The King of Oil: The Secret Lives of Marc Rich

by Daniel Ammann

  As it almost always does in attempts to corner a market—whether it be in silver, aluminum, or tin—the bubble finally burst. The artificially inflated prices were followed by a very real slump. By November 1992 the price of a metric ton of zinc had fallen by 25 percent to 1,050.1 “There was no way out,” remembers one of Rich’s directors who had tried to prevent the worst from happening. “We were that close to a disaster,” he says, holding his forefinger and thumb close together. “We had to liquidate the long position as quickly as possible to limit the losses.” In the end the trader was successful, and his efforts saved the company from ruin. The insane attempt to manipulate the global zinc market ended up costing Marc Rich + Co. 172 million. Rosenberg left the company.

  Rich confirmed that the zinc debacle had indeed been the worst deal in his career as a trader. He seems magnanimous about the entire affair today, even though it was one of the reasons he was later forced to sell the company he himself had founded. “The younger people were tempted and didn’t have the experience,” he says. He does not, however, interpret the devastating failure as proof of the impossibility of cornering a market. “I wouldn’t say it is impossible, but I would not try to do it,” he tells me. “The risks are too big.” Not only did Rich lose a lot of money, but he also came out of the fiasco with his credibility severely damaged. His senior traders with experience in the metals markets had warned him of the adventure. “This is artificial. There is no physical demand. It’s a bubble that will burst,” they told him. He refused to listen to them and made no attempt to rein in Rosenberg. He was ignoring one of his own most important business principles, for Rosenberg had done nothing to hedge his long position. The company had no way of controlling its losses when the zinc prices began to plummet.

  Rich’s actions were an affront to his senior traders. They were the metals experts—not Rich. “Not that I want to belittle Marc’s knowledge, but he was not in his element,” one of Rich’s former senior traders told me. “He’s not a metals and minerals guy, he’s an oil guy.” Rich not only lost his managers’ support, he also lost their trust.

  Defections

  Although Marc Rich + Co. had been a close-knit family-like organization for nearly twenty years, things began to unravel. One of the most important indications that all might not be well at the company came in June 1992, during the zinc fiasco. Rich unexpectedly fired Willy Strothotte, a German who had worked for him for fifteen years, the last two as his right-hand man. He had successfully directed the minerals and metals division at Marc Rich + Co. and had made the company into a true market leader. Even Strothotte’s rivals were quick to point out his abilities as a brilliant trader and strategist. Rich’s official statement claimed that Strothotte’s leaving was a consensual decision, the result of “different views on how the company should be managed.” “There is nothing sinister about this,” Strothotte said when he left. “I am parting with the Marc Rich group and not with Marc Rich himself.”2 In truth, Strothotte had lost out in a power struggle against Rich. “Willy was too up-front,” a former director told me. Strothotte had pushed to discuss the company’s future after Marc Rich. He wanted the founder—then only fifty-seven—to pull back gradually from active business and give up his status as majority shareholder.

  The separation was not nearly as friendly as the company would like the public to believe, as Rich’s employees were soon to discover. Rich had Strothotte’s office replaced with a lounge. In a company that operated according to the trader’s motto “You never close doors,” this was taken very seriously indeed. “Sure, everyone who left the company was considered a jackass,” one of Strothotte’s closest colleagues told me, “but when Marc did away with Willy’s office, it was like when Joseph Stalin had his adversary Leon Trotsky retouched out of photographs.”

  Further evidence of the deteriorating atmosphere at Marc Rich + Co. came only one month later when Manny Weiss and Claude Dauphin, two key managers, left the company. Weiss had successfully expanded the company’s aluminum business and had directed its important London office. For his part, Dauphin had been jointly responsible for the company’s oil business. It was a time of dramatic changes for Marc Rich. Within a short time he had lost his most important and longest-serving associates. They had stood at his side throughout his career. Suddenly Rich was alone. He was now the only founding member who was still active in the company. Pinky Green had retired in late 1990 after undergoing a heart bypass operation. Alec Hackel, who had been one of Rich’s most important advisers, had followed his lead and had also taken retirement. Each had received between 200 million and 300 million for his shares in the company.

  Rich was in sore need of his friends. Although he had always been a good judge of character, he suddenly surrounded himself with poor advisers. Much to his managers’ horror, Rich brought one of his American attorneys onto the executive board, although he had not the slightest inkling of the commodities trade. This was a hard break with the tried-and-true company tradition of allowing into management only people who had learned the business from scratch. Rich, who had always trusted his employees and given them as much free rein as possible, suddenly began to meddle in all of the company’s affairs. The three principles that had served the company so well in the past—openness, team spirit, and limited hierarchy—were slowly fading away.

  If You Can’t Catch the Fish . . .

  “Marc had lost the big picture,” a trader who was working for the company at that time told me. He drank too much. Glasses of whiskey began to appear on his desk at noontime. He smoked too much. His friends began to worry about his health. He was insufferable, his employees said. He was “overbearing, unbalanced, and out of control,” as one of Rich’s friends summed up his mood in those days. There were several reasons for Rich’s bad patch. It was obvious that his private problems involving Denise were taking their toll, both on Rich personally and on the business. The U.S. prosecutors were pressing him harder than he was prepared to admit, and federal agents were making his life as difficult as possible. As U.S. Marshal Ken Hill put it, “We stuck to the motto of the SAVAK [Iran’s infamous intelligence service under the shah]: If you can’t catch the fish, take away the water. We had tremendous success taking away the water.” It was the continuation of legal prosecution by other means. “Because the prosecutors were unable to catch Rich, they did their utmost to destroy him,” a former business partner, a manager at British Petroleum, told me. Rich’s public image suffered greatly as a result.

  Competitors and rivals soon realized that they only had to mention Marc Rich’s name in order to provoke a public debate that could damage his business—and aid theirs. They knew that Rich cherished discretion above all else and that any publicity would have a negative effect on his business. In the early 1990s, two important events led to Rich’s name being dragged through the headlines. First, October 1990 marked the start of a two-year labor dispute at the Ravenswood Aluminum Corporation in Ravenswood, West Virginia, a company partly owned by Rich. Seventeen hundred employees went on strike for higher wages. The workers were locked out by management and their jobs taken over by nonunion replacements. The United Steelworkers of America organized an international campaign that successfully directed the media focus onto Rich’s participation in the company. Demonstrations were organized in front of Rich’s headquarters in Zug and at the annual meeting of the London Metal Exchange, where the unionists distributed a wanted poster for Rich. They were able to pin the label of “corporate villain” on Marc Rich. As a vilified Jewish capitalist on the run from U.S. justice, Rich was the perfect bogeyman. Indeed, Rich was the only reason that all of the most important international and American news outlets were keen to report on what was fundamentally a regional U.S. strike of little significance.

  “A Little Bit of Rich in My Pocket”

  One revelation by the United Steelworkers led to the second case of negative publicity, which made Rich the subject of discussion in the U.S. Congress. The union had discovered that
for years Rich’s company Clarendon had been supplying the U.S. Mint with copper and nickel for the production of coins. These government contracts were worth 45.5 million to Clarendon. Politicians and media had a field day over the fact that an indicted tax evader on the run from U.S. prosecutors was doing business with the federal government. A congressional subcommittee began investigating the contracts. From a legal standpoint, however, everything was aboveboard. Clarendon had won the contracts in a public bidding process. However, politicians were quick to denounce the federal government’s involvement with a suspected tax fraudster. “Every time I reach into my pocket for some change, I have to wonder if there’s a little bit of Marc Rich in there,” said Robert Wise, the media-savvy congressman from West Virginia who was in charge of the investigation.3

  Negative headlines were Rich’s Achilles’ heel, a fact that his detractors were more than happy to use to their own advantage. Even today critics wag their fingers and cite his name whenever one of his former employees’ names turns up in a commodities scandal in some part of the globe—toxic waste in the Ivory Coast, for instance, or the oil spill from the tanker Prestige that sank in the Atlantic in 2002 and contaminated the coastlines of Spain and France. Various journalists attempted to associate Rich and his companies with these occurrences, but in reality such events had absolutely nothing to do with him.

  Every time an embargo was broken, Rich’s name was mentioned almost as if by reflex. Perhaps the best example of this phenomenon involved the embargo against Iraq under Saddam Hussein. According to the Wall Street Journal, Rich attempted to circumvent the UN embargo against Iraq in 1991.4 In fact, Rich’s company had sought official authorization from the relevant governmental agency in Switzerland and would only have done business with Iraq with the explicit permission of the UN Sanctions Committee. In March 2008 the Office of the Attorney General of Switzerland came to the conclusion that, contrary to the report published in 2005 by the Independent Inquiry Committee into the United Nations Oil-for-Food Programme, Rich’s company had not made “unauthorized payments” to Iraqi officials and was not guilty of any misconduct.5 Although the accusations had made the headlines, only a few newspapers found the exoneration worthy of a few lines of print.

  Marc Rich’s Departure

  By the end of 1992, eleven years after the Southern District of New York began its investigation, Rich’s image had taken a serious beating. His name had become a symbol for greedy and unscrupulous dealmakers. He had been indicted in the United States, and prosecutors pursued him all over the world. The U.S. Congress very publicly criticized his businesses. The 172 million loss stemming from the failed zinc deal put him under additional financial pressure. He could no longer hide from the fact that his days as the company’s sole ruler had come to an end. “If something were to happen to Marc Rich, what would be the future of the company?” the bankers began to ask. Rich’s own traders also worried about the company’s future. “Many of us had the feeling that we might not be there the next day,” one of Rich’s traders told me. They began to pressure their boss to bring back Willy Strothotte. Although he was disliked for his arrogance, Strothotte had earned the traders’ respect. They felt that only he could stabilize the company.

  At first Rich resisted their pleas to reinstate the man who had previously tried to dethrone him, but many of the company’s senior traders threatened to leave. He was now faced with the twofold risk of losing even more good people who would most likely come back to haunt him as tough competitors. Many observers in those days were reminded of the events of 1974 when Marc Rich and Pinky Green left Philipp Brothers as a result of their own boss’s stubbornness. It was a move that had proved to be the beginning of the end for Rich’s former employer. However, Rich brought one of his greatest qualities to bear in the midst of these troubled times. According to his colleagues, Rich reacts better than most when faced with pressure. Even when he is personally affected, Rich is capable of sober analysis and rational action. He took the course of action that all good traders must take and put his emotions aside. He realized that he had made the wrong decision and that he now needed to—as a trader would say—turn the position.

  In early March 1993 Rich picked up the telephone and called Willy Strothotte, who was on a golfing vacation in Florida. “Come back,” Rich asked him. “I’ll come back,” Strothotte answered, “but on my terms.” Strothotte demanded that Rich give up his majority stake in the company. It was a condition that he had been prepared for—and accepted. Marc Rich was now ready to sell his life’s work. “I came to the point,” he says, “where I had enough.”

  It was a very cold and snowy day in Zug in November 1993. The thirty-nine most important people at Marc Rich + Co. crunched their way through the snow. They had traveled to Switzerland from all over the world for the meeting at the Parkhotel Zug. Willy Strothotte had summoned them all to inform them of the details of the management buyout and to vote on the future of the company. The takeover contract stipulated that Marc Rich would gradually reduce his majority stake in the company over several years. Management and high-ranking employees would in turn purchase Rich’s shares. Together with around two hundred of his employees, Rich signed the contract on November 29, 1993.

  “I Was Weak”

  “I was weak,” Rich says about the sale of his company. It was as if he were describing a struggle in the animal kingdom. The old lion had been driven off by the younger challenger, and now the young lion had taken over the leadership of the pride. “I was weak and the others could sense it, so they took advantage,” he says and continues in German, “Sie hielten mir das Messer an den Hals.” “They held the knife to my throat.” Rich believes the most important reasons for his weakness were the indictment in the United States and the campaign of persecution led by U.S. prosecutors. He is sure that if it had not been for his legal case, Marc Rich + Co. would be even larger and more successful today—and Rich himself would have remained at the head of the company much longer. This surprisingly unemotional confession must sound like sweet—if somewhat late—satisfaction to the ears of federal prosecutors. They were never able to bring him to court, but their tactic of “taking away the water” had at least brought them a certain degree of success.

  “Marc had no choice,” one of Rich’s most important managers added, “and at the same time he realized that it was the right thing to do.” Even if the separation—which one trader described to me as a “shotgun divorce”—was forced, the future of his life’s work was still dear to his heart. It is perhaps the only explanation for why Rich was so generous to the same people who held the knife to his throat: The company’s new owners were allowed to pay off the price of Rich’s majority stake over the course of several years (it was, in effect, an interest-free loan). The deferred payments allowed them to generate the necessary capital for the management buyout with money earned during the normal course of business. They did not have to borrow any money or sell any of the company’s industrial facilities.

  The value of Marc Rich + Co. at that time was estimated at 1 billion to 1.5 billion.6 The company was active in 128 countries, had an annual turnover of 30 billion, and brought in an estimated profit of 200 million to 400 million each year. It was the market leader in the oil, metals, and minerals trade. As is the Swiss habit, the parties agreed to strict confidentiality regarding the final selling price. It’s time to disclose this secret here. Rich could have demanded much more for his stake in Marc Rich + Co. In the end he settled for the book value and set the price at 480 million. “Marc sold cheap,” one of the buyers told me.

  He had two conditions, though. First, Rich didn’t want the management to quickly sell on the shares at a higher price to a third party. He could have done that himself. Second, a so-called postclosing adjustment was inserted into the contract. Should a subsequent revaluation of the assets (among them Ravenswood Aluminum Corporation) show that they were worth more than agreed in the contract, Rich would get additional compensation. Marc Rich found ou
t a bit later that the new owners had secretly sold around 20 percent of the shares to Hoffmann–La Roche, the Swiss pharmaceutical giant. Furthermore, the assets were revalued to a higher value. Following an almost amicable dispute, Rich received an additional 120 million. As several shareholders have unofficially confirmed, Rich came away with a total of 600 million from the sale of his company. “Not far from the truth,” he said when I asked him to corroborate this sum.

  On Monday, November 7, 1994, Rich finally sold the last of his shares in the company that he had founded and stepped down from the administrative board. The name Marc Rich + Co., the name that had made history in the commodities trade for twenty years and continued to stir up so many negative associations, vanished from the scene. As soon as possible, so it seemed, the new owners renamed the company Glencore. Today, the company is still the world’s largest commodities trader, and in terms of annual turnover, it is the largest firm in Switzerland. No competitor, no former employee, no spin-out has managed to become bigger and more powerful than Glencore, formerly known as Marc Rich + Co. Nevertheless, there is not a single mention of Rich’s name on the company’s Web site—not even under the category “history.” He was purged.

  Unlucky Comeback

  It seemed to be the end of an era for the King of Oil. “It would have been the perfect time for Marc to say to himself, ‘Now it’s time to retire and just enjoy life,’ ” a friend of Rich’s told me, but Marc Rich could not let go. Rich, who when asked about his passions always answers, “My work,” could not bear idleness. “I told him many times, ‘Just stop and make a nice life for yourself,’ ” Ursula Santo Domingo remembers. “He told me, ‘It has to go on. It has to go on.’ The fact that the telephone no longer rang only depressed him.” Not even two years had passed since his supposed exit from the commodities trade before Rich was back in the game. In the spring of 1996 he founded Marc Rich + Co. Investment AG and traded in oil, metals, and grains. The company employed 150 people, mainly in Zug and London, and turned over 7.5 billion. The business did not go as well as planned, however, and insiders spoke of massive losses. “We suffered from a lack of size,” a company employee explained. “We suffered as a result of the meager trading volumes.” The banks threatened to reduce the company’s line of credit when trading losses caused its equity base to melt away. Rich was forced to inject tens of millions of dollars of his own money in order to preserve the line of credit, but success continued to elude the company. Eventually, Rich liquidated a part of Marc Rich + Co. Investment AG in 2002 and sold the rest to the management. It was the end of the commodities trader Marc Rich. Together with the Marc Rich Group, Rich now invests in the financial markets and builds commercial centers and residential buildings mainly in Russia and the Czech Republic as well as in Spain, France, and Switzerland.