees from offices at 4/12 Dorrington Street, near Maxwell House. Cook was appointed the compliance officer, formally responsible for BIM’s obedience to the laws and for the company’s liaison with the regulatory authority.
Under BIM’s articles, Robert, Kevin and Ian Maxwell, the leading directors, wielded only limited powers, but inevitably those rules were ignored by Robert Maxwell, albeit unchallenged by Ron Woods, Trevor Cook, Robert Bunn (until his resignation in 1990) and the other directors. Unknown to them, in a legal ruse to protect himself in the event of any future inquiry, Maxwell had falsified the board minutes to appoint himself the sole arbiter of the company’s management. In the event, he decided on investments – sales and purchases – without reference to anyone else. His action mirrored MCC board minutes of November 1981 which permitted him to act as a ‘committee of MCC’s board of directors’, bestowing upon himself uncontrolled powers over the public company, including the right to be the sole signatory of cheques for unlimited amounts. Naturally, these changes in the running of BIM were kept a close secret. They existed only as a legal safeguard if trouble arose.
Maxwell quickly established a pattern of management of the pension funds. At BIM’s monthly meetings, religiously attended by Robert and Kevin and occasionally by Ian, the directors reviewed and approved BIM’s portfolio of investments. Cook and his deputy, Jeffrey Highfield, merely took care to monitor the minutes, acknowledging that the right to buy and sell shares belonged to the directors. Every month, they circulated a schedule of BIM’s portfolio of shares. So none of the Maxwells could ever be in any real doubt whether particular shares belonged to the pension funds or to their private companies.
In September 1988, Maxwell decided to establish tighter control over the pension investments. His excuse was the discovery of a fraud of £7,000 in the payment of pensions to former employees. A subsequent report by accountants concluded that the pensions administration was a ‘shambles’. Summoning Cook and Highfield, he announced that authority for the management of BIM and the CIF investments was to be vested in Robert Bunn, the accountant employed by his private companies. ‘Bunn will handle all relations with the brokers and investment houses,’ he said. ‘We are involved in a large number of take-overs and mergers. Bunn has better expertise. Bunn will have all the powers. Your responsibility will be solely BIM’s administration.’ At the end of their employer’s ten-minute speech, neither man protested.
But within weeks Highfield was complaining to Cook: ‘Bunn isn’t telling me about the actual investments.’ Cook remained silent, unwilling to question Maxwell’s edict that ‘We are ruled by IMRO, and we must not reveal price-sensitive information.’ Highfield was puzzled. Cook had already accepted another limitation upon himself. Three months earlier, in July 1988, Maxwell had decided that BIM and the pension funds would enter into a special and unusual relationship with yet another private Maxwell company, London & Bishopsgate Investments. LBI was the preliminary vehicle for Maxwell’s ambitions to control a bank. Not surprisingly, Cook did not understand the importance LBI would assume. ‘Go and talk to the LBI people,’ urged Maxwell soothingly, ‘and satisfy yourself of their competence.’ Cook had obliged and did not object to the relationship.
The creation of LBI was the direct consequence of Maxwell’s introduction to Larry Trachtenberg and another American, Andrew Smith, renowned as ‘a smooth New York computer jock’. Modelling himself on the Wall Street brokers in Tom Wolfe’s novel, Bonfire of the Vanities, Smith was a fast-talking, self-confident smoothie wearing braces over heavily starched shirts. His appearance and manner shrieked a dealer determined to make his fortune. In 1989, Smith, introduced to Maxwell by his father, a German banker, had professed that his hero was Michael Milken, the American arbitrageur and junk-bond specialist who by 1990 was on course for imprisonment.
Trachtenberg and Smith had met at the London School of Economics in 1985, both of them eager to join the rich in that booming era. Their initial ploy had been to exploit the exploding market for information and sell newsletters of financial and political analysis to banks, industrialists and investors. The information had been compiled by LSE students based on published sources. That easy money fed the two men’s ambitions. Technology was their answer. By 1987 when they met Maxwell, they had invented a computer system which, in theory, monitored all the international economies and markets to identify perfect investment opportunities before any mere mortals could do so. Calling themselves Global Analysis Systems (GAS), they were presented to Maxwell, an unrestrained admirer of technology, not as mere analysts but as investment managers. All they required was other people’s money to earn millions.
Entranced by their gimmick, Maxwell felt that they lacked gravitas. They needed the respectability that could be provided by employing in their firm an established personality in the financial community. That role, he believed, could be best performed by Lord Donoughue, a socialist academic who in the 1970s had served as a policy adviser to Harold Wilson before self-interest prompted him to switch ideologies in the 1980s to capitalism. In 1988, Bernard Donoughue, aged fifty-four, was employed as a director at Kleinwort Benson, the merchant bank, where he was responsible for research. Maxwell, the frustrated Labour politician, was keen to recruit any of Wilson’s team, and Donoughue leapt at the giant salary offered. He would be paid £180,000 per annum, plus £36,000 annual contribution towards his pension and an annual Christmas bonus of £200,000. In addition to that total of £436,000, Maxwell would provide a home in Westminster, close to parliament. An added attraction to LBI’s new, full-time executive vice-chairman (under Maxwell himself) was his belief that £300 million of Maxwell’s money was ‘sloshing about’ in various merchant banks waiting to be invested.
Donoughue’s income matched those of his two colleagues and co-directors. Trachtenberg’s initial annual salary in 1988 had been £80,000 but his income was boosted in the following year by a performance bonus of £125,000. Soon after its payment, Maxwell’s auditors realized that the bonus for all three directors had been paid on what were called ‘erroneous figures’, but it proved impossible for Kevin to overcome Donoughue’s stubborn objections and recover the money. That largesse, the loss of hundreds of thousands of pounds by sheer dilatoriness or negligence, contradicted the cultivated image of Maxwell as a ruthless cost-cutter and was a measure of the true state of the empire’s finances. Accordingly, in 1989, Trachtenberg’s income was consolidated at an annual salary of £185,000 plus £18,500 towards his pension, and Smith was paid £150,000 without any pension contribution. Trachtenberg was assured of a Christmas bonus of £125,000, Smith one of £200,000.
The trio, Trachtenberg, Smith and Donoughue, were formally embraced within Maxwell’s empire as directors of LBI – London & Bishopsgate Investments – with Robert and Kevin Maxwell. (Headington Hill Investments, the controlling company of all Maxwell’s private companies, bought a 60 per cent stake in GAS, which was then renamed London & Bishopsgate International Investment Inc. – LBII.) It was no coincidence that ‘London & Bishopsgate’ featured in the names of a growing number of Maxwell’s private companies. Among the twelve Bishopsgate companies was London & Bishopsgate Traders, London & Bishopsgate Holdings, London & Bishopsgate Group, London & Bishopsgate International NV and London & Bishopsgate International Management. All performed very different functions but, as Maxwell intended, the similarity of the names was liable to confuse outsiders. Adding to the confusion, some of the different London & Bishopsgate companies operated from the same premises and with the same staff.
Having established LBI as his new ‘investment bank’, with IMRO approval, Maxwell sought customers to establish his credibility for financial management. In spring 1988, he bought 25 per cent of First Tokyo Trust, a Scottish investment trust founded in 1980 which controlled £70 million of Japanese shares owned by institutions and private investors. Although Maxwell posed as a buyer in the name of London & Bishopsgate Holdings, a third of the money he used belonged to the pension funds.
Initially, Maxwell’s investment (codenamed ‘Setting Sun’) did not alarm Alan McInroy, the sober Scottish chairman of the First Tokyo Trust, who thought Donoughue ‘charming and competent’. Over the following two years, if any man other than the Maxwells could understand what was happening within First Tokyo, it was Donoughue. Donoughue presented himself, Larry Trachtenberg and Andrew Smith as investment geniuses. Their proposal to McInroy was to improve First Tokyo’s unspectacular performance. Instead of simply investing in Japanese shares, said Donoughue, the Trust should sign a contract to use LBI’s computer programme ‘Japan 60 GAS’ to anticipate the Japanese market’s performance and beat other investors.
Initially, McInroy was irked by Donoughue’s ambitions and opposed the plan, because it contradicted the Trust’s sober purpose, and anyway the transfer of the Trust’s powers to LBI would be expensive. But McInroy was soon outmanoeuvred. Exploiting his svelte patter and his political background, Donoughue had toured the institutions, winning their support for his idea. His management of the Trust was confirmed on 9 January 1989 when he joined First Tokyo’s board with two other Maxwell employees, George Willett, a taciturn stockbroker, and Robert Bunn. Just at the moment when Maxwell’s need for money – to buy MCC shares, to pump money into MCC by purchasing assets, and to pay for his accumulated losses since the stock market crash in 1987 – became pressing, McInroy had effectively allowed his control over the board’s six directors to dissolve, except in extremis by use of his casting vote. ‘I had no choice,’ he would explain. ‘The institutions supported Donoughue and Maxwell.’
Soon after, the Tokyo market fell sharply and Andrew Smith offered Maxwell a solution. It was called stock lending, a perfectly legitimate strategy invented in New York. Financial institutions and investors often required shares for a short period – overnight or a few days – to comply with securities laws or to cover speculative positions. Rather than buying the shares and incurring substantial costs, the investors borrowed them for a fee. In turn, to protect the registered shareholder from loss or theft, the borrower provided securities or cash worth more than the shares. Undertaken in this way, stock lending was risk-free.
It was in its pure form that, on 27 January 1989, Trachtenberg and Smith suggested to McInroy that First Tokyo could generate extra income at no risk by stock lending the shares in its reduced £60 million fund. Overcoming his initial reservations, McInroy agreed to a six-month trial. Unfortunately, however, he failed to ask a number of pertinent questions about the transactions, and most of all he failed to examine the contract between First Tokyo and LBI. He merely demanded that Morgan Stanley, the Trust’s bank which held the share certificates in its safe in London, should accept all the risk. Trachtenberg and Donoughue were told to obtain an undertaking to that effect from Morgan Stanley, whose vice-president Thomas Christofferson duly gave it. Trachtenberg and Donoughue then assured McInroy that the bank had agreed to be the guarantor, though the First Tokyo chairman appears never to have asked for written evidence. ‘That wasn’t my responsibility,’ he later explained.
Inevitably there was confusion about responsibility for the management of First Tokyo’s £60 million – confusion which was very much Robert Maxwell’s intention. First Tokyo had a contract with London & Bishopsgate International Investment Management, who were to manage the fund in accordance with the wishes of First Tokyo’s board of directors. LBIIM was owned by London & Bishopsgate Holdings, which in turn was owned by Headington Hill Investments, Maxwell’s private company ultimately owned by the Liechtenstein foundation. But it was the entirely distinct LBI which was undertaking the stock lending. This confusion was ignored by McInroy, not least because during the first year the profits seemed to exceed expectations.
McInroy’s legal advisers seem also not to have appreciated the deft self-protection of LBIIM’s contract with First Tokyo. While one clause at the top of the agreement permitted stock lending, another, much later clause allowed LBIIM to stock lend ‘in house’ for a ‘fair price’. Astutely, Maxwell and his cohorts had covered themselves in the event of future recriminations.
Unknown to McInroy, soon after the stock lending was approved Maxwell allowed Trachtenberg to use First Tokyo’s shares in an unauthorized manner. First Tokyo’s stock was being lent, not in an orthodox way on the open market, but to Maxwell privately, that is to London & Bishopsgate Holdings. And the collateral for the prime Japanese stock was not cash but MCC shares. To the Maxwells, the beauty of the operation was that First Tokyo’s shares were never sold, so preserving the myth that the fund was inviolate and untouched. The only risk was to First Tokyo’s innocent investors. The evidence suggests that by February 1990 Lord Donoughue ought to have suspected the unannounced use of those shares. In September of that year, Kevin would offer some of those First Tokyo shares to Julie Maitland of Crédit Suisse as collateral for the £50 million private loan.
By November 1990, as Maxwell vainly searched for relief from the recession and from the rising interest rates on his total debt of $3.5 billion, First Tokyo’s £60 million was only a small part of his requirements. For more than a year, he had also been stock lending pension fund shares using the technique proposed by Trachtenberg and Smith. During summer 1989, on the Maxwells’ instructions, Trachtenberg had negotiated the use of pension fund shares to raise cash from John Di Rocco, head of Lehman Brothers’ International securities lending department. To conceal the scheme, the contract signed by Kevin on BIM’s behalf was made complicated. Lehmans would be given shares from BIM’s portfolio, and in exchange would give Treasury bills to Maxwell. Maxwell would immediately sell the bills back to Lehmans, who would pay him in cash. The end result would be that Maxwell had cash and Lehmans had the security of the pension fund shares. In theory, the pension funds would retrieve their shares after buying back the Treasury bills. In the meantime, the impression was preserved that the pension funds still owned the shares unencumbered.
There was one major obstacle to overcome to obtain that cash. On each share certificate, the owner was registered as BIM. To use those pension fund shares, Maxwell needed to invent a cover story to explain his entry into such an unusual transaction.
The reason provided by Trachtenberg to Di Rocco was that BIM needed cash so that it could reinvest the money in shares which would produce higher returns than its existing portfolio, while simultaneously retaining the investment benefit of the shares it pledged. To Maxwell’s delight, Di Rocco accepted the business. Whether the banker realized by specific inquiries that BIM was the manager of pension fund assets would remain uncertain and be subsequently contested. But he and his superiors did realize that the arrangement was ‘purely a funding exercise’, and their suspicions ought to have been aroused because the circumstances were so unusual. It was unusual in two ways: first, the bank was to pay the cash into Maxwell’s private accounts; and second, neither Trachtenberg nor Andrew Smith was a director of BIM. Indeed, Trachtenberg said he represented LBIIM, which was acting as BIM’s agent.
There was one final hurdle. Before the pension fund shares could be used for stock lending, Trachtenberg required Trevor Cook’s consent. At the end of October 1989, after reading LBI’s terms for stock lending, Cook, BIM’s manager, signed an agreement. But that agreement – between BIM and LBI – was different from the contract with Lehmans signed by Kevin on LBI’s behalf, which was not for stock lending but for a loan.
To Cook, everything appeared normal. Working in an open-plan office in Dorrington Street with files marked ‘Stock lending accounts’, he and his deputy Jeff Highfield received monthly accounts from LBI recording the value of the stock lending: Cook in turn would bill LBI for the agreed 1.75 per cent fee. Cook’s willingness to be helpful made the Maxwells’ task much easier. He never asked to see the contracts.
Throughout 1989, with Cook’s agreement, Maxwell had also been personally borrowing increasing amounts of money from BIM, rising from £5 million to £22.5 million. To extinguish the debt, Maxwell ‘sold’ to BIM privately owned shares, but publicly he did not reveal the change of ownership. ‘We’ll always give the pension funds first refusal to earn profits from our share deals,’ Maxwell had told Cook. To the manager, the offer appeared generous. Apparently he remained unsuspicious even when Maxwell’s £22.5 million borrowing during 1989 cost the pension funds £510,000.
Having established Cook’s willingness to accept directives, Maxwell summoned him in January 1990. ‘I have decided it would be in BIM’s interest to buy more MCC shares,’ he said. ‘The price is certain to rise.’ Cook agreed, without questioning Maxwell’s misplaced confidence. BIM would pay £63.2 million for MCC shares owned by Maxwell personally. Cook not only agreed to the ‘offer’ but did not demand that the shares be registered in BIM’s name. Instead, the shares remained registered as Maxwell’s property, and he borrowed another £26 million of the pension funds’ money to finance MCC. Cook would subsequently explain, ‘I didn’t realize the ownership could be abused.’
That March, Maxwell called in Cook twice more. The price of MCC shares was falling despite his prediction two months earlier and he wanted to push it back up. ‘I think it would be beneficial for BIM to buy more MCC shares,’ he said. Two deals were concluded, which were to lose the pension funds £7.4 million. On the 20th, BIM purchased a call option on 10 million MCC shares through Sheinberg at Goldman Sachs. Days before the end of the financial year, BIM paid £20 million for the shares, £2.4 million more than their worth, to boost MCC’s price. On 29 March, BIM sold 7.9 million MCC shares through Goldmans. In the second deal, BIM bought a call option from Goldmans on a further 10 million MCC shares for £18.9 million. One month later, the deal was booked to BIT (Bishopsgate Investment Trust, the nominee company used by Maxwell to retain pension fund shares and cash). The option, exercised on 29 June, cost BIM £5 million.
On 31 March 1990, the end of the financial year, Maxwell’s debt to the pension fund was still £13.5 million, so to remove it from the annual accounts he repaid it. The following day, he withdrew the money again. Thereafter his use of pension fund money rocketed. By 29 June, he had taken £105 million from BIM. To settle that debt, he told Cook that he was ‘selling’ to the pension funds his private stake in Invesco MIM and 5.4 million shares in Scitex, an Israeli high-tech company producing imaging systems for the publishing industry. Maxwell had bought 9.59 million Scitex shares (after rights issue) in December 1988 for $39 million or £24 million. Their value would rise to $220 million. The shares Maxwell offered Cook represented three-quarters of his stake in the company and would be worth £102 million.
Cook accepted this ‘offer’ too. He listed the Scitex and Invesco shares as part of BIM’s management of pension funds and removed Maxwell’s private £105 million debt from the accounts. But he failed to register the shares officially in Israel as owned by the pension fund. This, he explained, was ‘because I had signed a personal agreement with Robert Maxwell that he was holding the shares on BIM’s behalf. Even worse, he did not secure possession of the share certificates.
Maxwell’s complete control over BIM and the pension funds was, to his and Kevin’s increasing irritation, not duplicated at LBI, where a crisis had arisen among the directors. The cause was Mark Tapley, recruited as the new managing director in January 1990. Clean-cut, honest and ambitious to make his fortune in London’s rollicking financial markets, Tapley had been employed in the 1970s at J.P. Morgan and had been lured to LBI from Lehmans by Smith and Lord Donoughue on a generous salary for a three-year contract plus bonuses.
Within days of his arrival, Tapley had become alarmed by LBI’s administrative chaos, for which he blamed Larry Trachtenberg. He was also unhappy with Andrew Smith’s exaggerated claims about past performance and who, moreover, appeared to be trading in shares in what Tapley considered an unacceptable manner. ‘That’s a conflict of interest,’ he cautioned Smith. Soon afterwards, Smith returned to New York to establish LBI Inc. with £10 million capital provided by Maxwell, continuing his collaboration with Trachtenberg and Donoughue, although the latter referred to the American as ‘Adolf Smith’. ‘We must get rid of Trachtenberg,’ Tapley told Donoughue. ‘We must get him out of LBI.’ But Donoughue did not respond. By then, he had become Kevin’s confidant and no week passed without his name featuring in the Maxwell son’s diary.
On 1 April 1990, glancing at LBI’s 1989 accounts, Tapley noticed the high fees LBI was earning from the stock-lending programme. ‘Where are these fees coming from?’ he asked Trachtenberg. The American only replied, ‘It’s all done through Morgan Stanley with their guarantee.’ Tapley’s curiosity was not satisfied. Searching through the records of the stock lending, he came across the name of Thomas Christofferson, of Morgan Stanley. Christofferson was grateful to Kevin for placing LBI’s custodian business with his bank. It was an easy source of income. Until November 1991, Christofferson would, on demand from either Kevin or Trachtenberg, innocently sign letters and release share certificates which diverted the shares belonging to First Tokyo and others.
Although Tapley noticed that Trachtenberg was telephoning Morgan Stanley and ordering them to pledge First Tokyo’s shares to other banks as formal stock lending, reading LBI’s print-outs he was puzzled that they failed to identify the shares loaned. Instead, Trachtenberg’s oral instructions to Morgan Stanley were recorded on the computer only as ‘shares held on order of … bank’. Tapley demanded to know what was the authority for stock lending First Tokyo’s shares. ‘We’re doing it on Maxwell’s orders,’ stated Trachtenberg. He then added disingenuously: ‘We don’t know to whom the stock is being lent.’
Tapley’s initial concern had been that Trachtenberg was carelessly omitting to keep a record of his instructions to Morgan Stanley. By April 1990, he realized it was worse than that. His source was Jonathan Ford, a former Coopers accountant recruited by Maxwell to work in LBI. ‘I’ve been in the investment business for twenty years,’ said Tapley, ‘and I’ve never earned so much from stock lending. How do you do it?’
