Maxwell: The Final Verdict

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.

To prove the point, Cowling was shown certificates for 1 million shares in Banco Commercial Portugues. Although owned by BIM, Maxwell had already pledged the shares against a loan. Among other certificates promised was one for 12 million MCC shares ‘lent’ by BIM to LBI. Trachtenberg had pledged those shares with Goldman Sachs and, to cover that discrepancy, he offered a polite letter to Cowling simply stating that LBI ‘held’ the share certificate.

Cowling would return to Cook towards the middle of February: ‘I’ve received all the information I need from LBI. Everything’s fine.’ Since Cook was not an accountant but an administrator, he gladly accepted Cowling’s assurances. ‘It’s miraculous,’ thought Highfield. ‘They say there’s no problem any more.’ He reasoned that after all LBI was staffed by men – Tapley, Donoughue, Ford, Carson and Trachtenberg – of higher qualifications than himself.

Cowling’s only caveat was that he would send a letter to BIM listing the serious problems to be solved. There were, he would write, ‘control deficiencies and weaknesses’ in BIM and confusion because share certificates were kept in Various locations’. He noted a catalogue of errors in BIM’s accounting system and stated that ‘LBI’s systems had collapsed.’ His conclusion was that there was need for a substantive review, ‘due to lack of basic controls’. But he did certify that the pension funds possessed £792 million, adding that the interest earned from lending money to Maxwell was £0.5 million and that ‘this should please the pension fund’. The audit was completed. Maxwell’s special arrangements remained concealed.

Robert Maxwell greeted the news of Cowling’s self-deception by immersing himself among the famous and rich to discuss the world’s problems. Constant travel was not only a distraction from what he still believed were temporary difficulties but immunized him from reality. He flew to Davos in Switzerland to address the World Economic Leaders. After a dinner at the Fluela Hotel, where he reassured the chairman of Crédit Suisse of his empire’s well-being, he basked in the limelight of constant receptions and meals, happily anticipating his own lecture on ‘Acquiring Media in Eastern Europe’. Naturally, when he delivered the lecture, Maxwell did not confess that his own efforts in Berlin, Sofia, Prague, Zagreb and Moscow were proving expensively unprofitable. Instead he boasted about his close relationships with presidents and ministers across the continent, especially with Mikhail Gorbachev. That relationship, cemented in Minneapolis, Minnesota in June 1990 during their joint consecration of the $100 million Gorbachev Maxwell Institute, had propelled Maxwell’s self-esteem to new heights. Although he had unfortunately forgotten to contribute his promised $50 million towards the institute, founded with the lofty intention of uniting the world’s scientists, the pictures and soundbites of Gorbachev praising Maxwell and warmly shaking his hand had been profitably flashed by satellite around the globe.

That impression of influence was the reason for the request by Yitzhak Shamir, Israel’s prime minister, for Maxwell to visit Jerusalem on 12 February. Shamir needed Maxwell’s help in passing a message to Gorbachev about the danger posed by Iraq should the war with Kuwait spread to Israel. The proximity to power and his importance in Israel, where every minister made himself available, gave Maxwell special pleasure. At the end of twenty-four hours of meetings in Jerusalem he flew on to Zagreb to meet Rudi Perpich, in order to finalize preparations for Maxwell’s hoped-for television and newspaper empire in Croatia. Perpich, hired as Croatia’s lobbyist after his defeat in the Minnesota elections, knew how to impress Maxwell. Lunch had been arranged with President Tudjman to celebrate the signing of letters of intent, an encounter which took place on former President Tito’s Mediterranean island, in the breathtaking villa compound. Perpich watched Maxwell’s spirits rise as he savoured the treatment normally accorded to heads of state. By the second day, Perpich was impressed to find that the visitor had, within his first twenty-four hours on the island, learnt sufficient Croatian to speak with the president without an interpreter. On their return flight to London, for Perpich’s benefit Maxwell reflected at length upon his own glory, ignoring the cost of flying 6,000 miles to earn nothing. At £3,500 per hour, the Gulfstream’s journey cost over £90,000 – £50,000 for the flight plus £42,815 for insurance in a war zone.

Maxwell’s distance from reality struck Rupert Murdoch, who had at last fulfilled a long-standing and much postponed visit on 11 February. ‘We are two big publishers,’ Maxwell had boomed on the telephone, ‘and we should talk.’ Murdoch’s secretary had taken the precaution of warning Maxwell that her employer could not be kept waiting and that he had precisely forty minutes before the next appointment. Their recent but rare encounters, thought Murdoch as he ascended to the ninth floor of Maxwell House, had invariably been characterized by Maxwell’s bombast and Murdoch’s teasing response. Ever since he had outwitted Maxwell in 1969 to win the News of the World, Murdoch’s capacity to irritate him had grown.

At ten minutes past four, five minutes into their meeting, Murdoch’s impatience with Maxwell was turning into contempt. With few pauses for breath, Maxwell was boasting about his worldwide diplomacy, especially his intimate relations with the Kremlin and with the leaders of Israel. His self-indulgence had bemused and then silenced his visitor. At the end of forty minutes, Murdoch asked: is there anything else we need to talk about?’

‘No,’ replied Maxwell with a satisfied grin. In his opinion, he had proved his importance to his rival.

As Murdoch descended to the street, he exclaimed, ‘What was all that about? He’s ludicrous.’

Even for Maxwell, the glow was brief. Five days later, at seven o’clock on the morning of 16 February, he was once more sitting in his kitchen, switching television channels while George Wheeler applied L’Oréal to his hair. The Gulf war, one month after the first Allied attacks, dominated the airwaves, especially on Murdoch’s Sky channel. Once again, Maxwell was morose. The previous evening, after landing by helicopter on the roof, he had deliberately stayed away from the cocktail party to mark Richard Baker’s retirement as managing director of MCC: disloyalty was unforgivable. He would also ignore the invitation to Andrew Lloyd Webber’s Berkshire estate that evening to celebrate the composer’s wedding. He struck that idea out of his mind. Betty could go alone. Maxwell’s thoughts were on his journey the following day to Istanbul to meet the president of Turkey. The $40,000 flight would allow him to speak to the president about the country’s participation in the Gulf war for one hour before returning home for dinner with President Zhelev of Bulgaria.

Maxwell’s interest in Bulgaria, that irrelevant and impoverished Balkan people’s republic, was irrational. Although he confided to Sir John Morgan, a former British ambassador who had joined his staff, that he felt sentimental about the country which had helped him during his escape from the Nazis in 1940, his investments in a school for business management, a newspaper, a television station, a hotel chain and a bank were costing millions without any chance of profits. Ognian Doynov, his Bulgarian adviser and a disgraced former member of the Politburo who had replaced Morgan, appeared to some to be encouraging Maxwell’s waste of money. Paid £110,000 annually plus a motor car and free company flat, Doynov could not, however, be blamed for Maxwell’s waning interest in his expensive fantasy. ‘The Bulgarians’, noted Brian Cole, Maxwell’s fixer in that country, ‘did not trust Maxwell. They just wanted his money.’ Among those travelling to Sofia as part of the team to invest MCC’s money was Helen Liddell, a future Labour member of parliament, employed as director of personnel and public affairs at the Scottish Daily Record, part of Mirror Group Newspapers. Maxwell, with Liddell in attendance, paid out millions but received little more than a royal welcome in return.

Maxwell’s reveries about international stardom were disturbed by Kevin, who was about to fly with Anselmini to Zurich on a mission to reassure the bankers that new anxieties about the empire were groundless. Kevin’s solution was radical. More of the empire needed to be sold, he urged, despite the poor prices they might earn. The recent sale of their shares in TFI, the French television station, had prompted, a temporary rise in MCC’s share price – the market had not realized that some of the shares were in fact owned by the Maxwell pension funds. More sales were needed. His father agreed and added another ploy: ‘We’ll have to buy more shares.’ By 19 February, Maxwell officially owned 68.1 per cent of MCC, an increase of about 5 per cent over three months. A genuine market for the shares had practically ceased to exist.

Among those scenting a profit from the dismantlement of the empire was Robert Pirie, the Rothschild Inc. banker blamed by many for his part in the crisis after he had advised on the $2.6 billion purchase of Macmillan. Although Maxwell had insisted in the glory hours of winning the battle that he would never sell any Macmillan asset, the American publisher’s break-up was inevitable. He had begun selling Macmillan assets in December 1989, although the $131 million he received in a public offering for 44 per cent of Berlitz had been a disappointment. This remedy in any case bore a sting: each sale after the Berlitz disposal would attract tax, reducing the proceeds.

On a recent Saturday morning, Pirie had drunk coffee with Maxwell in London. ‘A client wants to buy Pergamon Press,’ he smiled, asking the Publisher whether he would sell.

‘Yes,’ said Maxwell, agreeing that Rothschilds could investigate Pergamon’s accounts on behalf of their client. But before the bank completed their investigation Maxwell told the banker that he was out of the running. The sale of Maxwell’s jewel, the foundation of his fortune, was already under way – codenamed ‘Project Tokyo’ – convincing the dispirited founder of the empire that it was time to contemplate retirement. The purchaser was Elsevier, a Dutch competitor of Pergamon.

The arguments seemed incontrovertible. MCC was suffering from the ‘Max Factor’: his own presence was devaluing his company’s value. Recent resignations had compounded his troubles, and window-dressing was no longer a sufficient cure. Only his retirement would improve the image and the share price.

Kevin’s proposed successor as MCC chairman was Peter Walker, the Conservative member of parliament and former cabinet minister who had earned his millions in the 1960s with Jim Slater. Their controversial partnership had introduced a new era of unit trust investments in Britain, only to culminate in disaster and scandal long after Walker had departed. Walker, however, had secured his fortune and went on to become a successful politician.

The idea of recruiting Walker had first been mooted by Sir Michael Richardson, MCC’s new stockbroker and the chairman of Smith New Court, which also employed Walker. Richardson, who had willingly accepted MCC as a new client after Maxwell had dismissed Laing & Cruickshank for failing to puff his shares, had first dealt with Maxwell twenty-five years before, when he had floated Pergamon shares on the stock exchange. In the decade after the Pergamon scandal in 1969, he had enjoyed only occasional contact with his erstwhile client, but that changed during the 1980s with Maxwell’s resurrection. During those boom years Richardson had established himself in the City’s higher echelons, reputedly becoming close to Margaret Thatcher, and switching to N.M. Rothschild, the bankers, where he earned a fortune. Like so many in the Square Mile, he wanted to believe, when MCC became a client in 1989, that Maxwell was ‘squeaky-clean’. Sensitive, obliging and knighted for his polished performance in the City, Richardson would plead gullibility in the face of Maxwell’s self-salesmanship, coupled with his promise of enormous fees. In recognition of that special relationship, Richardson had given the speech of thanks in 1988 at Maxwell’s grandiose sixty-fifth birthday party for 500 of the great and the good in Oxford – it was ‘the party of the decade’, Richardson had declared extravagantly, before claiming that their relationship with Bob had ‘enriched’ all his guests’ lives.

Peter Walker’s introduction to the Maxwells was undertaken by Richardson, whose admiration for the politician, as for Maxwell, was unconditional: ‘He’s as tough as they come.’ The result had been an invitation for Kevin to dine, on 21 November 1990, at Walker’s home in Cowley Street, Westminster. That evening, Kevin had propositioned the politician to become MCC’s chairman. The notion appealed to Kevin because, as he observed his father’s increasingly erratic performance, he had, with his mother’s encouragement, developed the desire to run the whole show himself. Walker was seriously interested. The two men had found they had enough in common: lean, mean, ambitious, self-admiring and brutally self-interested.

Three months later, at nine o’clock on 12 February 1991, Richardson and Walker visited Robert Maxwell to discuss the terms for what Sir Michael called ‘an ideal solution’. The outline was blessed by Maxwell and, over lunch two days later, Kevin and Walker settled more details. To Kevin, one of the empire’s problems seemed to have been resolved. Walker would be paid £100,000 per year and would, in addition, benefit from the executives’ ‘incentive’ scheme. He was promised, over the following three years, 605,380 MCC shares in three instalments, and he would receive them free. At that date the shares were worth £1,350,000.

Kevin’s thirty-second birthday fell on 20 February. As a treat, he chartered a Falcon jet and invited three other couples to fly at 7.30 in the morning from Heathrow to Venice for lunch, staying overnight at the Pensione Accademia. The cost could be charged to the company because he would briefly attend a board meeting of Panini, a sticker manufacturer which his father had bought in an expansionary fit and which was losing money.

While his son took a break, Robert Maxwell flew to the American southern states, to relaunch his Central European Fund. Within two days he had tired of the seven-day programme, which was costing £140,000 and flew instead to Miami to inspect the Lady Ghislaine after her repairs. Once there, he decided that the new captain was unsuitable. Summoned to the bridge, the American seafarer was fired for dereliction of duty: he and the first officer had been absent from the boat shortly after Maxwell arrived.

Adding to the army of those dismissed caused Maxwell no concern. Once he had tired of people, their departure was convenient. No one, he believed, other than himself, was entitled to any security of employment, an opinion which he probably did not discuss over lunch with Norman Lamont at 11 Downing Street on 27 February – a meeting which the new chancellor of the exchequer could not subsequently find in his diary.

SIX Vanity – March 1991

A night-time telephone call from New York on 5 March 1991 pushed Maxwell further into his indulgent fantasy, sending him off on an adventure that would dangerously compound his plight. The caller was Sidney Gruson, a director of Rothschild Inc. and formerly a renowned journalist and editor of the New York Times. Ever since the Macmillan deal, which had netted Rothschilds $17 million in fees (albeit extracted from MCC only after substantial pressure), Gruson had known that Maxwell was ‘fishing for an American newspaper’. At one time, Gruson had started negotiations with the Reverend Sun Myung Moon (founder of the Unification Church, or Moonies) to buy the Washington Times and had flown to London. Going straight to Maxwell’s office from Heathrow, he was greeted by the Publisher’s then personal assistant Andrea Martin: ‘I’m afraid Mr Maxwell cannot see you.’

‘That’s not important,’ replied Gruson. ‘All I want is a men’s room.’

When he emerged, relieved but anticipating either a long wait or a swift return to New York, he found Maxwell in his socks anxiously searching for him. That was Maxwell’s charm – so different from Kevin, characterized by Gruson as ‘an unmitigated shit without his father’s flair’. Plans were completed for the two men to fly to South Korea, the Reverend Moon’s homeland, but the proposed deal collapsed.

Next Gruson had suggested a bid for the National Enquirer, a sensation-seeking tabloid. A team of Maxwell’s ‘experts’ toured the newspaper’s Florida offices and discussed the project at length, only for Maxwell to baulk at the price – in retrospect a missed opportunity, for the profits were enormous. Gruson’s next proposal, the purchase of the New York Daily News, was different. One of three tabloids in New York, the News in its heyday was the nation’s largest daily with a circulation of 2 million. But in March 1991 its staff had been on strike for nearly five months. Although published and sold throughout the dispute by non-unionists, its circulation had collapsed to 300,000 and its advertising revenue had practically disappeared, aggravating its accumulated losses since 1980 of $250 million.

The Tribune company of Chicago, owners of the Daily News, had adopted abrasive tactics which had in Chicago successfully broken the unions’ power. But in New York politicians and even the police, guided by self-interest, had supported the strikers. ‘Stay strong,’ Governor Mario Cuomo urged strikers, who had been burning delivery trucks and intimidating non-strikers. ‘You’re fighting for all of us.’ The problem had been made worse by the naivety of the Tribune company, whose senior executives in Chicago could not understand the ruthless competitiveness of New York’s Jews and mobsters and ignored the reality that New York City was not a suitable location for printing newspapers. Unable to cope with the violence and the daily losses of $700,000, the company’s management had threatened that unless the strike ended by 14 March the newspaper would be closed permanently. Closure, however, would cost an estimated $100 million in redundancy payoffs to the workers.

The Daily News was suffering an illness which Maxwell believed he could cure: overmanning by a rebellious and corrupt labour force, crippling restrictive practices, uncontrolled expenditure, antiquated print machinery and weak management. Over the previous years, he had stayed in contact with Jim Hoge, the News’s erudite and handsome publisher and president, who counted Henry Kissinger among his friends and owned a fashionable Manhattan address. From time to time, Maxwell or Sidney Gruson would discreetly telephone Hoge to ask if the paper was for sale. Politely Hoge would decline their offer.

That changed when the Tribune company issued its ultimatum to the unions and started to look for buyers. Maxwell declared his interest, but told Hoge that he refused to become involved in a competition. His participation would depend upon other bidders leaving the arena. ‘He played it according to Hoyle, the whole way’, remarked Hoge, comparing Maxwell to the bridge master. On 5 March, Gruson gave Maxwell the all-clear. The Tribune company had offered to pay Maxwell $60 million if he took over the liability within ten days. On the same day, Hoge told George McDonald, coordinator of the nine trade unions involved, to telephone Maxwell in London. McDonald, a generous-minded Democrat stalwart, knew that his call was crucial. Without any competing bidders, the newspaper’s existence depended upon Maxwell’s decision. Even McDonald, a seasoned fighter, was nervous when he made that night-time call. Maxwell’s position was potentially powerful and the unionist’s weak. But McDonald’s fears soon dissolved. ‘Do you think it’s worth my while to come?’ was Maxwell’s surprisingly meek response.

‘We’ll give you concessions,’ answered McDonald. Ten minutes later he felt he had achieved more with Maxwell than he had in two years with the Tribune group. Maxwell, he sensed, was hooked. ‘You know,’ he later reflected in his strong New York accent, ‘owning the Daily News is like a visiting card for sheikhs, kings and queens. It opens the door for people and I guessed he wanted it that bad. He could taste it.’

Bestriding an apparently irreconcilable dispute was honey to Maxwell. Not since he had defeated the Mirror Group’s unionists during the 1980s had such an opportunity arisen, and it was in the same city where Rupert Murdoch had lost a fortune before abandoning his attempt to modernize another tabloid, the Post. Nevertheless, a more rational man, confronting such massive and unresolved problems as Maxwell was, might have shied away from new time-consuming tasks at that stage. Maxwell, however, saw the Daily News not as a distraction from his other problems but as a solution to them.

Fresh from plotting his new empire in Eastern Europe (he had flown for a night to Berlin), he began discussing with Ian McIntosh, of the British bank Samuel Montagu, the sale of 49 per cent of Mirror Group Newspapers, insisting that he should receive £500 million in cash. He desperately needed money and hoped that he might raise a better price selling shares in New York. Unfortunately, however, despite his acquisition of Macmillan, he was unknown to American investors. This weakness was mentioned by Charlie McVeigh of Salomon Brothers, chosen after a beauty parade as the project’s New York brokers for the flotation. McVeigh, a ‘handsome goy’, employed as much for his charm as for his talent, was accompanied by Nancy Peretzman, a stylishly dressed, tough investment banker who had caught Maxwell’s eye when she thwarted his bid in 1986 to buy the magazine Scientific American. Together they had stressed the Publisher’s need to overcome his anonymity in Wall Street. Over twenty-four hours, Maxwell calculated that buying the Daily News could solve several problems.