by Tom Bower
The investigation of Pergamon's accounts was led by Jack Anderson of Leasco, Paul Thibodeaux of Touche Ross and two bankers from Rothschilds, Rodney Leach and Ivor Kennington. Together they intended to obtain an accurate description of Pergamon's activities and accounts. Full of optimism, Anderson had arrived in Britain on 27 June but Maxwell was too busy to meet him until six days later. Over the following forty-eight hours, Anderson says, ‘I put a lot of questions but only got fuzzy answers and even blank copies of bank statements.' Maxwell seemed 'reluctant to divulge hard facts and figures' and when asked about Note 8 in the accounts he gave 'a twenty-minute dissertation in good clear English which I did not understand'. Then for the following two days Maxwell took Anderson on a tour of Pergamon's printing plants, well away from the documents the American wanted to see.
On 8 July, Anderson's patience expired. Puzzled and frustrated, he telephoned Schwartz in New York and revealed that Maxwell had shown him nothing 'in terms of real numbers' and was treating him in an unpleasant way. 'The delivery of information', recalled Steinberg, 'was sluggish. Maxwell was used to bullying people which our people didn't like.' Shortly afterwards, Schwartz telephoned Maxwell and urged him to co-operate. Although Maxwell agreed, Anderson had already decided that he was 'fed up' and would take a short holiday while Thibodeaux 'filled in the blanks'. Ostensibly, at the end of that afternoon in England, there was still no concern about the deal. A letter was sent to Bradford University proposing the establishment of a joint Leasco-Pergamon professorship, and Rothschilds dispatched a telex to New York confirming that Richard Fleming had sold Leasco 2.1 million Pergamon shares worth £3.8 million on behalf of his clients. Some would later criticise the deal as based upon insider information. By the end of that week, Leasco had accumulated a total of four million shares at a price of $17.5 million and had barely started its investigation.
At the end of the same day in New York, midnight in London, Rodney Leach, the Rothschild’s banker, telephoned Schwartz. Leach, who had enjoyed a reputation as the cleverest undergraduate of his year in Oxford, had been visited during the day by his old college friend Godfrey Hodgson of the Insight team. The Sunday Times investigation had made very limited progress and needed some inside help. As a bait, Hodgson told Leach that they had unearthed a certain Kurt Wallersteiner who was trading in the South of France under the name Rothschild Trust. Leach was grateful for the tip. He was even more interested to hear the gossip about ILSC's finances and the controversial encyclopaedia sales in Australia. It was these rumours which Leach passed on to Schwartz.
In New York the following day, 9 July, Leach's cautionary report was discounted. The Leasco executives still placed great value on the official certification of Pergamon's accounts. Erroneously, they also believed that the same certification included ILSC's sales. By all accounts, everyone realised that the deal had hit some unusual problems but they were overridden by Steinberg's sense of personal commitment to Maxwell. He expected all the queries to be answered on his forthcoming visit to Britain.
Steinberg arrived on or around 10 July, and stayed with Maxwell in Oxford. It was a whirlwind visit during which Steinberg's doubts were repeatedly raised only to be quashed by the succession of glittering social occasions which Maxwell had arranged. Steinberg, the twenty-nine-year-old from Brooklyn, was introduced by his host to an unending procession of Britain's elite from Prime Minister Harold Wilson and other Cabinet ministers including Anthony Crosland and Tony Benn to Isiah Berlin, the Duke of Bedford and Lord Hartwell. Steinberg admitted that he was stunned: 'His scope of relations was incredible to me. I knew that the deal was important for Pergamon and Leasco, but it was amazing that everyone else thought it was so significant to the world.' Their business discussions were affected by the constant introductions: 'Whenever we had a doubt concerning his credibility, he would lay on these marvellous people and his credibility would be restored; and you would say to yourself, "Really, how could I have thought such a thing about this man?'"
Leasco's lawyer Robert Hodes was also persuaded, though not in quite the same way: 'We saw that the British Establishment were snobs and they thought Maxwell was a wog. We felt nothing against him because they condemned him as a noisy upstart - in fact we felt the opposite.'
Others in Leasco were not so easily swayed. Peter Stevens, who managed Leasco's international affairs from London, had told Maxwell just two days after the deal was announced that he was leaving because he did not have confidence in his proposed superior. 'Maxwell said to me,' remembers Stevens, '"Peter, this is a made-in-heaven situation for you. We'll work together tremendously well.'" Stevens refused and cleared this desk, although he felt a grudging respect for Maxwell's achievements: 'He came from the wrong side of the track without anything and made it.' But, unknown to Maxwell, Stevens was also a Czech-born Jew who was cynical about his fellow countrymen. 'Czechs', he is fond of saying, 'can never find the easiest way to accomplish anything. They're unable to go in a straight line. The English Establishment never understood what was behind Maxwell's elegant front. He had to cut corners when he could have got to the same destination by the proper route.'
For the remainder of July, Steinberg's sense of affinity and self-confidence assuaged any doubts. Rothschilds had bought on his behalf a total of 5.2 million shares which represented 38 per cent of Pergamon. Leasco owned a 4 per cent bigger stake in Pergamon than Maxwell. But on 28 July, six weeks after the engagement was announced, the suitor felt major, irrepressible and bewildering pangs of doubt. In agonising slow motion, the process for divorce began even before the marriage was properly legalised.
The first source of qualms was a succession of unsolicited telephone calls from disgruntled former Pergamon employees to Rodney Leach at Rothschilds. The callers were only rarely specific, but all hinted that the bank might find 'something interesting' about the rapid turnover of staff in Pergamon's finance department. 'Rothschilds realised that there was something fishy,' says one of those involved, 'but no one could put their finger on what was wrong. All we knew was that we were still denied unimpeded access to Pergamon's files.' The telephone calls did, however, partly corroborate what Leach had heard from the Insight team. By mid-July, no less than six Sunday Times journalists in London were devoting their time exclusively to researching Maxwell's life. Their long conversations with Briggs, Wallersteiner, William Curtis (who had managed the Book Center in New York), Alan Back (of MSI Inc.), Hedley Le Bas and Philip Okill had provided them with a hitherto unimagined protrait of the socialist politician and would-be newspaper owner, albeit from Maxwell's arch-critics. Galvanising their interest was the breathtaking speed with which Maxwell seemed always to know whom they had spoken with; he would even anticipate their next call. Regularly, there were heated and acrimonious exchanges between Maxwell and the journalists. These conversations were taped.
Late on 19 July, for example, Maxwell had telephoned the home of John Fielding, who was in the delicate throes of persuading Wallersteiner to co-operate. In the course of a long attack on Fielding, Maxwell said, 'The impression you created in his [Wallersteiner's] mind was that if he did not co-operate to help you to destroy me, then you will destroy Wallersteiner.' Fielding's vigorous denials were eventually accepted by Maxwell but two days later a long letter from Kerman to Evans complained that the Sunday Times was still pursuing its 'shameful vendetta of slander and innuendo in search of a "story"'. Accompanying the letter was a writ for defamation, the first of many which would be exchanged between the protagonists.
Maxwell was worried. In the course of his career he had, not unusually, made many enemies and the Sunday Times seemed intent on seeking them out. Publicising their distorted versions would, he feared, cause irreparable damage. But while his unique blend of charm and bullying had in the past been a key ingredient to his success, his aggression was now counterproductive. However unjust it might be, there were those who found it difficult to believe that his aggressive protests were simply the cry of an innocent victim. Inevitab
ly, accounts of his exceptional behaviour reached the bankers at Rothschilds.
Leach and his associate Ivor Kennington never revealed in their meetings with Maxwell their awareness of the Sunday Times research or of the denunciatory telephone calls, but by the third week of July they were convinced that Pergamon's accounts department and Pergamon's contracts with Maxwell's private companies were the key to the still indefinable mystery. Maxwell sensed their unease and asked the reason. When Leach revealed their concern, the businessman 'exploded'. Maxwell's familiar technique for handling hostile questions now came into play: the employment, first, of a charming, and distracting, story; then anger; and then, if the questioner persisted for a third time, abrasiveness and sarcasm. He continually misinterpreted his questioners' pliant demeanour as proof of his powers of persuasion. It did not seem to occur to him that his own personality might be generating more suspicions and revealing his own vulnerability.
By the last week of July a new element was added. Leach was puzzled that there was apparently an unstoppable flow of Pergamon shares for sale. The very lynchpin of the 17 June agreement in New York, that Leasco would bid only after the investigation was completed, had been eroded. While maintaining his bland and friendly approach towards Maxwell -even including a late-night game of chess which ended in disarray when both Maxwell's bishops were found to be on white squares - Leach asked for discreet inquiries to reveal who was actually selling the shares.
Schwartz in New York was also uneasy and on 28 July he decided to fly to London with Anderson. At their meeting with Maxwell the following day, Schwartz made a determined effort to persuade Pergamon's chairman to produce key documents: 'We were always very polite with him - it was a bit like a parlour game - but we told him that he would have to deliver the information about MSI Inc. and ILSC in the end. In particular, we wanted to see the contract between Pergamon and MSI Inc.'
Maxwell countered that he could not understand why the Americans were not satisfied: 'This has all been looked into by my accountants.' Schwartz replied, 'We won't put in a formal offer until we get all the facts.' Maxwell prevaricated and still refused to allow Anderson and Thibodeaux complete access to Pergamon's files. 'It was nearly the end of the line for us,' recalls a former Leasco executive. In New York, Steinberg acknowledged that something was seriously amiss but was as perplexed as everyone else about Maxwell's reluctance to give the accountants access.
On 1 August, Touche Ross sent Tom Clark a list of questions, with an ultimatum requiring an answer within four days. Five days later, the information had still not been delivered and Rothschilds had by then received an astonishing response from the Stock Exchange. Among the Pergamon shares which Rothschilds had bought were 197,000 which had been secretly sold by a Maxwell family trust. The sale had been discovered by Robert Jones of The Times, who had dreamed the previous night that he should check Pergamon's register. When he had telephoned Maxwell with his discoveries, the Pergamon chairman had denied all knowledge of the transaction.
By Saturday 9 August, Maxwell realised that Leasco's bid was seriously endangered. The Financial Times had reported that ILSC's profits would not be as high as forecast and City pundits were asking why the formal offer document was still not published. Equally worrying, Insight had spread its net throughout the world. Former encyclopaedia sales managers had been approached in the Far East and Australia and some had sworn lengthy affidavits or had recorded conversations with Maxwell at the instigation of journalists. Charles Berger had even been interviewed in New Zealand about the sale of paint to German railways. None of the material, however, produced more than a hint of wrongdoing. For Steinberg, Insight was even losing some of its credibility. 'They told us', he recalled, 'that Maxwell didn't win the MC. But then Maxwell showed us the photo.' Everyone's patience had been exhausted. In a long telephone call, Steinberg told Maxwell that he would call off the deal unless Thibodeaux and Anderson were allowed immediate access to the files in Oxford. Maxwell finally relented.
On 10 August, the following day, the two were finally admitted to the Headington Hall offices. Acting on Schwartz's instructions, they began sifting through files to trace the detailed relationship of the family companies with Pergamon. On each sale to MSI Inc., Anderson wanted to establish exactly when the stock was shipped and to follow the money trail back. Yet, strangely, the two investigators could find very few MSI Inc. orders and those few were for large amounts. Among the invoices was one in particular which struck Anderson as odd. It was for one hundred sets of the Journal of Inorganic Nuclear Chemistry, volumes one to twenty-nine, worth $133,000. Anderson wondered whether there were one hundred potential customers for that set in America. Anderson, who had been suspicious on arrival, concluded that it was 'arbitrary ordering, because they were the most expensive and the most unsaleable'. Thibodeaux had in the meantime discovered in another file twelve blanked-out MSI Inc. invoices. Neither he nor Anderson quite appreciated the implications. Nevertheless, three of the blanked-out invoices were discreetly pocketed to show Schwartz. By the end of the day, both understood that MSI Inc. owed Pergamon no less than £800,000 for Pergamon journals and books. This was a huge proportion of Pergamon's £2.1 million profits. They now wanted to see Pergamon's warehouse at Olney.
On Monday 11 August, the two accountants met Tadeusz Kamienski, the Polish warehouseman at Olney. Kamienski, who could barely speak English, showed the visitors Pergamon's valuable assets - the piles of old journals and books stacked on shelves. He had few records, yet it was not difficult to discover that, within the warehouse, no distinction was made in the ownership of the stock between Pergamon, MSI Inc. and Robert Maxwell & Co. Under one roof was the physical evidence of the complete intermingling of the assets of the public and private companies.
Perusing the available records, Anderson saw that Pergamon's major customers for back journals were the two private family companies, yet none of MSI Inc.'s recent orders had even been shipped to America. 'No one is buying the books at the other end,' Anderson realised. That night he reported back to Schwartz: 'Bernie, the situation is worse than we expected.'
Anderson's discoveries, however, were not bad enough to interfere with the big party held at Steinberg's home at Hewlett Bay Park two days later to celebrate the multi-millionaire's thirtieth birthday. Maxwell arrived with his wife and two daughters to enjoy what everyone agrees was 'an amazing and happy party'. If the two fiancés were contemplating estrangement, it was not evident. One memorable comment that the British businessman evoked was that he seemed uninterested in women - 'He just looked straight through them' - a noticeable contrast to his host, whose success with women was, among his friends, legendary.
That same night Jacob Rothschild and Leach arrived in New York. They did not go to the party but travelled direct to Leasco's offices in Manhattan. They had brought the proof that, despite Maxwell's assurances, ILSC's profits would probably be no more than one-tenth of the £500,000 which Maxwell had forecast just four weeks earlier. It had been agreed with Steinberg that, after the party, he would invite Maxwell to meet the bankers the following afternoon.
The meeting in Manhattan turned rapidly into a confrontation, but before he was allowed to return to London Maxwell agreed to a radical and major change in the 17 June agreement. Since the Pergamon profits were now in dispute, a complicated formula was introduced under which the price Leasco paid for Maxwell's shares would be reduced proportionately in accordance with the final independently audited profits. This latest term would be included in the new, fourteenth draft of the offer document. Maxwell agreed this orally and rushed to Kennedy airport to catch a plane for London. The following day, he telephoned Rothschild and cancelled his agreement.
But later the same day Maxwell did agree to see Kennington. Once again the Rothschilds banker pressed him for evidence of the Pergamon/MSI Inc. agreement. To the banker's relief, it was handed over. During that Friday night Kennington studied the contents and, as he said in a midnight phone call, It has closed the
circle in my mind.'
Until that moment, Leasco's investigators had been searching, as is normal, for evidence that money was being syphoned out of Pergamon. Yet Kennington's search had revealed the exact opposite. The private companies were actually pumping money into Pergamon. But the money did not stay in the company. Kennington had also been handed a crucial document by a Pergamon employee which completely undermined Pergamon's audited 1968 accounts - a twenty-year agreement dated 30 August 1967 under which MSI Inc. had the right to return all the stock it had bought from Pergamon and demand repayment in full. Quite simply, more than one-third of Pergamon's profits could quite legally disappear.
At noon the following day, Saturday 16 August, Steinberg was sitting next to his pool at Hewlett Bay Park watching his children splashing in the water. 'I had the feeling that everything was right in the world. I was rich and my family was wonderful, when Robert, my valet, came with a vodka-martini and said George Bello, my finance director, was on the phone from London.' Steinberg put the handset to his ear, looking forward to a brief conversation.
'Saul,' said Bello, 'we've discovered a major problem . . .'
Steinberg's memory of what followed is clear: 'I put Bello on hold, shouted for another vodka-martini, drank it in one, and screamed, "Whaaaat . . . ?"' Steinberg made five phone calls in rapid succession. The first to Hodes, the second to Jacob Rothschild, the third to Maxwell and the fourth to the travel agent for an immediate flight to London. The fifth was to Richard Fleming, to vent his spleen, but the banker was unobtainable - he was grouse-shooting in the Scottish Highlands.
