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‘Because it comes from the Mirror Group,’ replied Ford with startling honesty.
Tapley gasped, ‘This is another conflict of interest. It will be forbidden by IMRO.’
Tapley appealed to Kevin. It was an unwelcome approach and Kevin repeatedly cancelled the appointment. When they finally met, Kevin agreed, ‘We must close that stock-lending operation down.’ But he made it clear that Tapley was no longer welcome in his office – he was disrupting the Maxwells’ operation. Of course the stock lending would not stop, but Kevin agreed with his father that it might be dangerous to dismiss the manager in breach of his contract. Better to keep him inside the tent and quiet. For his part, Tapley did not welcome the prospect of litigation with the Maxwells if he himself sought to break his contract, nor would he relish the loss of his high income in the middle of a recession.
Come July 1990, Tapley was still concerned by LBI’s stock lending of First Tokyo shares. ‘Why are you bothered?’ asked Trachtenberg. ‘It’s nothing to do with you!’ By then, Stuart Carson, LBI’s new compliance officer, responsible in the new self-regulatory era for ensuring fulfilment of statutory requirements, had consulted IMRO. The regulatory agency confirmed that IMRO rules did not forbid the conflict of interest prompted by stock lending. ‘It isn’t forbidden,’ reported Carson.
Two palliatives were proposed. Jean-Pierre Anselmini, MCC’s French deputy chairman, was that same July temporarily appointed an LBI director. Tapley’s initial relief disappeared when Anselmini began to postpone important meetings. ‘You’re intransigent,’ he told Tapley in stilted English, ‘making the management more difficult by distressingly insisting upon standards against Smith.’ Tapley’s appeals to Donoughue were also rebuffed. Urging self-restraint, the peer told him, ‘We must try and keep this together. We’re a good team.’ Donoughue was supported by George Willett: ‘Don’t go to IMRO. Stop making distinctions between moral and legal issues.’ Tapley was persuaded to keep quiet by three men whose motives he found unclear. Tapley accorded Donoughue the nickname ‘Manuel’, the character in the television sitcom Fawlty Towers famous for his repeated claim, ‘I know nothing.’
At the end of the day on 3 August 1990, after many cancelled meetings, Tapley was finally admitted once more into Kevin’s office. ‘The stock lending must stop,’ agreed Robert Maxwell. Satisfied that he had got what he wanted, Tapley distributed a memorandum describing a newly reorganized LBI which would exclude Smith and Trachtenberg. Two hours later, Kevin telephoned, his voice betraying deep anger: ‘That memo must be withdrawn. It’s premature.’ During that short interval, Kevin had understood the implications for the empire’s survival of Trachtenberg’s removal.
In the course of successive meetings in late October and November, Tapley was convinced by Kevin and Donoughue that LBI would be reorganized. ‘We’ll get rid of the Max Factor,’ both pledged, referring to the negative influence of Robert Maxwell. Tapley was relieved. But in reality he had been sidelined. The Maxwells’ priority was to silence their critic while they sought cash from any source to sustain their increasing debts. In September Kevin had committed himself to his father’s scheme of arrangement. Searching through BIM’s monthly schedule of shares owned by the pension funds, he had noticed the name Euris, a French investment fund. Euris, he knew, did not issue share certificates. Instead, the only proof of ownership were the records held by the company’s secretary. Transfer of ownership was settled by a simple letter notifying a sale.
On 3 September 1990, Kevin wrote, as a director of BIM, to Euris’s company secretary instructing that 2.2 million shares worth £32 million had been ‘transferred’ from BIM to Pergamon Holdings, a transfer which contravened the trust deed. (The board minutes were signed by Kevin, Ian and Robert Maxwell, with Anselmini as a witness. BIM’s articles required two signatures for a transfer.) On the same day, Kevin pledged the shares to BNP, the French bank, as collateral for a private loan. He then kept silent about the transfer. Trevor Cook, BIM’s manager, was not told, and Euris remained listed on BIM’s schedule as a pension fund share. By any measure, it was unauthorized, but it was a mere curtain-raiser to the increasingly drastic measures undertaken by Kevin to raise cash during October.
His targets were two fund managers of pension fund shares. In October 1990, he asked the managers of Capel Cure Myers and Invesco MIM for the temporary return of shares owned by the pension funds for stock lending. On 8 October, Capel Cure, on Kevin’s instructions, sent shares worth £40 million for stock lending to Lehmans. Capel Cure’s covering letter explicitly informed the bank that the shares were owned by the Mirror Group Pension Scheme. The reason for their action, some suggest, was that an assistant director at Capel Cure appreciated that the pension fund shares were to be used as collateral for a loan rather than for stock lending and sought to protect his position.
The following day, 9 October 1990, Kevin and Cook, acting as BIM directors, instructed Invesco to send its pension fund portfolio worth £30 million to Lehmans. The letter, signed by Kevin on behalf of the Mirror Group Pension Scheme, assured Invesco that the shares would be used for normal stock lending and returned ‘within 30 days’. Lawrence Guest, a Mirror Group director and one of the fund’s trustees, was not told about the ‘stock lending’. He would only discover in November 1991. Initially, there was no reason for the other fund managers to suspect that Kevin’s instruction was not straightforward, but the arrangement did disturb Tim Daily, Invesco’s expert in stock lending. Daily, twenty-seven years old, was an ambitious, working-class trader born in Watford with just six O levels who unashamedly wanted ‘to taste the good things in life’. Hired in April 1990 to expand Invesco’s stock-lending business, he had recently been appointed the chairman of the International Stock Lending Association, the industry’s spokesman in dealing with both the media and the Bank of England. Among his targets for Invesco’s new stock-lending business were the Maxwell pension funds.
The news that Maxwell was intending to use a rival for stock lending was passed to Daily that same day, 9 October, in a panic telephone call from Peter Smith, his subordinate. Daily, in Naples, Florida attending a stock-lending conference, was chastened by the report. ‘It all sounds a little bit fishy,’ Smith told Daily, ‘and not quite as cut and dry as it seems.’ On hearing the news, he added, he had telephoned a friend at Lehmans and had been told that the portfolio was to be used not for stock lending but ‘purely as collateral for a loan’. Smith added that, to his surprise, Trachtenberg had also telephoned asking him not to speak to Lehmans. Daily decided to approach Mark Haas, the bearded and ambitious Lehmans securities executive responsible for negotiating the transaction with Kevin and Trachtenberg, who was also attending the conference in Florida.
Minutes later, Daily found Haas watching a game of pool. ‘Are you taking away our client for stock lending?’
‘No,’ replied Haas. ‘We’re doing a Treasury repo. Not stock lending. Maxwell is having trouble raising cash’ and was using pension fund assets. Haas knew that MCC, under pressure to repay debts, had asked Lehmans for a $15 million loan for one month. His superiors, after reading MCC’s accounts, had vetoed the idea out of fear of Maxwell’s ‘potential for manipulation [of] profits’ and because MCC’s accounts revealed assets of minus $2.2 billion because of the debts. Moreover, at Lehmans, the very nature of the transaction – whereby shares ‘borrowed’ by Kevin were exchanged for the final total of $83.9 million in cash and paid to Maxwell’s private company – enabled the bankers to understand precisely the unusual use that was being made of pension fund assets.
Haas did not reveal those details that day in Florida, but enough had been said to prompt Daily’s comment: ‘I don’t like the sound of it. It’s a bit dodgy.’
‘We haven’t had this conversation,’ replied Haas. ‘I know my half. You know your half. Together we know too much.’ Haas would deny this version of the conversation.
Daily ignored this advice and reported the conversation to Bob Southgate, his superior in London. Southgate’s reaction was, ‘It’s all very sensitive,’ referring not to Maxwell’s financial predicament, but to the fact that Maxwell owned a 20 per cent stake in Invesco MIM and was a friend of the fund’s chairman, Lord Stevens (moreover its president was Lord Rippon, a director of MCC). After a number of huddled conversations, Invesco’s managers agreed to accept Maxwell’s assurances.
In the event, the pension fund shares were exchanged with Lehmans for Treasury bills which were then cashed. The money was paid not to the pension funds but to LBI and then to Headington Hill Investments, Maxwell’s private company. The bankers’ apparent lack of concern that Maxwell might have been using pension fund shares to raise cash was reflected in their confused records. Haas was dealing with LBI, Maxwell’s private investment company, which allegedly was representing BIM, the pension fund managers. Yet in Lehmans’ records the depositor of the shares was recorded as ‘LBIIM’, a different entity, suggesting unusual carelessness by the bank.
Trevor Cook, meanwhile, was not only ignorant of the deal negotiated by Trachtenberg and Kevin with Lehmans, but when on 16 October Daily arrived at a Maxwell office in Shoe Lane to meet him and Trachtenberg, he remained unaware of the Invesco trader’s conversation with Haas. Daily had invited himself to present his expertise in stock lending. Towards the end of the meeting, Trachtenberg explained to Daily that LBI was paying 1.75 per cent for stock-lending fees. Although Daily realized that the figure was higher than normal, he said nothing. Cook also stayed silent: he knew that LBI’s fees might be high but he ‘had no point of reference’. Any doubts were offset by Donoughue’s presence within LBI. ‘I trusted Donoughue and he knew that we were stock lending the pension fund assets. I assumed it was all right,’ recalled Cook.
‘That was a load of rubbish,’ Daily said to his colleagues as they descended in the lift.
‘Don’t say anything here,’ replied one of the other occupants. ‘The lift’s probably bugged.’
Cramped into a small office on their return, Daily told his superiors, ‘It’s all wrong.’ The response was equivocal. To refuse to comply with their client’s request was out of the question, not least because Maxwell was a shareholder and a friend of Lord Stevens. So, on 19 October, after several telephone calls asking, ‘Is it all ready?’, Trachtenberg arrived in Invesco’s entrance hall and personally took the share certificates from Daily, signing a receipt. On one issue Trachtenberg was insistent: the transfer was temporary. The certificates were to be returned in thirty days.
To regularize the arrangement, Kevin and Robert Maxwell signed a contract. Kevin (on behalf of BIM) and his father (on behalf of the Robert Maxwell Group) agreed that RMG could borrow BIM’s stock. Although dated 1 October 1990, it appears to have been formulated at the end of 1990 to cover the Capel Cure and Invesco transactions. It allowed both Kevin and Trachtenberg to reinforce the claim they were making to Cook that pension fund assets were involved in stock lending. But Cook, although he was BIM’s manager, was not suspicious. After he had received a letter from Lehmans stating that the shares and Treasury bills ‘were held for your account’, he assumed that the pension funds were covered by genuine collateral of between 125 and 150 per cent. But he never actually saw any share certificates, nor did he ask to see anything. ‘I just got lists and letters,’ Cook later reflected ruefully, ‘from Trachtenberg on behalf of LBI.’ Everything, he believed, was held by the banks. He did not ask to see the Treasury bills nor did he realize that they had been cashed. ‘I should have checked the share certificates but I didn’t suspect anything. I was fooled.’
The deception was intentional. On returning to his office after meeting Daily, Trachtenberg had sent a revealing memo to Kevin about their arrangement: ‘I assured them [Tim Daily and colleagues] that LBI’s involvement was in a strictly advisory capacity, and that our [LBI’s] involvement in no way involved LBI utilizing stock in security transactions on its own behalf.’ The problem, he realized, was how to orchestrate ‘a clean transfer’ of the pension funds’ shares from BIM to the banks, concealing their true ownership. Kevin’s reply was not preserved.
At the end of this period of frantic activity, Kevin agreed over the weekend of 3 November to play poker with some friends in the City and host a firework party at Hailey, his home near Wallingford. It was a brief interlude before he secured the £50 million loan from Julie Maitland at Crédit Suisse and obtained the Berlitz share certificates.
THREE Hunting for Cash – 19 November 1990 (#ulink_d039697c-c1a2-5d74-8dde-b74e0509b1c7)
On Monday, 19 November, Kevin flew to New York on the evening Concorde. As usual he stayed at the Carlyle, the choice of many international tycoons as Manhattan’s most discreet yet sumptuous hotel. After shuttling between seventeen meetings with Macmillan executives and bankers the following day, he slept overnight on a British Airways Jumbo back to London. He had every reason to feel satisfied. Everyone he had met had appeared reassured by his self-confident manner, his deep-voiced, decisive tone and his air of efficiency. None would have guessed that the polite, well-dressed Englishman was concealing near-bankruptcy. Punctually at 6.30 a.m. the Jumbo glided on to Heathrow’s runway, and Kevin separated himself from his fellow passengers to be whisked through the special customs facilities, before being helicoptered by Captain Cowley to Maxwell House in Holborn to begin the day meeting Larry Trachtenberg. The pace was unremitting.
Robert Maxwell was at that moment flying to Los Angeles. Since 12 November, the Chairman had been travelling across America in what he called a roadshow to launch the Central and Eastern European Fund, a banking venture concocted with Merrill Lynch to entice financial institutions into investing $250 million on the basis of his expertise in the former communist countries. To Maxwell, short of money yet eager to exert the influence of a billionaire, the Fund was a last effort to grasp large amounts of other people’s money to be used for his own benefit. Over several days, he met bankers, pension fund managers and corporation presidents in an attempt to persuade them to earmark funds. For those like Katherine Pelley, one of the banking aides in his retinue, the roadshow was becoming a harassing adventure. Regularly late to meetings and delivering lacklustre speeches, Maxwell was proving to be a ‘nightmare’, a liability rather than an asset to his own ambitions. The burden of his deception was sapping his self-confident assertions of his financial prowess. Dispirited, he returned to London for an MCC board meeting, which was to be held at 5 p.m. on 23 November.
Regardless of his perceived troubles and bad press, Robert Maxwell believed that he could still count upon the support and sympathy of the six non-family directors who, though acknowledging that he was a difficult man, believed in his genius. Besides the executive directors Jean-Pierre Anselmini, Ron Woods, Richard Baker and Basil Brookes, the young acting finance director recruited from Coopers in 1986, there were two older non-executive directors: Lord Rippon, the former Conservative minister who had negotiated Britain’s entry into the European Union, and Peter Laister, a former managing director of Thorn EMI with a fair reputation in the City.
For all of them, the DTI inspectors’ damning judgment in 1971 that Maxwell could not be ‘relied on to exercise proper stewardship of a publicly quoted company’ was ‘history’. All of them had witnessed the ‘City process’ and tended to feel contempt, even ‘disgust’, for the slickers’ ‘behaviour around the carcass’. Maxwell impressed them on several levels: as a polyglot at the centre of an extraordinary network of relations with world leaders; as a newspaper tycoon who had broken the trade unions; and as a superman able to revive dying companies. Accordingly they were prepared to allow the Chairman near-dictatorial powers.
Of course, these men were well rewarded, especially Rippon. As chairman of Brassey’s, the military publishers owned by Maxwell, he was paid $100,000 per annum, and he drew generous expenses. On one occasion, Maxwell simply wrote a cheque for £10,000 at his request. For his part, Maxwell admired Rippon’s transformation of Invesco MIM, but it was Rippon’s bank, the Robert Fraser Group, which gave him the greatest help. Through Robert Fraser, Maxwell had pumped into MCC and Pergamon Holdings some of the money taken from the pension funds, and had completed three property deals to pump profits into MCC which later investigation would reveal to be dubious. In 1989, no less than 33 per cent of MCC’s profits were ‘one-off’ transactions with Robert Fraser recorded just before the announcement of the interim profits. In 1990, 43 Per cent of the Group profits were one-offs with companies incorporated in Liechtenstein and the Isle of Man or with BIM and Robert Fraser. But although he could count upon Lord Rippon, Maxwell knew that there were tensions with the other directors. Anselmini, the proud French banker, did not appreciate the way the Publisher ignored his title as deputy chairman, and failed to consult him. A newspaper revelation that Maxwell, to boost MCC’s share price, had gambled on a put option with Goldman Sachs had alarmed him. ‘You’re not the regulator’ was Maxwell’s response, surprised that the Frenchman should choose to protest now, since the Publisher had bought a similar option from Goldman Sachs of 10 million MCC shares in March 1990 and another from BIT for £18.9 million.
‘I don’t understand,’ sighed Anselmini. ‘You do not do what you say or say what you do.’ Maxwell had nevertheless abruptly promised not to repeat the ploy.
When eight MCC directors met on 23 November (without Ian Maxwell), Robert Maxwell anticipated some disagreement but, given that around the table were gathered well-paid subordinates whose devotion and above all loyalty had hitherto been unconditional, he expected them to exercise a degree of reticence. All of them had, after all, witnessed how MCC’s profits had been maintained only by his skilful property deals and currency speculation – transactions which had attracted the critics’ scorn and, more recently, some suspicion, but they had provided the company’s only respite from commercial decline. Two items dominated their agenda that day: finalizing the interim accounts, and agreeing the interim dividend.
As always, Maxwell’s priority was to maximize the profits. Only high earnings would support MCC’s share price. Kevin naturally sided with his father, a stance also adopted by the company’s auditors present at the meeting. Both Neil Taberner (for MCC) and Peter Walsh (for RMG), the faithful and all-too-unquestioning accountants from Coopers, were content to be used by the Chairman to fulfil his puff which featured prominently in the partnership’s annual report: ‘Coopers always gives an immediate response and always provides what I want within my deadline.’ In earlier years, Reg Mogg, MCC’s previous finance director, had with Taberner’s help legally transformed the debt-laden company’s accounts so that they boasted profits. Not the least of his successes was persuading Taberner in 1990 that the value of MCC’s ‘intangibles’ (its goodwill and publishing rights) was £2.2 billion. Coopers were not only generous in their valuations but were allowing MCC to retain an ‘intangible’ on its balance sheet even after the sale of a subsidiary. One year later, other accountants valued the ‘intangibles’ at £300 million.
Ron Woods, the tax expert and MCC director, had already seen the in-house accountants’ preliminary treatment. Nearly all the proposed profits had been earned from foreign exchange speculation. Unlike the non-accountants, he noticed that the auditor had bowed to Maxwell’s pressure in allowing the foreign exchange profits to be placed above the line to boost overall profits, while camouflaging losses in the ‘transition account – reserves’. Taberner knew precisely what Maxwell expected from his accountant.
That creative treatment provoked no dissent. Instead, a row erupted over the proposed dividend. Maxwell wanted shareholders – of which he was by far the largest – to receive £44.5 million in cash. One consequence of Coopers’ treatment of MCC’s accounts, certified as ‘fair and true’ for the shareholders and Inland Revenue, was the concealment of the company’s net liabilities: Analysts would later discover that in 1989 the company’s real liabilities had been £684 million, in 1990 they had risen to £859.2 million and during 1991 they would zoom to £950.2 million. But the reality of those debts was not apparent in the published accounts. Anselmini, knowing the company’s precarious state, condemned the notion of a pay-out. He was supported by Richard Baker, the rough managing director. Although Baker’s office walls were covered with Pirelli calendars of semi-nude girls and although visitors had to endure his crude jokes, it was his integrity which had secured Maxwell’s original ‘war chest’ in 1988 to finance the Big One, the acquisition of Macmillan. Bankers trusted Baker, and ten banks had pledged £200 million each, an event celebrated with a champagne party on board the Lady Ghislaine. But in the years since then Baker’s loyalties had frayed. Now, for the first time, he opposed Maxwell’s demand for an increased dividend. The company’s finances, he argued, were too perilous. A lot of the published profits, he knew, were illusory and there was simply no cash to pay for a dividend. To Maxwell’s fury, he was supported by Woods.
After a thirty-minute explosion of emotion, Anselmini gave way, having been assured that Maxwell would take his dividend in shares. But in the vote Baker and Woods remained opposed, though they were outvoted by the other six directors. Over the following three days, Baker and Basil Brookes, the thirty-four-year-old finance director appointed at the board meeting on 23 November, argued for a compromise statement that ‘a satisfactory outcome for the year is dependent upon the disposals’. Much of the empire would need to be sold to raise money to repay the loans – a self-defeating strategy. Both men visited Kevin at home. Baker’s persistence had infuriated the Maxwells and, despite his loyal service, he was instantly excommunicated. He had little option but to take early retirement, allowing Kevin to inherit his powers. Robert Maxwell was delighted. Baker had been too straight. Whenever the Maxwell private companies had bought or sold something from MCC to boost profits, Baker had argued MCC’s case too strongly. A cash dividend would now be paid; and the accounts, without a caution, were approved. Anselmini did not protest. The empire took another lurch towards doom.
With that issue settled, at 9.30 a.m. on 26 November Maxwell flew by helicopter to Farnborough to board the Gulfstream for Vienna. As he gazed at the print-out of the day’s programme, his sense of his own importance was appreciably enhanced. He noted that Charlotte Thornton, his pretty new secretary (‘A diluted successor to Andrea Martin,’ commented Woods), had listed the telephone numbers, much as if he were a head of state, of the two Mercedes which would meet him at Vienna airport. He would be driven to the Imperial Hotel, the capital’s best, to dispense a succession of newspaper interviews before handing over a cheque for £15,000 to the director of the national library at a ceremony attended by Franz Vranitsky, the Austrian prime minister. Altogether, his profile would be raised in that small, former Nazi state.
The highlight of the visit was that evening’s dinner arranged by Ulrike Pöhl, the wife of Germany’s central banker. A private room had been reserved at the Steirer Eck, one of Vienna’s best restaurants, to entertain the Austrian prime minister and his wife. Although Betty was listed among the guests, Maxwell had not bothered to invite her. At the end of an enjoyable meal – it was especially agreeable for Maxwell, who had taken the opportunity to lecture the prime minister about the confidences shared with him by the world’s leaders – he pushed his plate back and announced, ‘Well, I’ve got to get to America.’ The admiring gaze of his hosts was like a tonic, dispelling any doubts: the Austrian politician could not claim to have an executive jet at his beck and call.
At ten o’clock that night, Maxwell boarded the Gulfstream. The divan bed was already prepared. An adventure movie was in the video machine. A bottle of Perrier and one of Dom Pérignon 1982 were ready to be opened, and because Maxwell enjoyed a second dinner the fridge was filled with food prepared by Martin Cheeseman. Clearance was given to Captain Hull to take off. After refuelling at Luton, the Gulfstream headed for Atlanta, Georgia, a ten-hour flight. As usual on the transatlantic flight, Maxwell swallowed a sleeping tablet and slumped into deep unconsciousness.
Awaiting him were endless meetings across the USA, in Florida, Illinois, Washington, New York and Minneapolis, to persuade more bankers and pension fund managers to invest in his Central and Eastern European Fund. Getting control of their money had become important to his survival, but to his irritation Merrill Lynch was failing to deliver eager investors. A telephone call to Kevin reconfirmed their precarious financial position. Supporting MCC’s share price was proving expensive: the £50 million loan from Crédit Suisse had been spent, as had the $84 million raised through Lehmans. Maxwell’s needs seemed limitless. He ignored any suggestion that his strategy was flawed, that he was spending too much to save the company and losing any chance of survival.
FOUR Misery – December 1990 (#ulink_968074f0-5be2-5ebe-9637-ee9062165988)
The financial crisis was made worse by his loneliness. On 2 December, Maxwell awoke in the Halekuani Hotel in Hawaii. Anyone else welcomed at the airport by the presentation of garlands around his neck would have gazed at the blue Pacific and at the soft yellow sand and have marvelled at life in that paradise. Maxwell could contemplate only his imminent eight-hour flight to Tokyo, where he was to spend three days peddling his Fund to expressionless Japanese bankers and fund managers. No one cared how he felt. One message from London caused particular anxiety.
John Cowling had just arrived in Dorrington Street to carry out the audit of the 1990 accounts for BIM and the pension funds. A partner in Coopers since 1988, Cowling was accompanied by John Mellet and Clare Gardner. Since their completion of the 1989 accounts, much had changed and it was Maxwell’s fervent hope that those developments would remain concealed. But it was not long since he had praised Coopers for ‘always [providing] what I want within my deadline’, and the omens seemed favourable that he would receive the familiar service.
A tremor at the end of November when two IMRO officials had paid their first visit to BIM’s office had fortunately proved short lived. Although it was flagged as a ‘routine visit’, Cook reportedly was ‘in a bit of a flap’. Robert and Kevin Maxwell had beckoned him to the Chairman’s office at 4.30 p.m. on 21 November to offer reassurance. ‘There’s no need for any concern. Get Stuart Carson in to help,’ Maxwell had advised. LBI’s compliance officer was a lawyer recruited from Lautro, another government regulatory agency. Maxwell hoped that the inspectors could be steered in the right direction if they demanded sight of the pension funds’ share certificates. In the event, the Maxwells’ nonchalance infected Cook and he managed to greet the IMRO officers in an unconcerned manner. Just as the Maxwells anticipated, the bureaucrats proved to be incompetent. The two inspectors – described by both Highfield and Cook as ‘young and inexperienced’ – had stayed for one day. Their only recommendation was that BIM needed to improve its documentation. ‘A bit of an anti-climax,’ concluded Highfield.
Cowling’s visit, Maxwell feared, would be worse. There were good reasons for his concern. Since the last accounts, dated 30 June 1989 and covering the previous eighteen-month period, his private companies’ debt to BIM, despite the recent settlement, had risen to £40 million. Moreover, to any practised accountant, the pension funds’ involvement in Maxwell’s share sales on the eve of the financial year’s end would have suggested questionable window-dressing. Yet Cook’s fear that Cowling would complain about the delay in repaying the debt proved unfounded: he had underestimated Maxwell’s relationship with the partners at Coopers, whose tolerance, understanding and willingness to take the Publisher’s assurances on trust were a great comfort to him.
Taken together, Maxwell’s 400 companies were by far Coopers’ biggest clients, producing annual fees of £5 million. Although he occasionally feigned innocence about taxation, Maxwell possessed an astute understanding of accounts and accountants. Twenty-five years earlier, he had tyrannized John Biggs, the stuttering, alcoholic auditor of Pergamon, into approving his fictitious accounts and concealing the fraudulent management of his first public company. Such tactics were no longer appropriate. Instead, he resorted to a charm offensive, smothering with eyewash John Cowling, Neil Taberner, Stephen Wootten and Peter Walsh, all Coopers accountants responsible for different branches of the empire.
John Walsh had been auditing Maxwell’s companies since 1970 and prided himself as ‘one of the trusted old faces’. In 1991 Walsh explained in a self-congratulatory memo to his colleagues that Coopers’ close relationship with Maxwell was unusual since, though he had ‘used almost every lawyer, every broker and every merchant bank in London, he has been totally loyal to Coopers … because we stood by him in the 1970s when everyone else avoided him (National Westminster Bank is in a similar position)’.
Recognizing the importance of Maxwell’s accounts, Coopers had even established an office in nearby Plumtree Court from where they had easy and continuous access to the Maxwell finance departments. The accountants adopted a trusting approach towards the Maxwell empire – believing that it was the directors’ responsibility to compile the accounts and indicate any problems. ‘An auditor’, Walsh would fondly repeat, ‘is not like a ferret pointed at a rabbit warren just to see how many rabbits come out.’ Walsh would also defend the absence of any discussions between the Coopers auditors working for the empire’s different segments. Maxwell’s canny compartmentalization between MCC, RMG, BIM and many other companies was willingly self-imposed by Coopers upon themselves. ‘I never spoke to Neil Taberner,’ Walsh would admit. That self-denying ordinance was vital to the auditors’ subsequent claims that they had not known of the huge inter-company loans between Maxwell’s public and private companies, including BIM. ‘Auditors are not given crystal balls,’ argued Walsh, in support of his professions of ignorance. Responsibility for the accuracy of the accounts, the Coopers men endlessly repeated, rests with a company’s directors, and that was a responsibility which the Chairman was pleased to accept.
To aid him in that task, he looked out for those weak but ambitious Coopers employees who could be recruited to work directly for him. The presence within the empire of young men like Basil Brookes and Jonathan Ford, and retired senior auditors like David Corsan (who had previously audited the whole Maxwell empire), tempted by higher salaries, made that disingenuous eyewash easier to dispense inside the auditors’ headquarters. The beneficial result was that, consistently in previous years, the value of MCC’s assets and its profits had been wildly inflated. Maxwell’s £49 million losses after the 1987 crash were relegated to an obscure footnote; suspicious currency speculation featured as trading profits; while the valuation of ‘intangibles’ at £2.2 billion was eight times higher than their true value. Coopers’ annual blessing of Maxwell’s fabrications had allowed his regular boast about ‘record profits’ to pump up both MCC’s share price and his own self-esteem.
Pinpointing the chaos in BIM’s accounts should have been an uncomplicated task for Cowling. In 1989, an auditors’ report had mentioned that Maxwell appeared to control BIM – ‘a high-risk company easily influenced by senior management’ – and criticized the supervisory systems as ‘poor’. An internal Coopers memorandum about the pension funds’ investments highlighted the risks of stock lending and the funds’ growing stake in MCC, prompting the auditor’s comment that Maxwell’s management of the fund as his personal vehicle free of any independent, basic controls was ‘risky’. One year later, matters were made worse by the apparent confusion of information sent to Cook by Larry Trachtenberg. Although BIM’s investments, income and payments to pensioners had been systematically recorded, Cook complained to Cowling that he was ‘confused about the income from stock lending. We’re going backwards and forwards, and we’re getting contradictory information.’ He claimed to be puzzled because LBI had not submitted proper accounts to BIM. ‘Nothing they give us makes any sense,’ Cook told Cowling. ‘It’s all late, incomplete or wrong.’ Since Cowling was also LBI’s auditor, it seemed that he was ideally placed to unravel the confusion.
Cowling could be forgiven for thinking that Cook was foolish. After all, Cook had received regular statements from Trachtenberg but admitted not to have calculated BIM’s actual income. Moreover, he claimed to be baffled about the interest accruing to BIM because, to avoid handing over cash, Trachtenberg had told him that he was also investing the interest payments. In the event, Cowling did not criticize either Cook or Trachtenberg.
Imposing not so much a Chinese wall as a concrete one around himself, Cowling had not discussed his task with his Coopers colleagues working on other Maxwell companies’ accounts. Nevertheless, within days he noticed that pension fund money had ‘disappeared’ because the systems, controls and records of BIM and LBI were chaotic. He also discovered that important details about the stock lending were ‘unknown’.
When Maxwell returned to London in the early hours of 7 December, he could only hope that Cowling could be placated if he unearthed any discrepancies. His major concern was that Cowling would ask to see the actual share certificates rather than photocopies. Since many of them were held by the banks, that would pose a tricky problem. Maxwell’s first conversations with Kevin seemed encouraging. To comply with the law governing the formal submission of annual accounts, Cowling had agreed to sign BIM’s accounts immediately, although his work could only be completed over the following weeks.
Relieved by that outcome, in the run-up to the Christmas holidays Maxwell closeted himself with lawyers. Despite the millions spent in legal fees over the years, he had won few victories in the courts, yet his threats of litigation often served his purpose, silencing enemies and deterring creditors. Not surprisingly, his massive expenditure on lawyers galvanized most of the profession to offer him their services unconditionally. But, contrary to his practice with accountants and bankers, he made no effort to retain the services of the large, prestigious partnerships mushrooming around the City. Instead he sought individuals who could be relied upon to devote themselves – personally and professionally – more than wholeheartedly to his cause.
In-house he relied upon Oscar Beuselinck to manage his writs for defamation against the growing number of critics. Although the seventy-one-year-old solicitor had represented Private Eye against Maxwell in 1986, he had agreed to work for the Publisher at a salary twice as large as he had expected.
The second in-house lawyer was Debbie Maxwell. Preoccupied by the need to defend several writs against Maxwell for payment of millions of pounds in unpaid fees and damages for broken contracts, she had become renowned for asking her employer, ‘How shall I describe this: half full or half empty?’ At 10 a.m. on Sunday, 9 December, she was sat discussing a more serious problem with him. Increasingly her name was being used as MCC’s compliance officer, and in three memoranda she had warned the Chairman that his secret purchase of MCC shares broke company law, infringed stock exchange regulations and damaged the interests of the pension funds. Unable to persuade him to cease these transgressions, Debbie Maxwell resigned her compliance duties and was subsequently criticized for not revealing her knowledge to the statutory authorities – the police, IMRO, the Department of Trade and Industry or the stock exchange.
Over lunch that day, Maxwell consulted David Maislish, a thirty-nine-year-old solicitor managing his own small firm. Its slender resources made it eminently suitable for his purposes, for regardless of any other professional or domestic obligations, Maislish was always ready to jump to his bidding. His direct competitors were Dick Russell and David Vogel of Titmuss Sainer and Webb, a medium-sized firm of solicitors linked to Charles Clore, the property developer. An even closer connection was that Vogel had become godfather to one of Kevin’s daughters, and Russell was married to Mandy, Pandora’s sister. Summoned to Maxwell’s office to give advice, the brother-in-law and godfather would rush round from their nearby offices knowing full well that the Publisher had already decided his course of action but wanted assurance that his chosen ploy would escape prosecution. Listening to the most litigious man in the kingdom enjoying the sound of his own voice, the trio of lawyers would console themselves with the reflection that they billed by the hour – and that their income was phenomenal.
In the very nature of Maxwell’s way of business, it was essential to prove that his course of action had been taken only after consultation with and approval by a lawyer. The law, he believed, was nothing less than a weapon – the more lethal the better. The ‘comfort’ letters provided by Maislish and Vogel were Maxwell’s first line of defence against any criticism, and they usually sufficed. In London, lawyers were still blessed with the aura of professionals, apparently bound by a Hippocratic oath to serve the interests of justice rather than Mammon. Throughout the capital, Maislish, on Maxwell’s behalf, had won an unenviable reputation for pulling every legitimate trick in the book to delay and defeat unwelcome writs.
Maislish knew that, should he fail his paymaster, others would be eager replacements – not least Philip Morgenstern, a senior partner at Nicholson Graham and Jones and a confidant of both Kevin and Robert. Unlike Maislish, Morgenstern was something of a sleuth, always hovering quietly in his master’s footsteps, undertaking the more private work, arousing suspicion even eulogizing the Chairman’s qualities in 1995. Like Maislish, although he evinced only circumspect emotional commitment to Maxwell, Morgenstern’s dedication seemed passionate. Maxwell’s was an account which none of those lawyers wanted to lose.
But all the lawyers recognized that Maxwell’s memory and energy were waning. As his affairs grew more complicated, the interlocking and overlapping corporations he had constructed to confuse outsiders were proving difficult even for him to untangle. It was a condition which his vanity would deny as he restlessly drove himself to protect his achievements and sustain his ambitions.
By Tuesday, 11 December, Maxwell’s formidable spirit had risen to the level required if he was to match an exhausting climax of constant meetings. Employees and representatives were flying into London from Moscow, Berlin, Frankfurt, Sofia, Tel Aviv, New York and Hong Kong to bring news of deals, ventures and problems. While the underlings were transported from Heathrow by helicopter to be housed in hotels at his expense, Maxwell was seated in his office, planning new banks in Russia and Bulgaria, media purchases in Israel and Germany, and the development of market research in the Far East. His adrenalin was racing as he burst into the dining room that lunchtime to confront his newspaper editors and senior executives.
As Joseph Pereira, his quiet Portuguese valet, served another unmemorable dish, Maxwell’s dissatisfaction with the Daily Mirror engulfed the room. His target was Roy Greenslade, the newspaper’s editor. Greenslade’s sin was to have refrained from printing Maxwell’s offer of a scoop – that six ministers would resign in protest against Margaret Thatcher’s refusal to stand down after her failure to pass the threshold vote in the Conservative leadership election on 20 November. ‘Just print it!’ Maxwell had shouted. ‘I am your publisher!’ But since there had been no corroboration (the prime minister had resigned two days later), Greenslade had refused, and in Maxwell’s opinion had shown himself to be untrustworthy. During that lunch, the insubordinate editor seemed unrepentant, and Maxwell appealed for support to Charles ‘Gorbals’ Wilson, the former editor of The Times. Wilson, a small, pugnacious Scot, had gratefully accepted the Captain’s shilling to become the editor of the Mirror Group’s Sporting Life after his removal by Rupert Murdoch. It was a road to somewhere for a man who was going nowhere. Naturally, experience had long taught Wilson to satisfy his employer’s whims, even with tongue in cheek: ‘I would have said it sounds like a flier to me, Bob.’
‘What?’ exclaimed Maxwell. ‘A flier. It was a scoop. The scoop of the decade.’
Like most editorial lunches, this one ended on a baffled note. Maxwell astonished his employees by blowing his nose into a napkin, but he had failed to cajole anyone into castigating Greenslade. Even so, the editor would agree to depart shortly afterwards.
Maxwell’s real business followed lunch. Waiting in Kevin’s office were Michael Moore and Andrew Capitman of Bankers Trust. Capitman had more reason than ever to be grateful to Maxwell. Recently, he had flown at his client’s expense to visit him on his yacht in Istanbul and had eaten pounds of the best caviar while exchanging a few sentences which could have been spoken quite safely on a telephone. Despite the largesse, Capitman had become convinced that Maxwell’s finances were worse than precarious. Although the Sunday Times was about to list Maxwell among Britain’s richest men worth £1.2 billion, Capitman suspected the truth. But that, he felt, ‘wasn’t our problem’. Although Bankers Trust was in business to lend money, the loans were always syndicated to other banks, thus avoiding any risk.
‘We need a short-term loan,’ said Maxwell, looking at Moore, a brusque, unrefined Cockney and the bank’s technician. ‘The security is the Mirror Group.’ Both bankers expressed their readiness to oblige. The bank would earn by cross-selling the loan for a small profit to other banks. How the money was repaid was not their problem but Maxwell’s – and the other banks’.
After the bankers had left, Maxwell and Kevin agreed to hold back on this transaction. Loans against the Mirror Group would contaminate any future plans to float it on the stock exchange. The two hoped that the profits from the newspaper’s sale would pay off all the debts incurred by using the pension funds. The sale was already codenamed ‘Project Andy Capp’. The lawyers to be involved would be chosen after a beauty parade later that week, and Maxwell would chair the first meeting with bankers on 14 December.
That night, Maxwell decided to show himself around London. At 7.15 he appeared at Tobacco Dock for the Sunday Times Christmas party. His invitation from Andrew Neil, the editor, followed several conversations and a lunch during which they had discussed Neil’s possible employment by Maxwell. As he shuffled through the crowd towards his host that evening, his face betrayed the satisfaction he derived from being universally recognized. He was a man who loved attention and sought the spotlight. Publicity was his oxygen, and if he was too long absent from the limelight he began to feel suffocated.
From Tobacco Dock, Maxwell was driven to Jeffrey Archer’s penthouse apartment on the Thames embankment. Having powdered his face in the lift in front of the novelist’s son, he entered the party expecting to be greeted like royalty. Unlike other guests, including most members of the Cabinet, who stayed for at least an hour, Maxwell exited after just ten minutes. His entry had not been sufficiently applauded and he had not quickly enough become the centre of attention. Worst of all, the sight of people enjoying themselves had been depressing. Over the next days, he failed to appear at successive parties to which he had accepted invitations, not least those of employees, including LBI’s at Les Ambassadeurs club. Instead, he remained in his penthouse each evening drinking heavily, a habit which had developed with startling speed.
He even missed his own party. Traditionally, Maxwell had hosted a Christmas dinner and dance for senior executives at Oxford. One hundred had been invited on Saturday, 15 December, but despite all the enthusiasm for dispensing hospitality he had shown in previous years, he now felt drained, having exhausted himself that afternoon in meetings with Israelis, Mongolians and Italians. The prospect of smiling at those with their noses in his trough was too much. At the last moment, Betty whispered to the guests, ‘Bob’s sick,’ and the seating arrangements were changed. ‘I bet he’s up there in his room,’ quipped Ernest Burrington, the Mirror Group’s new managing director. ‘He’s in a huff with his family.’ Maxwell was in fact consuming his second bottle of champagne. In the hall at the end of a high-spirited evening, most agreed the party had gone better in the absence of the host.
Everyone, Maxwell told himself, was oblivious to his depression, even his children. Over the following days, his sons and daughters celebrated Ghislaine’s birthday, partied at Joe’s Café in Draycott Avenue and split off to various festivities. There was no plan for the family to gather for a Christmas meal. Maxwell was alone and estranged. Even his youngest son’s Christmas card, a tasteless photograph of anonymous racing horses, was signed with an unemotional message: ‘Bob, many thanks for all your help and kindness – Kevin and Pandora.’ The parents had not bothered to list his four grandchildren. Needless to say, there was no hint of love. The awareness of fractured relationships was painful.
At 7 a.m. on Friday, 21 December, he was seated in his kitchen, switching between the morning television breakfast shows and drinking coffee from a large mug while George Wheeler, his hairdresser for the past twenty-one years, was applying L’Oréal No. 7 to dye his hair black. ‘Have you checked all the roots?’ asked Maxwell as he grabbed for a telephone. ‘Don’t worry,’ laughed Wheeler, well aware of his client’s obsession with banishing the slightest hint of age. ‘A phobia about grey hair’ was the hairdresser’s explanation. ‘Even if he saw a grey eyebrow, he would go berserk.’
His time was ebbing and his failure to own a share of Britain’s growing television industry had come to seem a depressing indictment of his career. Poor finances had compelled the premature sale of a 13.8 per cent stake in Central Television, losing him over £20 million in extra profits, and had prevented him bidding for the licence for Britain’s first satellite channel. Murdoch had now cleaned up on that gravy train. All Maxwell owned in the world of broadcast television was an unprofitable stake in French television and 51 per cent of MTV in Europe, the pop station. MTV was an inspired investment, but it was still losing money. Everything was losing money, and there seemed no respite.
As Wheeler waited for the dye to dry, he hoped that he would be spared a repetition of a previous calamity when the Publisher’s hair had turned the wrong colour. Fraught hours had been spent washing the hair back to its natural grey and reapplying the dye. The sight of Maxwell’s vast, naked girth quivering in underpants had amused some eyewitnesses among his personal staff. ‘How can anyone fear that man?’ thought his valet. Once dressed, Maxwell had resumed his hectoring.
‘Have a good Christmas,’ Maxwell joked to the hairdresser. Ever since Wheeler had complained of not being given a seasonal tip, he had been listed to receive a bottle of Scotch and another of gin. Now an ordeal lay before his employer, his hair freshly blackened. At lunchtime there were Christmas drinks for staff on the tenth floor. Maxwell made a brief appearance, oppressed by the evident happiness of others. The prospect of the holidays was awful.
His delight would have been to rest and recover on the Lady Ghislaine, anchored and awaiting his arrival in the sunshine of the US Virgin Islands. Sleek and towering five decks high, the 155-foot, 430-ton yacht had been designed by Jon Bannenberg for the brother of Adnan Kashoggi, the Saudi arms dealer. The Arab had commissioned a gin palace with maximum internal luxury and volume for pottering around off the South of France rather than a craft suitable for crossing the Atlantic. Visitors to the Lady Ghislaine could only be awed by the sumptuous, white-carpeted state room; the comfortable dining room, the bathrooms with gold-plated fittings, the elaborate kitchen and the sheer scale of private luxury. Maxwell regarded the craft as a most precious possession, one which he was unwilling to share. Yet fearing loneliness, he had impulsively agreed that Betty should join him. The opportunity would be used to complete a chore.
That summer, when relations had collapsed beyond recall, Betty had delivered in writing her terms for a final separation. Her husband was to provide sufficient money to complete her house in Fraytet, in the Dordogne, France, to buy a pied-à-terre in London, to meet her removal expenses, to pay her debts and to transfer a capital sum which would provide her with ‘an adequate income’ for life. Her final request was that they spend eight days together, alone, to discuss the ‘separation in a civilized manner, as two people who have loved each other very much and spent forty-six years together’. They had barely spoken or met since July, yet, lonely and exhausted as Maxwell now was, Betty was better than nothing. He had instructed her to fly to St Thomas.
Maxwell arrived on the islands in the Gulfstream on Christmas Eve. He had not bothered to consider that the aircraft’s crew would be separated from their families over the holiday. That inconvenience was part of the deal, although it would contribute to Captain Hull’s eventual divorce. After all, Maxwell was also missing the wedding of Isabel, his daughter, in San Francisco. ‘It’s her second,’ he had snapped. The news awaiting him at the airport from the Lady Ghislaine’s captain, Stephen Taylor, was infuriating. While the yacht was being manoeuvred into the harbour, a wind had swept the craft on to an uncharted sandbank, damaging her rudder. Hull was dispatched to Miami to fetch an engineer, while the Publisher went on board. But the expert’s verdict was miserable. Without a spare, the Lady Ghislaine could not sail. ‘Maxwell’s upset,’ Hull told his co-pilot with studied understatement.
Stuck motionless on a sandbank watching videos with Betty would not have amused Maxwell at the best of times. He was renowned for having once, in a fit of contemptuous pique, ordered his chauffeur to drive off from a London hotel, abandoning his wife, although she could be seen in the entrance hall. On Boxing Day, he fled from the imprisonment and flew to New York, leaving Betty to open Christmas presents, still wrapped, with the crew. Captain Taylor was fired shortly afterwards.
Maxwell’s depression did not lift in New York, which was disagreeably cold and still attuned to seasonal cheer. Worse, however he looked at the accounts, he could not see an easy escape into profit. The remedy, he decided, was to sell more of the empire and seek temporary relief by raising further loans to buy MCC shares. His telephone call to Kevin at Hailey was calculated to interrupt his son’s holiday. While the father remained in New York, his son would organize the finances.
On 28 December, after spending the morning with Trachtenberg discussing the finances, Kevin lunched with Basil Brookes, Albert Fuller and Robert Bunn at Chez Gerard in Chancery Lane. Their discussion about the group’s finances was for once uninterrupted by telephone calls since Kevin had left his portable in the car. Even so, with so little candour, their conversation produced no result. Three days later, before leaving the office to celebrate the New Year, Kevin and Bunn signed transfers for two more Berlitz share certificates. Both were handed to Lehmans, in exchange for $29.7 million. The Maxwells’ total debt to Lehmans had soared to $113.6 million.
FIVE Fantasies – January 1991 (#ulink_0d2712e1-3f34-552e-8c73-42fa23d40d12)
The holiday mood had been forgotten when Robert Maxwell met his son in his penthouse at seven o’clock on Sunday morning, 6 January 1991. Over the previous two weeks, Kevin seemed to Andrew Capitman, the banker, to have matured from gofer into joint manager. In his conversations with bankers, he was giving the impression that his was a major corporation suffering only transitory problems. But the secret purchase of MCC shares to stabilize the price was proving unsuccessful, and newspapers were speculating that an American-led coalition would at any moment launch an attack against Iraq in the Persian Gulf to free Kuwait from occupation, triggering chaos in the world’s financial markets. These were the worst conditions, undermining Maxwell’s hopes of recovery.
Among those who sensed Maxwell’s increasing problems was John Holloran, the manager of BPCC, the former printing division of Maxwell’s empire, who had bought the company in a management buy-out in January 1989. Ever since, Halloran had been pressing for payment of £97 million owed by BIM to the BPCC pension fund. Maxwell had resisted, but the sum was to be paid in July 1991. In the meantime, anxious to get more cash, Maxwell had persuaded Cook that it would be better eventually to pay BPCC in money because share prices would be falling. So BIM began selling shares. As the proceeds arrived, they were deposited on Maxwell’s orders in the account of RMG, his private company. From there they were used to repay his private debts. Halloran, with excellent sources in Maxwell House, detected the crisis and reminded the Publisher that he expected prompt payment with interest in the summer.
The financial crisis was no longer a secret. Jean-Pierre Anselmini recognized the critical sign: bankers were telephoning daily and Kevin was often avoiding their calls. Yet, like so many others, he believed that the Maxwells’ fortune in Liechtenstein could cover the debts. After considerable negotiating effort, Anselmini proudly presented Maxwell with a plan to repurchase MCC’s debt at a 25 per cent discount from certain European banks. ‘Can’t do it,’ said Maxwell. The profitable deal could not be completed because there was no money. Anselmini, like Ron Woods months earlier, was still too gullible to understand. Maxwell instead wanted another deal. Proffering a document written by Robert Bunn explaining all the outstanding loans of the private companies, he asked: ‘Can you arrange to get these restructured? Just as you did for MCC?’
Bunn’s report suggested that those private companies had debts of £1 billion against assets of £2 billion. Naturally, Maxwell did not confide that some of the assets belonged to the pension funds. Even so, Anselmini reported shortly afterwards: ‘It’s impossible.’ Maxwell’s disappointment was only too plain. ‘I don’t have a magic wand,’ added Anselmini. The mood in the City was deteriorating. A wave of financial scandals, the deepening world recession and the threat of a gigantic leap in oil prices because of the Gulf war had made bankers naturally wary. Now Anselmini’s telephone calls to the banking village had sparked suspicion. Bankers began contemplating Maxwell’s stricken finances and noted a crop of adverse newspaper reports. The burden to find a solution was firmly placed upon Kevin.
That month, Kevin began negotiating the extension of loans for MCC and the private companies with dozens of the banks. His negotiations with Julie Maitland persuaded her to write a new strategy paper about MCC (following one composed the previous July). Once again the bank, which had accepted £100 million in collateral for private loans, failed to take account of the fact that the shares were registered in the name of BIM. Some would claim that the omission was proof of negligence. The bank would plead ignorance, insisting that it had no duty to investigate.
Robert Maxwell’s palliative for the problems was to board the Gulfstream. On Sunday, 12 January he flew for dinner to Munich, departing early the following morning for New York to embark on a renewed effort to sell his Central European Fund on the West Coast. By the 20th his absence from London had fractured his relationship with reality. Instead of seeking solutions to MCC’s indebtedness, he flew to Bulgaria and then Croatia with Rudi Perpich, the former governor of Minnesota, to negotiate investing millions of dollars in those countries’ newspapers and television services. His hopes of profits were distant dreams. In London, the reality was increasing turmoil within the Maxwell empire caused by fears that the auditors’ finalization of BIM’s accounts might instigate a new dispute among LBI’s directors.
The trouble had started when Mark Tapley, LBI’s managing director, had returned to work on 2 January to find Larry Trachtenberg sitting in the office. ‘I don’t know what your role is in this firm,’ Tapley said angrily to the fat American, ‘but you’re meant to be out.’ Trachtenberg shrugged; despite Kevin’s promise to halt the stock lending, he had not been removed.
Unknown to Tapley, Maxwell had received a report from John Pole, the head of security, about Trachtenberg’s strange activities. During a routine search for a missing cassette tape of Trachtenberg’s telephoned market dealings, Pole discovered that the American was being threatened by a BIM employee. After some negotiations, a woman deposited the tape at the Mirror headquarters’ reception. Maxwell had clearly decided to ignore the incident, for Trachtenberg had celebrated his fortieth birthday hosting an expensive party at Mossiman’s, the Knightsbridge restaurant.
Trachtenberg was clearly secure within the Maxwell citadel. That very day, 2 January, he had typed a memorandum to the Maxwells setting out his value to them, now that it was time to calculate the 1990 bonus. Not only had he arranged transactions totalling $725 million in the previous year, but, he added in chilling prose, ‘If one were to include stock loans which were ultimately used in cash generation exercises, the total would easily surpass $1 billion.’ There it was, a stark admission of the misuse of the funds. Not surprisingly, his bald statement of facts encouraged Maxwell to increase Trachtenberg’s salary to £200,000 and to add a 10 per cent contribution towards his pension, a performance bonus of £100,000, a car and a rent-free house estimated to cost the London & Bishopsgate Group £78,000 every year.
These favours had not gone through without internal opposition. Gillie Bryson, an accountant, had noted to Kevin that Trachtenberg’s income had risen 154 per cent in two years and that he was ‘earning more than many of the top Chief Executives of the top FT-SE 100 companies’, despite the loss by London & Bishopsgate Holdings (LBH) of ‘a great deal of money’. Although Bryson complained, ‘I am at a loss to understand what possible justification there would be for any bonus to be paid,’ the Maxwells understood Trachtenberg’s value very well. Keen to capitalize on that sentiment, Trachtenberg’s latest proposal was that he exchange his shares in LBH, estimated by himself to be worth £250,000, for his house, which was valued £599,000. Although LBH was actually worthless, the Maxwells had agreed to consider his proposition.
Trachtenberg’s inviolability encouraged Tapley’s anxiety to resign, but he was persuaded by Anselmini, Willett and especially Bernard ‘Manuel’ Donoughue ‘not to rock the boat’. Pointing to the letters from lawyers and accountants approving the stock-lending scheme, Donoughue urged, ‘We’re going to arrange a buy-out of LBI so we can keep it for ourselves.’ Tapley was becalmed. By then, Trachtenberg was concealing the use of the pension fund shares while John Cowling completed BIM’s accounts.
On 5 February, Cowling asked Cook for a detailed explanation of the stock lending. He was answered with a statement of ignorance. Cook replied, ‘I don’t know much about the arrangements except that I have an agreement with LBI.’ In his files was a letter from Trachtenberg sent in early January assuring him that all BIM’s assets were safe. Attached to that letter was a note from the American acknowledging receipt at LBI of another batch of shares owned by BIM. Unknown to Cook, on that very day Trachtenberg had sent those same shares to Crédit Suisse to raise more money.
Cowling’s questions raised doubts in Cook’s mind. Three days later, on 8 February, he met Maxwell and asked for assurances about the stock lending. Since the beginning in December 1988, over £200 million of pension fund shares had been passed over on Maxwell’s orders to Trachtenberg. ‘Everything’s fine,’ said BIM’s chairman, not revealing that at 3 p.m. that day Kevin would telephone Julie Maitland to ask for a further $3 million loan guaranteed as he knew by pension fund shares.
Cook’s sanguine response to this reassurance did not immediately placate Cowling. By mid-February, the auditor had become puzzled by Trachtenberg’s vague replies, especially after he had provided two different lists of the pension fund shares held by LBI. There were other good reasons for Cowling’s unease. He had not seen any written authorization for the stock lending from BIM’s directors; and there was a letter from Mark Haas of Lehmans confirming that the pension fund’s shares handed over by Invesco were held as ‘collateral for loans in connection with the stock-lending agreement’. (Haas would subsequently claim that either Trachtenberg or Cook had composed the letter.)
In an attempt to clarify his confusion, on 13 February Cowling listened to a telephone conversation between Cook and Trachtenberg. ‘Can you put the whole position in writing because it seems you’re doing collateral swaps which aren’t authorized?’ asked Cook. Trachtenberg’s replies clearly contradicted his earlier explanations. Talking about Lehmans, he actually mentioned ‘collateral swap’, a term which should have alarmed Cowling.
Although Trachtenberg did accurately say, ‘There was no stock-lending position with Lehmans on 5 April 1990,’ he confused the auditor by saying of the later agreement, ‘The Treasury bills are held as collateral for the stock’ for BIM’s account. Subsequently Cowling received a similar assurance from Mark Haas, who stated in a letter that the BIM shares were held as collateral under the stock-lending agreement. In fact, Haas knew this was not conventional stock lending, only pure borrowing against collateral.
By then, other matters should also have aroused the auditor’s suspicions: Maxwell had ‘invested’ £5 million of BIM’s money in the Robert Fraser Group, the private bank chaired by Lord Rippon; BIM had ‘deposited’ £69.7 million in cash with LBI; a Maxwell private company had ‘borrowed’ £37.6 million cash from the pension funds; and BIM’s stake in MCC had doubled from 13 to 25 million shares.
There was one simple chore which Cowling should have undertaken to complete his audit. The original certificates for all the shares managed by BIM ought to have been seen and ticked off the inventory. Cowling’s problem was that the certificates were scattered in more than one dozen places and in several countries. Instead of demanding sight of each certificate from Trachtenberg, he was content to be shown photocopies or to listen to the American’s oral explanation that the missing certificates would be produced in the future. ‘Don’t worry, it’s all part of the normal stock-lending arrangements,’ gabbled Trachtenberg, and the auditor was persuaded.
