James Palumbo is explaining how he used to torment his housemaster at Eton when a tiny mouse darts under the giant brown loaf of a sofa I'm perched on, my feet dangling off the edge like a child's. We're in the 46-year-old multimillionaire's sleek first-floor apartment in South Kensington, so swanky that metal walls come crashing down if there's a fire and secret panels slide back to reveal hidden fridges. There's none of the usual domestic detritus such as telly guides or Biros, and you certainly don't expect to see a rodent. Palumbo is slack-jawed with amazement: "There's a mouse. In my flat. Amazing. You must have brought it with you."
I hope he doesn't also think it's my fault if reports of how he operates as a businessman are accurate. Those who have had dealings with the founder of the Ministry of Sound nightclub describe him variously as ruthless and intimidating, while at school he was so feared that even now people turn white at the mention of his name. There's certainly something of the Bond villain about him as he settles down with his haughty blue whippet, Mr Bounce, and fixes me with empty black eyes.
But back to the housemaster. Palumbo has long been associated with one of Eton's most mysterious scandals. The story goes that Palumbo was in possession of some letters written by his housemaster, and that soon after the master resigned. The most lurid version is that Palumbo blackmailed him. "Yes, that's right, I did, I caught him..." he jokes when I ask about it, then exclaims: "How could you blackmail your housemaster?! No, I can say categorically I did not blackmail him." He does admit, however, to having homed in on teachers' weaknesses and exploited them relentlessly.
Another rumour, from his time at Oxford, is that he once gave a girl a red Ferrari to win her over. "I was probably chasing her in my Ferrari," he laughs, adding: "Those are benign compared to other stuff that has been said."
Until this year Palumbo didn't give interviews, but that has changed with the publication of his first novel, Tomas, the acronym for There's Only Money And Sex. Written just as the financial bubble was bursting 18 months ago, it's a savage satire of Eurotrash excess, lampooning the Cristal-spraying antics of billionaires and prostitutes. It presents a surreal world in which women's breasts are so large they're supported by trolleys and men's collars hang down to the floor like tongues. Some have likened it to Brett Easton Ellis's American Psycho, others to Tom Wolfe, but Palumbo's own influences are much more highbrow. He's an avid reader of Vonnegut and his favourite books are The Fencing Master by Arturo Pérez-Reverte and Memoirs of Hadrian by Marguerite Yourcenar. When I admit to not having read, or, um, heard of either, he says he'll send me a copy of each, which, surprisingly, he does.
It must have been paying close attention to small details that brought him success as a businessman. Eighteen years after setting up Ministry of Sound in a warehouse in Elephant and Castle, south London, it is one of the biggest clubbing brands and record labels in the world. His personal fortune is estimated at £130m, and he says he has never been in debt. He is proud that his staff are at their desks at 7am, describing himself as old-fashioned and strict. Control is, above all, his opium, so it's ironic to think he made his fortune out of people losing themselves to trance music.
But Palumbo's reputation as a Keyser Soze figure is fading. The secretive, aggressive young-man-in-a-hurry of the past, the one who successfully sued his father over control of the family fortune, is starting to chill out. "It's true. I'm mellowing. I have mellowed. I shall mellow," he half chants, as if in a therapy session. He has regrets about his time at school, when he held sway over boys and masters alike. "There's no doubt I took it too seriously. I should have exhaled more." He took a demolition ball to the tradition of fagging, in which younger boys act as servants to older ones. "It was a ridiculous, anachronistic waste of time – semi-bullying nonsense that had to be attacked, so I attacked it."
Writing Tomas was, he says, a cathartic experience, and changed his life. "Whenever anyone says I'm writing a book you think, 'Oh, have you lost your job?'," he says, slipping into his old, competitive, self. "But I just thought it was fantastic. I realise that I did it to exorcise a lot of stuff. I had more fun writing it than negotiating any takeover I've done."
So what is there to exorcise? There's the loss of his mother, Denia Wigram, who died of cancer when he was in his early twenties. He once said that as a boy his mother ordered him to hit her to learn how to defend himself and, after initially refusing, he punched her squarely on the chin. Others have said his childhood was loveless. But James was at her bedside as she died. Then there's the 25-year feud with his father, Peter Palumbo, the property developer and art collector. Some say the feud started with Denia's death, and it is true that Peter remarried only months later, to a Lebanese beauty, Hayat Calil.
James says it as a fundamental clash of personalities, but is reluctant to explain how it all began. Money came into it when James questioned his father's competence to control the family fortune and persuaded a court to agree with him. His father lives only a few streets away but they still haven't spoken, although James says he is now ready to talk. "It's a Shakespearean story that needs a happy ending, as some Shakespearean stories do. People spend their lives knotted by rubbish, don't they? What's happened has happened. I just haven't given it that much thought; I've been busy. I'm making some changes, and one of those should probably be reconnecting, getting on with it, and putting aside past nonsense. So, yes, the answer is I'm going to make an effort to reach out, as the Americans say."
His private life is another source of intrigue. He has never married but has an 18-year-old son, Alessandro, from a brief affair with a Middle Eastern woman, Atoosa Hariri. Despite his riches, he lives in the first flat he ever bought, with a Thai woman whom he calls his best friend, Rawipim Paijit, or Pim.
For someone who calls himself private, Palumbo is enjoying the publicity Tomas is bringing. "I think it's good for me to open up," he says. "I've had to learn to dress more snappily – I was a bit fuddy-duddy before. And I had to learn to speak on television without swearing. I hope I'm not being gratuitously positive." But he still doesn't go to parties, "because I'm not good at knowing what to say."
The contradictions in his life are many. He is a close friend of Peter Mandelson yet he votes Conservative. He is worth £130m but claims not to be interested in money. His favourite place is Cannes – where he owns a flat – yet in his book he depicts it as a latter-day Gomorrah. He says the answers to what "he really thinks about the world" are in the book, which is disquieting, given how nihilistic it is. Is the character of Tomas based on him? "Do I want to defecate in public on camera? Would I like to shoot Eurotrash in nightclubs or fight with an army of phalluses? Yeah, why not?"
The Russians come in for relentless assaults in his book, but in some ways he is like one himself, cloaked with a permanent air of mystery. But for all the intrigue, Palumbo is likeable – charming, polite, intelligent, a music obsessive who plays the piano every day. Sometimes he even seems slightly vulnerable. Later he emails to blame me for the mouse infestation – apparently, they're now all over the place. "Is this a new interview technique? Does a mouse sighting induce truthfulness in interviewees!?" he writes. Surely the only person who can answer that is him.
1963 Born 6 June to Peter Palumbo, property developer and art collector, and his first wife, Denia Wigram. Great-grandfather was Rudolph Palumbo, an Italian immigrant who built up a fortune from one London café. Family home is Buckhurst Park near Windsor.
1976 Goes to Eton. Aged 15 writes a paper against school tradition of fagging, which is subsequently abolished. Succeeds in getting several boys expelled for smoking cannabis. Becomes head of house in penultimate year, an unusual privilege.
1980 With friend Humphrey Waterhouse, goes to Los Angeles where they set up an Old Etonian butlering service for Hollywood stars.
1981 Goes to Worcester College, Oxford, to read history. Founds a dining club called The Charivari and is notorious for driving a red Ferrari.
1984 Joins Merrill Lynch.
1986 Joins Morgan Grenfell.
1991 Only son is born. Leaves the City to set up Ministry of Sound in a warehouse in south London. Club becomes instant success despite opening at midnight and serving no alcohol.
1995 Sues father over control of family fortune.
2001 Club has grown to international brand. Sells 16 per cent stake for £24m, to 3i.
2008 Company, now MSHK, is largest independent record company in the world, with annual turnover of £80m.
2009 Publishes first novel, Tomas, a satire on the rich.