Professional Firm ... PwC
The Maxwell Saga

UNHEEDED WARNINGS AIDED MAXWELL'S RISE AND FALL

Burgess COMMENTARY

Peter Burgess

UNHEEDED WARNINGS AIDED MAXWELL'S RISE AND FALL LONDON -- The warning signs could not have been clearer had they been blinking in neon in Trafalgar Square. Robert Maxwell, said an agency of the British government in 1971, had approved the falsification of records; he had kept important information from business colleagues and investors; he had artificially pumped up the value of his company's stock. In short, said the Department of Trade and Industry (DTI), Maxwell could not be trusted 'to exercise proper stewardship' of a public company. Yet in the wake of revelations that the British media tycoon had perpetrated one of the century's greatest financial frauds, it's clear that a wide swath of the London establishment -- accountants, bankers, brokers and politicians -- had either ignored the early warnings or simply forgot them. Maxwell went to great lengths to bury his past and rehabilitate his reputation as a larger-than-life character with a genius for business. He surrounded himself and his many companies with former members of Parliament and other respectable figures, such as Peter Jay, the former British ambassador to the United States, who would attest to his probity. He hired blue-chip firms on Wall Street and in the City of London to peddle his stocks and prepare his books. Journalists who looked too close for Maxwell's comfort were greeted with a shower of lawsuits. All the while, he himself was sheltered by laxities and loopholes in British law and custom that may have kept regulators from looking at him too closely. 'He was like the Eastern European dictators he seemed to love so much,' said Andreas Whittam Smith, the chief executive of the Independent newspaper in London and a target of four Maxwell libel writs. 'He was intelligent, he was a bully, and he was incredibly charming. Societies like ours have no way to deal with a clever bully or a man prepared to deceive on a massive scale.' Maxwell, who died shortly before the spectacular implosion of his worldwide business empire last week, succeeded in delaying the public issuance of the DTI report for two years by suing the government and its authors. The report contains, however, several ironic precedents for Maxwell's desperate behavior in the months leading up to his death at sea Nov. 5. Prepared in response to complaints about Maxwell's handling of a British publishing company called Pergamon Press, of which he was chairman, the DTI's report detailed at length Maxwell's 'intermingling' of money and assets owned by his private businesses and Pergamon, a company owned partially by public investors. Investigators today suspect that Maxwell used similar links in the final months of his life to divert more than $1.2 billion in assets from publicly held businesses he controlled and their pension funds to his own private uses without detection. Within years of the report's publication, however, Maxwell was recruiting a handsome array of consultants and courtiers. Among those who 'took Maxwell's shilling' by joining the boards of his companies were the late Lord Silken, the Labor Party attorney general from 1974 to 1979, and Lord Havers, the Conservative Party's attorney general from 1979 to 1987. Maxwell, himself a member of the House of Commons in the 1960s, also found two other lords to act as financial advisers. Those who worked for Maxwell uniformly disavow any knowledge of impending trouble and defend their association with him. 'I believed in the man, and if I'd been aware of any wrongdoing I never would have worked for him,' said Jay, who was Maxwell's chief of staff from 1983 until 1986. He added, 'There was no evidence that I saw in the first report that made me think my association with him was inappropriate.' On the contrary, Jay said, Maxwell was 'denied natural justice' by the government because it did not give him an adequate chance to explain himself during preparation of its report, a fact the government later recognized by changing its procedures for such inquiries. Jay also does not accept the view held by critics here that Maxwell traded on Jay's reputation as ambassador to the United States during the Carter administration. Maxwell, said Jay, never even bothered to invite him on trips to the United States. Similarly, some of the gold-plated companies that Maxwell hired dismissed the government's insinuations against his character without regret. Roger White, a spokesman for Coopers & Lybrand Deloitte, the multinational accounting firm that has served as the auditor of Maxwell's companies since 1973, said, 'We knew he was a potentially difficult customer when we took him on, but we are one of the biggest and one of the best. We are satisfied with our audits and our relationship.' White emphasized that Coopers's last audits of the Maxwell empire came well before Maxwell is believed to have begun shifting funds. Still, the combination of firms like Coopers & Lybrand and Maxwell's own forceful personality may have helped erase the bankers' doubts about him. The list of banks that lined up to lend Maxwell billions of dollars during the 1970s and '80s included some of Europe's and America's largest. It could certainly be said that Maxwell, for a while, at least, was a good credit risk: He had taken over and turned around a struggling company called British Printing Corp. in 1981. A director of the British merchant banking firm N.M. Rothschild and Sons, which helped Maxwell sell shares of one of his companies, said Maxwell 'had a huge capacity to persuade people. He could drop the names of Gorbachev or Shamir. People are impressed -- they want to do business with someone like that,' said the director, who did not want to be identified. Despite its critical opinions, the Department of Trade itself was obliged to ignore its own warnings. The agency had no authority to remove Maxwell as chairman of Pergamon. There was no law allowing regulators to oust executives for financial improprieties until 1986, when Parliament granted the agency the power to seek disqualification of a company officer for two to 15 years. In fact, Maxwell's ability to move assets freely from the pension funds of the public companies to his private operations was made possible by the law, or the lack of it. There is no legal requirement in Britain for trustees of a pension fund to act at arm's length from the managers of the fund (Maxwell served in both roles). Some critics believe Maxwell was able to strongly influence his public image by his use -- and abuse -- of the nation's media. When Maxwell died last month, Fleet Street lawyers believe he had as many as 100 pending writs for libel still awaiting trial. He filed 15 writs alone to suppress one unauthorized 1988 biography, 'Maxwell: The Outsider,' by British journalist Tom Bower. When the BBC recently ran a television documentary on questionable financial maneuvers in his public and private companies, Maxwell sued the network, then sued each newspaper that repeated the charges in articles about the lawsuit. 'He issued writs like confetti,' said Bower. 'He had no intention of going to court -- he simply wanted to terrorize people and stop them from writing about him.' By Bower's calculation, Maxwell employed at least 12 lawyers, several accountants and two private detectives to pursue the case against Bower over the book. Bower said Maxwell was able to suppress by threats alone the publication of five magazine articles; a sixth appeared in the New Republic last April ('Maxwell House: Bad to the Last Drop'), and Maxwell filed suit after it appeared. The suits were effective because British libel laws are far more stringent than those in the United States. British courts make no distinction between public figures and private persons in assessing libel, unlike in the United States, where public figures must prove a much higher degree of negligence to win damages. And in Britain, the burden of proof is on the defendant -- if a publication can't prove that what was published was true, it is certain to lose. By one recent estimate, the British press has paid $50 million in libel damages and settlements in various cases in the past four years and millions more in legal costs. 'The risks are very large,' said Adam Raphael, author of a book on British libel law. 'Few people were willing to take him on because it wasn't worth the time and trouble.' Journalists weren't Maxwell's only targets. When Derek Terrington, the media analyst at the brokerage firm UBS Phillips & Drew, issued a 'Can't Recommend A Purchase' notice on the public sale of Maxwell's Mirror Group Newspapers PLC stock, Maxwell became so incensed by the acronym for that notice that he pressured the firm to withdraw the report. Terrington later left the firm. To this day, Jay, now a TV reporter for the BBC, remains an apologist for his former boss's litigious ways. 'I think the word bully is all about opinion and not about fact. He simply defended himself. He was like the animal who when attacked, attacks.' Maxwell, of course, owned his own newspapers and could make his case directly with millions of readers. He is said by journalists at his flagship Daily Mirror to have snuck back into the paper late at night and ordered production workers to insert stories about his exploits. Maxwell also authorized a biography of himself to compete with Bower's book, working with Joe Haines, a Mirror columnist and former press secretary to Harold Wilson, to produce the book. Ultimately, Bower blames Maxwell's rise not on libel laws or Maxwell's self-created aura of respectability, but on something deeper in British society. 'There's a malaise ... an inability to do things,' he said. 'You see it in scandal after financial scandal. Unlike in America, there is no vigorous probing process that names names and uncovers embarrassments. Regulators here are invariably shy about using their powers and often are unable to do so.' 0 Comments Local politics email alerts Important breaking news alerts about D.C.-area politicians and governments. E-mail address By signing up you agree to our Terms of Use and Privacy Policy Paul Farhi Paul Farhi is The Washington Post's media reporter. He started at The Post in 1988 and has been a financial reporter, a political reporter and a Style reporter. Follow