Maxwell: The Final Verdict

On the Maxwells’ directions, Cook would either loan BIM’s cash to the Robert Maxwell Group or deposit the money in the account of Bishopsgate Investment Trust (BIT), which the Maxwells could draw at their convenience. BIT had been specially created by Maxwell to act as a private nominee owner of shares without any legal relationship to the pension funds, blurring the actual ownership in the eyes of outsiders. As directors of BIM, BIT and RMG, the Maxwells could effectively constitute themselves a board of directors and transfer the ownership of shares from the pension funds to their private company, using them as collateral for private loans without the knowledge of anyone else. That easy access to loans depended on the size of the pensions’ Common Investment Fund.

Ever since the CIF had been created, Maxwell had sought to persuade, cajole and even threaten his employees not to opt out of their employer’s pension funds. A special twenty-one-minute video, fronted by Maxwell himself seated on a large black leather chair, promised them that the pension schemes would ‘provide good benefits, are financially sound and well run’. To his relief, few had dared to withdraw their money. He could continue to use their millions as his own. No company’s affairs received greater attention from Maxwell than BIM’s.

Maitland ought to have appreciated that BIM managed the pension funds of Maxwell’s empire, but she felt no need to make special inquiries. With each share certificate was a transfer form signed by Kevin and others, including Ian, his thirty-four-year-old brother, showing that ownership of the shares had been transferred to RMG. Maitland did not query why the pension funds should agree to that transfer. Indeed, when on one occasion she saw that a share certificate sent by Kevin was still owned by BIM, she returned it for RMG’s name to be inserted on the transfer form. So, by 8 November 1990, £70 million of pension fund shares had been used to raise money for Maxwell personally. On that same day, Kevin asked Maitland for another private loan. She seemed unsurprised when he offered as collateral a share certificate for 500,000 Berlitz shares. It was, he said, ‘owned by the private side’. Again, Maitland and her superiors had reason to be suspicious.

To repay MCC’s debts in December 1989, 44 per cent of Berlitz had been sold to the public for $131 million. No one had ever suggested that the Maxwells themselves had bought any of those Berlitz shares as a private investment. Nor was their name listed among Berlitz’s registered shareholders. But Maitland would insist that no hint of suspicion ever passed through her mind when Kevin said, ‘These Berlitz shares are privately owned.’ The paperwork for transferring the Berlitz certificate to Maitland had been completed by one of Maxwell’s treasury officials. The Berlitz shares, owned by MCC, the public company, were being used by the Maxwells for their private purposes. By any reckoning, it was highly improper.

Robert Maxwell of course understood the impropriety. Later that week, he signed documents promising not to use the Berlitz share certificates brought back by Ghislaine in any manner without Macmillan’s explicit agreement. His indecipherable scribble would adorn many such documents over the next year. In each case, after he had signed, he would more or less forget the deception. Dishonesty did not trouble him. Throughout his life, he had ignored the norms of morality. Indeed his fortune had been constructed, lost and rebuilt by deliberate transgressions, outwitting and outrunning his opponents regardless of any infringement of the laws. According to the ethics he had learnt as a child, watching smugglers in his Ruthenian border town, the goal was survival and profit, and the consequences to the losers were irrelevant. For Maxwell, the Berlitz transaction had been a minor sideshow at the beginning of another hectic week, working in a moral vacuum within a surreal world.

The atmosphere in the citadel of his empire, the £2 million penthouse apartment on the tenth floor of Maxwell House, was suffocatingly imperious. Polished, double doors led across marble floors into a high-ceilinged hall supported by brown marble Doric columns and lit by glass chandeliers. Beyond, the spectacle of a huge living area decked out with expensive mock-Renaissance tapestry-covered furniture and with carpets patterned in a vast ‘M’ design cautioned any visitor who might be contemplating criticism or challenge. Access to the apartment, in common with all the buildings on the Holborn site, could be gained only by coded plastic cards. Even between neighbouring offices movement was monitored by video cameras. Rigorous security was imposed to protect Robert Maxwell’s secrecy and cushion his paranoia.

The twenty-two-stone proprietor, clothed in bright-blue shirts and dazzling ties, intimidated visitors by his gestures as much as his words, his gargantuan performance humbling those physically and financially less well endowed. The theatricality, the egocentricity and the vanity of the man were unsurpassed. Servile staff offered refreshments, earnest secretaries announced incoming calls from the world’s leaders, and bankers, lawyers and accountants did everything they could to please their client, while his deep, gravelly voice issued curt instructions, allowing no questions. Those who attempted to understand his psychology invariably failed, because both his motives and his reasoning were unique. Utterly consumed by his own self-portrayal as a great man, he was certain of his invincibility, sure that his abilities would overcome the natural consequences of any decision he took. ‘Bob believed he was bigger than the City,’ lamented Johnny Bevan, one of his many brokers. To Maxwell’s gratification, enough of his visitors accepted his self-appraisal. Even his most bitter enemies used the sobriquet ‘Cap’n Bob’ – thereby recognizing, as he saw it, his supreme importance.

On the floor below, the communications centre of his universe, other compliant men and women toiled in the service of the Publisher, otherwise known as the Chairman or RM. Visitors knew that, as in a medieval court, the official job descriptions of these employees often bore little similarity to their actual task. And, again as in a medieval court, dozens of those visitors and employees waited patiently for the opportunity of an audience. From outside, invitations arrived hourly. Most were rejected with the standard computer-template reply that the Chairman regretted that his diary was full for two years. The world’s newspapers, television and radio were constantly monitored for every mention of the man, the precise words faithfully reported in regular faxes. Constantly updated handbooks listed the telephone numbers of every employee, business contact and powerbroker across the world – town home, country house and office – and the speed-dial numbers of those included on a special list. The Publisher delighted in calling employees at the most inopportune moments, demanding not only their attention but their immediate presence. Television screens displayed the trade of MCC shares in seven stock exchanges across Europe and Canada – and were the object of his intense scrutiny. The image was intended to match the substance: not a second could be wasted as the workoholic billionaire controlled his worldwide enterprise.

The empire was run on similar lines to those of Nicolae Ceausescu and Todor Zhivkov, the autocratic communist presidents of Romania and Bulgaria whom Robert Maxwell expensively nurtured. His employees knew only a small part of the scenario, unaware of the implications and the background to the letters and telephone calls flowing to and from their master in those nine languages he claimed to speak. None of the secretaries was allowed to remain employed too long – not even the very pretty ones whose employment the Publisher had particularly requested. No one would be permitted to learn too much, despite the effect on the office’s organization. Nevertheless, their loyalty, devotion and discretion were bought by unusually high salaries, and by fear: fear of Maxwell and fear of losing their jobs and being unable to find similarly lucrative employment. Verbal brutality crushed any opposition. In return for exceptional remuneration, they agreed to sing to their employer’s song sheet. The sole exception, and only a partial one, was Kevin. Fear of Robert Maxwell had been instilled in him from childhood, but by November 1990 his father’s passion for secrecy had been offset by the need for an ally. Kevin had become the cog in the machine essential for his father’s survival.

Bankers, brokers and businessmen in London and New York almost unanimously agreed that Kevin was clever, intelligent, talented, astute and, most importantly, not a bully like his father. Eschewing tantrums and verbal abuse, he had at a young age mastered the intricacies, technicalities and jargon of the financial community. But, with hindsight, the perceptive would be struck by the image of a dedicated son: of medium height, thin, dark, humourless, ruthless, efficient, manipulative, cold and amoral. Kevin acknowledged the source of other qualities in a written appreciation sent to his father: ‘You are my teacher and all my life you have tried to demonstrate the principles underlying every action or inaction even if we were playing roulette or Monopoly … you have given me the sense of excitement of having dozens of balls in the air and the thrill of seeing some of them land right.’ Willingly submitting to the Chairman’s daily demand to vet both his diary and his correspondence for approval and alteration, Kevin would tolerate anything from that quarter for the chance to indulge his love of the Game based upon money and power. ‘I don’t think anyone would ever describe me as being a member of the Salvation Army,’ he would later crow, echoing his father’s statement to truculent and threatening printers in the early 1980s.

For the previous three years he had worked under his father’s supervision, accepting his rules as gospel, not least the injunction never to give up. ‘He enjoyed fighting and enjoyed winning,’ Kevin admiringly observed of Maxwell’s achievement in creating an empire within one generation, while Rothermere, Sainsbury and Murdoch had relied upon inherited money. Kevin positively glowed, relishing both his own family’s wealth and the servility shown towards him.

Yet, despite his power and privilege within the organization, Kevin shrank in his father’s presence. Conditioned by the beatings – psychological rather than physical – which he had received as a child, his eyes would dart agitatedly around, nervously sensing his father’s approach, and sometimes at meetings he would slightly raise his hand to stop someone interfering: ‘Let the old man finish.’ Kevin may well have thought that he could manage the family business honestly, but within recent months either he had veered towards dishonesty or his remaining scruples had been distorted by Robert Maxwell. Many would blame his father’s lifelong dominance for that change, while others would point to his mother’s failure to imbue her youngest son with the moral strength to resist her husband’s demands.

Robert Maxwell had become a collector rather than a manager of businesses. Size, measured in billions of pounds, was his criterion. The excitement of the deal – the seduction, the temptation, the haggling, the consummation and the publicity – had fed his appetite for more. By November 1990, he owned interests in newspapers, publishing, television, printing and electronic databases across the world estimated to be worth £4.2 billion. But the cost of his greed was debts of more than £2.2 billion, and the coffers to repay the loans were empty. This was the background to Ghislaine’s flight to New York to bring back the Berlitz share certificates.

The principal cause of indebtedness was the $3.35 billion spent by Maxwell in 1988 on the ‘Big One’, as his excitable American banker Robert Pirie called it. The money had bought Official Airline Guides (OAG) for $750 million and, more importantly, after an intense and successful public battle with Henry Kravis, the famous pixie-like arbitrageur, the Macmillan publishing group for $2.6 billion. Pirie had throughout stoked Maxwell’s burning sense of triumph.

Pirie, the chief executive of Rothschild Inc., had played on Maxwell’s weaknesses. ‘If you want to be in the media business,’ advised the Rothschild banker, ‘you’ve got to be prepared to pay the price.’ He did not add that he would earn higher fees if Maxwell won. Telling his client, ‘You’re paying top dollar,’ Pirie did not discourage him from going for broke. Maxwell’s self-imposed deadline for joining the Big Ten League, alongside his old rival Rupert Murdoch, would expire in just thirteen months. Intoxicated by the publicity of spending $3 billion, he crossed the threshold without considering the consequences. ‘Plays him like a puppet,’ sniped one who was able to observe Pirie’s artful sycophancy. To Pirie, Maxwell had not overpaid. There were, in the jargon of that frenetic era, ‘enormous synergies’ and the Publisher himself did not even consider his plight as a debtor owing $3 billion. After all, Pirie boasted, ‘Maxwell had no credibility problem with the lending banks.’ But the Rothschild banker disclaimed any responsibility for the other deal. ‘He paid too much for OAG,’ he later volunteered, adding unconvincingly, ‘The deal was done by Maxwell, not me.’

Forty-four banks had lent Maxwell $3 billion, hailed by all as proof of his return to respectability. Astonishingly, the giant sum was not initially secured against any assets. He could lose all that cash without more than a blink. The interest rates, moreover, were a derisory 0.5 per cent over base rate. The deal was a phenomenal bargain negotiated through Crédit Lyonnais and Samuel Montagu by Richard Baker, MCC’s gruff deputy managing director, who had been born in Shepherds Bush, west London. Maxwell had inherited Baker when he bought the British Printing Corporation (BPC), Britain’s biggest printers, in an exquisite dawn raid in 1980.

Maxwell’s victory was more than commercial. Despite his infamous branding as a pariah by British government inspectors in 1971, which had cast him into the wilderness, Maxwell had re-established his respectability and acceptability among most in the City. Here was the reincarnation of what had long ago been unaffectionately dubbed ‘The Bouncing Czech’. Leading the supporters was the Nat West Bank, his bankers since 1945, who were impressed by the way their client had crushed the trade unions at BPC, restoring the company to robust profitability. Now the ‘Jumbo Loan’ was the world financial community’s statement of faith in Maxwell. ‘All the banks were clamouring to join the party,’ recalled Ron Woods, Maxwell’s soft-spoken Welsh tax adviser and a director of MCC. Bankers judged MCC to be not only an exciting but a safe company. Former enemies had become allies – and over the years he had collected many enemies. Their numbers had multiplied after 1969 when he had sold Pergamon Press, his scientific publishing company, to Saul Steinberg, a brash young New York tycoon. Since Maxwell was a publicity-seeking, high-profile Labour member of parliament, the deal had attracted unusual attention. Pergamon, Maxwell’s brainchild, was a considerable international success, elevating its owner into the rarefied world of socialist millionaires.

But within weeks the take-over was plunged in crisis. Steinberg’s executives had discovered that Maxwell’s accounts were fraudulent, shamelessly contrived to project high profits and conceal losses. In the ensuing storm of opprobrium, Maxwell was castigated by the Take-Over Panel, lost control of Pergamon and was investigated by two inspectors appointed by the Department of Trade and Industry. In their first report published in 1971, the inspectors, after reminding readers that Maxwell had been censured in 1954 by an official receiver for trading as a book wholesaler while insolvent, revealed that his confidently paraded finances were exercises in systematic dishonesty. Their final conclusion was to haunt Maxwell for the rest of his life:

He is a man of great energy, drive and imagination, but unfortunately an apparent fixation as to his own abilities causes him to ignore the views of others if these are not compatible.… The concept of a Board being responsible for policy was alien to him.

We are also convinced that Mr Maxwell regarded his stewardship duties fulfilled by showing the maximum profits which any transaction could be devised to show. Furthermore, in reporting to shareholders and investors, he had a reckless and unjustified optimism which enabled him on some occasions to disregard unpalatable facts and on others to state what he must have known to be untrue.…

We regret having to conclude that, notwithstanding Mr Maxwell’s acknowledged abilities and energy, he is not in our opinion a person who can be relied upon to exercise proper stewardship of a publicly quoted company.

Even before that excruciating judgment was published, most City players had deserted Maxwell or refused his business. Ostracized, he did not begin to shrug off his pariah status until July 1980, when he succeeded in his take-over bid for the near-bankrupt British Printing Corporation (partly financed by the National Westminster bank). Within two years, his brutal but skilful management had transformed Britain’s biggest printers into a profitable concern, laying the foundations for his purchase of the Mirror Group in 1984.

Building on that apparent respectability, the financial community had cast aside their doubts and contributed to the Jumbo Loan. Among his closest advisers were Rothschilds, his bankers, who had shunned him after 1969; his accountants were Coopers and Lybrand, one of the world’s biggest partnerships; and among his lawyers was Bob Hodes of Wilkie Farr Gallagher, who had led the litigation against him in 1969. For Hodes, a scion of New York’s legal establishment, Maxwell had become ‘a likeable rogue who appeared to enjoy the game’. Like all the other professionals excited by the sound of gunfire, Hodes was confident that he could resist any pressure from Maxwell to bend the rules.

A celebration lunch when the Jumbo Loan had been rearranged was held at Claridge’s on 23 October 1989 by Fritz Kohli, of the Swiss Bank Corporation. The champagne had flowed as successive toasts and speeches showered mutual congratulations upon Maxwell and his banks. The Publisher had been gratified, especially by the presence of Senator John Tower and Walter Mondale, the former US vice-president, both of them anxious to become his paid lobbyists. Everyone was excited by the star because he was a dealmaker and deals generated headlines and income. Few bothered to consider that behind the deals there was little evidence of any considered strategy or of diligent management. But even then, unknown to the bankers, the consequences of that weakness were already apparent and Maxwell’s grandiose ambitions were faltering. Unexpectedly high interest rates, a worldwide recession and a fall in stock market prices were gradually devastating his finances.

One option for salvation was to adopt Rupert Murdoch’s solution. Maxwell’s bugbear had confessed his financial problems to his banks and had renegotiated the repayment of his $7.6 billion loans. Maxwell rejected that remedy. The wilfully blind would blame his vanity but, in retrospect, others understood his secret terror of having the banks inspect his accounts. The result would have been not a sensible rearrangement but merciless castration. Ever since 1947 when he had first launched himself into business, Maxwell had massaged profits, concealed losses and siphoned off cash by running several companies in parallel and organizing spurious deals within his empire. This manipulation was possible because only he, at the centre of the web, saw the total picture. Renowned as a master-juggler, he was blessed with a superb memory, perfectly focused amid the deliberate confusion, ordering obedient and myopic accountants to switch money and companies through a bewildering jungle of relationships.

By 1990, those trades had come to infect the interlocking associations between the complex structure of the tycoon’s 400 private companies and Maxwell Communication Corporation, the publicly quoted company. The disease was his insatiable ambition. He wanted to be rich, famous, powerful, admired, respected and feared. His empire was to reflect those desires. The means to that end were MCC’s ever increasing profits, which in turn determined the company’s share price. That relationship was the triple foundation of his survival, his dishonesty and his downfall. Whenever the profits were in danger, Maxwell resorted to a ruse which exposed his instinct for fraud: he pumped his personal money into the public company. Since 1987, he had bought with private funds bits of MCC at inflated prices to keep its profits and share price high. Invariably, he was buying the unprofitable bits.

To pay for that extravagance, Maxwell had borrowed money. By 1989, his private empire – unknown to outsiders – was on the verge of insolvency. As security for the loans, he had pledged to banks his 60 per cent stake in MCC. Unfortunately for him, by November 1990 growing suspicion of his accounts and critical newspaper reports had triggered a slide in the value of MCC shares, which over three years had fallen from 387p to a new low of 142p. The latest discontent in early October intensified Maxwell’s crisis. As his financial problems grew and MCC’s share price fell, the banks demanded more security for their loans. Maxwell’s solution was radical and initially secret. To keep the share price high, he had undertaken two bizarre and contradictory strategies. First, MCC was paying shareholders high dividends to make the shares an attractive investment. But the Publisher’s insoluble problem was that the dividends which MCC paid out were actually higher than the company’s profits. In 1989, the dividend cost £112.3 million, while the profits from normal trading were £97.3 million. Among the necessary costs of maintaining that charade was payment of advance corporation tax which in 1989 amounted to £17.6 million. The extraneous tax cost for the same ruse in 1990 was £98.8 million on adjusted trading profits of £71.1 million.

Maxwell’s second strategy to keep the share price high was to buy MCC shares personally. Since 1989 he had quietly spent £100 million in that venture. The solution bred several problems, not least that he soon ran out of cash. His response was to borrow more money to buy his own shares.

To their credit, both father and son could still rely upon the large residue of goodwill among leading bankers in all the major capitals – London, New York, Tokyo, Zurich, Paris and Frankfurt – and upon those bankers’ conviction that MCC’s debts were manageable. Their guarantee, they believed, was the vast private fortune of Robert Maxwell’s privately owned companies secreted in Liechtenstein. Although none of those bankers had ever seen the accounts of his Liechtenstein trusts, they believed they had no reason to doubt the Publisher’s boasts. Maxwell continued to encourage their credulity, while using banks in the Dutch Antilles and Cayman Islands as the true, secret receptacles of his wealth.

Among that army of bankers was Andrew Capitman, an ambitious manager of Bankers Trust, the American bank. Two years earlier, Capitman had purposefully moved to London to earn his fortune pleasing Maxwell in the course of completing thirty-eight separate transactions. Not surprisingly, he enjoyed the Concorde and first-class flights across the world, the heaps of caviar and champagne, all funded by his client. He too assumed that the Liechtenstein billions were the source of Maxwell’s cash for another unusual transaction to be completed at noon on 5 November 1990, just three hours before the seizure of the Berlitz shares.

Descending from his office on the ninth floor, Maxwell hurriedly chaired an extraordinary general meeting of MCC in the Rotunda on the mezzanine floor of the ugly Mirror headquarters in Holborn. The topic was one of Maxwell’s more expensive inter-company deals. Two Canadian companies, owned by MCC, were to be sold. And, because the recession meant that the price offered by others would be low, Maxwell proposed himself (or rather the Mirror Group, which he still privately owned) as the purchaser. Capitman understood that Maxwell’s strategy in that bizarre arrangement was to boost MCC’s profits and he had independently valued the two Canadian paper and print companies, Quebecor and Donohue, at a high £135 million. In return for offering a ‘slam-dunk’ generous valuation, the banker pocketed a cool $700,000 fee.