Maxwell: The Final Verdict. Tom Bower

earned so much from stock lending. How do you do it?’

      ‘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