Metal Men: Marc Rich and the 10-Billion-Dollar Scam

by A. Craig Copetas

  Sandy Weinberg, frustrated by his case against Rich’s corporations being successfully postponed by the defense for the fifth time, formally asked the Swiss to extradite Marc Rich and Pinky Green on July 27, 1984. He used the only ammo left: He compared the fraud and racketeering charges to forgery, the only extraditable item included in the treaty and the only charges contained in the fifty-one-count indictment that Rich and Green could now be tried for under international law. It was now up to the Swiss to react to the request. Swiss justice officials got in touch with Weinberg’s office a few weeks later. It was unacceptable. The extradition request had been written in English. Please refile the request in German. There was no end to the madness.

  Rich’s lawyers had made a $75 million offer to settle the case in January 1984. When Weinberg refused, the defense upped the ante to $150 million. Weinberg said no again because, if the government accepted the money, then Rich, under American tax laws, could take a $40 million tax credit on the payoff. Justice Department sources also indicated that Rich and Green wanted immunity from prosecution as part of any settlement package. Weinberg didn’t like the sound of the Zug overture and said that he would make no bargains with Rich and Green unless it would “expose them to substantial prison terms.”

  Back in Zug Rich and Green were more popular than William Tell, more folk heroes than fugitives. Rich’s only public statement was broadcast over Swiss radio. Asked if he had good contacts with his Swiss neighbors, he answered: “Not yet. Most people who want to have contact with me are reporters or photographers.” To show his love of Switzerland, Rich also tried to arrange a controlled press conference with Zurich reporters, but thought it might be wise to first numb them at a huge banquet in a private function room at one of Zurich’s swishest restaurants. Rich’s Swiss advisors, however, shuddered over throwing a lavish free-for-all feast for journalists, no matter how friendly they appeared, and convinced him to host instead a low-key dinner and discussion for four Swiss reporters in the boardroom of the Volksbank. “Rich didn’t say anything of importance,” said Fredy Haemmerli, an editor and reporter for the Swiss business magazine Bilanz. “He thought a dinner with the Swiss press would help. It didn’t. He struck me as someone who was always good with the girls, a real ladies’ man, J. R. Ewing.”

  Zugerlanders were enthralled with the parallels between Marc Rich and J. R. Ewing and even named Rich’s blue-glass corporate headquarters the Dallas Building. But the cracks were beginning to show. Pinky Green longed for Brooklyn; Denise Rich was growing increasingly irritated over her own self-imposed exile, so embarrassed over what was happening to her husband that when she did travel to New York, she failed to contact any of her old friends. Rich and Green also started snapping at each other in the office, something they had never done before. Pinky began complaining about the lack of good kosher food in the foggy Swiss town, so Rich, in response to Pinky’s hunger and his own love of eating, opened up the Glashof (Glass House) kosher restaurant across the alley from their headquarters. The dining area was painted dazzling red and filled with mirrors and chrome chairs. Opening night featured an all-female steel band. Zug’s other restaurateurs found humor in Rich’s selection of a name. But nobody threw any stones. “I think the next thing Zug does is put a statue of Marc and Pinky down by the lake,” laughed Urs Rothmayr, owner of Schiff, one of Zug’s lakeside restaurants.

  Although Rich rarely complained about life in his golden cage, he did want to come back to America but knew that if he did, Weinberg would try to put him in jail. The situation was such that Rich’s only option was to attempt a final settlement in regards to the charges against his companies. The settlement discussed between his lawyers and the government would not affect the tax-fraud and other criminal charges against him and Green as individuals. The bell signifying the final round of the international tug-of-war sounded in September 1984, when Switzerland formally rejected the Justice Department’s request for extradition. The Swiss had said that the fraud charges and tax violations against Rich and Green were not covered by the extradition treaty and that matters were complicated by the fact that Rich was now Spanish and Spain does not extradite its citizens for the evasion of American taxes.

  On October 10, 1984, Marc Rich AG, Marc Rich International and Clarendon Limited all pleaded guilty to thirty-eight counts of tax evasion, $50 million in illegal oil profits in 1980 and 1981, and making false statements to the United States government. Former Listo Petroleum trader Clyde Meltzer pleaded guilty to one count of making a false statement about his oil deals. Clarendon pleaded guilty to two extra counts of tax evasion. Fugitives Rich and Green still faced charges of racketeering, fraud, tax evasion, and trading with the enemy.

  It cost Marc Rich $340 million to get off the hook, not including interest and lost revenues that pushed the real losses close to $1 billion. He paid $150 million in government fines stemming from the guilty plea; $21 million in fines paid since June 1983 at a rate of $50,000 a day; $780,000 in fines on the charges; $33,000 in court costs; and some $10 million in legal fees to his attorneys. The United States also withheld nearly $37 million in cash of seized Marc Rich assets. Marc Rich AG also repaid debts of $130 million to fourteen creditor banks led by Chase Manhattan and agreed to forfeit the right to use the $150 million payment as a tax liability — which could have amounted to some $24 to $40 million in write-offs. Clyde Meltzer was handed a suspended three-year sentence and was placed on five years’ probation. The probation officer was directed to assign his charge some form of “community service work.”

  Rich never admitted to any wrongdoing, but a public statement issued from Himmelreich said that he had agreed to the settlement “for alleged offenses against the United States tax laws and against energy regulations which have meanwhile been repealed even though a lengthy trial probably would have resulted in a considerably smaller amount … the financial strength of the companies remains intact.” A few days after the statement, a Zug trader claimed that Rich was boasting that he could trade himself out of the “situation” in ten weeks. Braggadocio or staggering truth, the money didn’t even dent his business. And as long as he stayed in Switzerland, he was safer than Heidi’s goats.

  Rich and Green were immersed in planning their American corporate comeback even before the settlement was made official. Rich had hired metal marketing whiz Kent Hoffman from Kidd Creek Mines in Toronto to act as a consultant in the reorganization. Initial plans called for Marc Rich International/Clarendon to build a new American headquarters in Stamford, Connecticut, with Willi Strohotte in command. According to Rich executives, one option under serious consideration was for Rich to create smaller trading units structured to reflect being owned by individual Rich traders, but actually controlled by Rich from Zug. There would be little trouble in finding a new batch of fresh recruits because many trading houses had reduced their staffs, creating a reservoir of experienced out-of-work traders.

  The only problem Rich and Green had was movement. Even with all their wealth, they were banana republicans unable to leave Switzerland without running the dangerous risk of being detained by a government willing to turn them over silently to the United States. It was the crowning irony of their lives: Marc Rich and Pinky Green used by a government as a tradeable political commodity with the United States. “I think when your company is headed by a fugitive from justice, you’re going to have a little trouble doing business,” a senior metal-trading executive from Philipp Brothers said. “It’s too risky dealing with a fugitive.”

  Emotionally, Weinberg acquiesced to the deal because it kept Rich and Green wanted men; realistically, any prosecution on the charges would have taken as long as five years, and had Clarendon been convicted of tax evasion, it would have been entitled to use its payment as a deduction against taxes. Weinberg had obtained more money for the Treasury Department than his team had originally expected to obtain. The outcome was a huge success — the largest settlement for criminal tax evasion in United States history.

&
nbsp; The payoff went down on the morning of October 11, in the federal courthouse on Foley Square. “It was like an E. F. Hutton commercial,” said federal prosecutor Martin Auerbach, who, along with Morty Dick, was the only member left on Weinberg’s team. “Twenty lawyers in a room. Marvin Davis’s lawyer handed Rich’s lawyer a $116 million check for Twentieth Century–Fox, Rich’s lawyer handed a $130 million check for the money they owed the banks, and Chase Manhattan’s lawyer handed Weinberg a check for $133,081,306.76.”

  “It was real dramatic and very quiet,” Auerbach, who before joining the Justice Department was an attorney at one of the corporate law firms Rich would later put on his payroll, added in a tired voice. “All anyone could do was gawk when the checks were signed over. Imagine what it takes to keep twenty lawyers’ mouths shut.”

  “You know, if I could have asked Rich one question it would have been, ‘How do you manage to make money legally?’ Who are these guys?”

  “Listen,” Sandy Weinberg chortled, the Chattanooga drawl stretching across his office. “I’m not gonna tell ya what I said when we made a deal for money instead of Marc and Pinky. I wanted those boys in jail. But they can’t come back into the United States as free men. Never. Those indictments are outstanding … no statute of limitations … and Marc and Pinky will try to come back. Bet on it.”

  | Go to Contents |

  Epilogue

  “Thou cali’dst me a dog before thou hadst a cause. But since I am a dog, beware my fangs.”

  — William Shakespeare, THE MERCHANT OF VENICE,

  SHYLOCK, ACT III, SCENE III

  LUDWIG JESSELSON tinkers with his gold watch fob and then straightens the milky pearl pin holding a dark blue tie to his neatly pressed white shirt. He stands up from behind his desk and greets the visitor with a remarkably vigorous handshake for a man of seventy-five years, a result, he says, of twice yearly ski trips and golf whenever time permits.

  “How are you?” the visitor asks.

  “I am getting old, young man,” he says, the handshake falling away.

  “They are all gone,” he says a few moments later, his head arching back to point out the framed photographs of Siegfried Ullmann, Siegfried Bendheim, and Oscar Philipp. His tone is not morose, just the timbre of a man who has seen everything there is to be seen and is growing tired.

  His office staff are caught in a time warp; the men smoke Camels and the women prance between desks on practical pumps. The white Van Heusen shirts and well-sprayed beehive hairdos give the place the look of a fifties rotogravure advertisement. The coffee arrives in china and the sugar is bowled, not packeted. Some might complain that the atmosphere here is too mired in tradition for a company that has quarterly net earnings of $120 to $192 million, but the visitor senses that the people who work here care more for each other than yearly sales in the $30 billion range.

  Jesselson tells the visitor that Philipp Brothers’ association with Engelhard Minerals & Chemicals ended in 1981. “You cannot do justice to an industrial complex if you want to do trading at the same time,” he says. “You need to do one thing in order to do it well.” The visitor recalls that Philipp Brothers did extremely well: 90 percent of the $10.2 billion of revenue produced by the corporation in its last year of existence was created through lucrative oil, metal, and commodity trades masterminded by Ludwig Jesselson and his Philipp Brothers traders during the height of the energy crisis.

  The encompassing industrial and financial might of Phibro-Salomon, the holding company that currently owns the trading house Philipp Brothers and the investment banking and securities firm Salomon Brothers, has made the corporation first in U.S. investment bank underwritings, the largest spot oil trading outfit in the world, the most innovative offerer of collateralized mortgage bonds, and the biggest metal-trading company in the history of the business. The reason for all this, and more, is Ludwig Jesselson, who, having run the company on his own between 1964 and 1975, now stands in his corner office as the chairman of Philipp Brothers and the executive vice president of Phibro-Salomon, studying the panorama of New York City with the visitor on a sunny afternoon.

  The office next door is empty for the moment. David Tendler, handpicked by Jesselson to run Philipp Brothers, had been edged out by John Gutfreund of Salomon Brothers after a Jesselson-inspired plan failed to take Phibro-Salomon’s non-oil commodity business private through a leveraged buy-out. Tendler was a great trader who embodied the Philipp Brothers tradition, but he was — depending on the point of view — a poor manager: He couldn’t respond to sinking profits by throwing employees off the ship. “David understood that the staff needed to be cut,” said a member of the Phibro-Salomon board sadly. “He was unable to do it. He knew everybody there and couldn’t face seeing them on the street. It wasn’t the Philipp Brothers way.” Philipp Brothers had changed. Their greatest fear had come true: Business-schooled bankers who didn’t even know how to write letters of credit had taken over the company. And as Jesselson’s freckled hand points out the young men scurrying for success in the concrete canyon below, the soupy light of a late Manhattan summer oozes out from behind a building and, for a moment, fixes a smoldering glow on him, the frail king of an industrial empire now run by writ of minister.

  “I still give advice,” Jesselson says, returning to the high-backed leather chair behind his desk. “I tell them to never do anything in business that they would not do in their private lives. I built the company on that basis. A good trader needs imagination, an analytical mind, and I gave them room to make mistakes. A trader can never negotiate in fear.”

  “What’s different about the business today?” the visitor asks.

  Jesselson closes his eyes and patiently adjusts the black horn-rimmed glasses on his nose. “Patience,” he says, eyes opening, the word coming out of his mouth slowly, sorrowfully. “Young traders today don’t have the patience to sit around for five years and learn the business. Now we have specialists for every metal. In my day I taught traders to be specialists in everything traded … they want it all right now, you know. It’s our own fault. We gave them too much money. We made millionaires out of people who anywhere else would have been lucky to make $500 a week.”

  “It was a mistake,” he says quietly, regretfully, the words spilling out as if to apologize for a terrible error that can never be repaired. “We spoiled them.”

  “Did you spoil Marc Rich?” the visitor inquires.

  Jesselson pauses. His eyes swell, then melt into waxy crescents. A phone rings and Jesselson pays no attention to the sound. Someone outside answers. Seconds go by and the visitor feels it necessary to invade the silence.

  “Where did you go wrong with Marc Rich?” the visitor asks again. “I’m told that you didn’t mind his leaving, just the way he did it.”

  Returning from his deep thought and wiping a speck of something from under his right eye, Jesselson hardens, a visibly emotional old man suddenly transformed into a gut-fighting trader who has just discovered that somebody is positioned to whup him on a deal.

  “I will not talk about …” Jesselson hesitates and does not mention the name of the man who was once his friend, the lehrling he once called son. The force of his voice subsides and his face contorts into conflicting signals: hatred, revenge, sadness finally.

  “I will not talk about him,” he says like the icy boss of a major multinational corporation who knows that the man in question is his chief competitor.

  Jesselson swivels slightly in his chair, and the visitor notices a fleeting glance taken at the photos behind his desk, sun shafts dancing dustily on their fine roan frames.

  “He is gone,” Jesselson mumbles, like a fragile old man reminded of something that was very precious and lost to him long, long ago.

  | Go to Contents |

  About this Title

  This eBook was created using ReaderWorks™ Standard Beta, produced by OverDrive, Inc.

  For more information on ReaderWorks, visit us on the Web at "www.readerworks.com"
/>