How Robert Maxwell picked the lock on the company safe

The inspectors' report into Robert Maxwell's stewardship of Mirror Group Newspapers should become a classic. It's about theft on a grand scale. The more usual term for Maxwell's activities is fraud, but what is fraud if it is not stealing, carried out by lying and cheating rather than by breaking into somebody's house? The result is the same. Maxwell systematically plundered both the non-family shareholders in his businesses and the company pension funds.

The inspectors' report into Robert Maxwell's stewardship of Mirror Group Newspapers should become a classic. It's about theft on a grand scale. The more usual term for Maxwell's activities is fraud, but what is fraud if it is not stealing, carried out by lying and cheating rather than by breaking into somebody's house? The result is the same. Maxwell systematically plundered both the non-family shareholders in his businesses and the company pension funds.

It is 10 years now since Maxwell fell from his yacht and drowned. But his story deserves to be remembered. For Maxwell was clever, self-confident, forceful and, when the occasion demanded, charming. His fraudulent activities were carried out intelligently, tenaciously, ruthlessly. They involved famous businesses ­ in Britain the Daily Mirror, the Sunday Mirror, the Daily Record and ­ in the United States ­ the New York Daily News and the Macmillan publishing group.

By classic, I mean that the account written by two DTI inspectors should be read and re-read by the staff of the Financial Services Authority, by bankers, by professional investors, by company directors, particularly those in a non-executive position, by accountants and by lawyers. The two volumes, some 600 pages of report and 20 appendices, difficult and detailed as they are, should be set books in the examinations taken by professionals working in the financial markets.

The inspectors' report into Robert Maxwell's stewardship of Mirror Group Newspapers should become a classic. It's about theft on a grand scale. The more usual term for Maxwell's activities is fraud, but what is fraud if it is not stealing, carried out by lying and cheating rather than by breaking into somebody's house? The result is the same. Maxwell systematically plundered both the non-family shareholders in his businesses and the company pension funds.

It is 10 years now since Maxwell fell from his yacht and drowned. But his story deserves to be remembered. For Maxwell was clever, self-confident, forceful and, when the occasion demanded, charming. His fraudulent activities were carried out intelligently, tenaciously, ruthlessly. They involved famous businesses ­ in Britain the Daily Mirror, the Sunday Mirror, the Daily Record and ­ in the United States ­ the New York Daily News and the Macmillan publishing group.

By classic, I mean that the account written by two DTI inspectors should be read and re-read by the staff of the Financial Services Authority, by bankers, by professional investors, by company directors, particularly those in a non-executive position, by accountants and by lawyers. The two volumes, some 600 pages of report and 20 appendices, difficult and detailed as they are, should be set books in the examinations taken by professionals working in the financial markets.

The essence of Maxwell's crime was this. On the one hand, he had companies where he owned 50-70 per cent of the capital and whose shares were publicly quoted on the stock exchange; the employees of these companies subscribed to a company pension fund. On the other hand, he had private companies. The game was to siphon off cash and assets from the public companies and from their pension funds into the private ones.

Of course, Maxwell was secretive. His objective was to prevent anybody having a full picture of his activities. Only Maxwell himself knew how everything fitted together. He engaged in deceit by confusion. His private companies were given different financial years, constantly lent and borrowed to and from each other and transferred assets between themselves ­ all so that the bankers lending to these entities would never be able to see clearly what was going on.

Certain decisions must be ratified by a company's directors. So all companies, public and private, must hold board meetings. When he couldn't avoid them, Maxwell called them at short notice, provided the necessary documents only a few minutes before and taking back the papers as soon as the meeting was over. If, as was necessary in the public companies, a board meeting had long been scheduled, then it would be postponed at the last moment and be re-arranged with the result that often only a few directors could attend.

If secrecy was Maxwell's rule number one, then securing all power into his own hands came next. He made sure that he was the only director able to sign cheques for more than a trifling amount. On the same evening that Maxwell acquired control of Mirror Group Newspapers, he went to the Mirror Building in Holborn, London, and ordered that a board meeting be summoned. It took place at 2.45am. Maxwell obtained agreement that he had the authority to sign cheques and make transfers from the company's bank accounts on his sole signature for any amount. In effect, he had picked the lock on the company safe.

A second method of securing power was to get the directors of the public companies to agree that the entire powers of the board be delegated to him as a committee of one. He told board members that this was necessary because he was often abroad when quick decisions were needed. Actions taken would be reported to the next meeting of the board so that they could be ratified.

The third element in Maxwell's technique was to wear the cloak of respectability at all times. He was able to get high-class advisers ­ merchant banks, accountants and solicitors ­ to put their names to his documents. They were greedy for the fees. And among them there was always one that badly needed some lucrative business. In the same way Maxwell hobnobbed with leading statesmen round the world. He had once been an MP. He owned newspapers in London and New York. He had the chutzpah.

These were Maxwell's methods in good times as well as bad. But after he had paid too much for Macmillan in the US and borrowed $3bn in November 1988, his businesses began to implode. They were not generating sufficient profits to meet the debts. Now the thief must cover his tracks and avoid getting caught.

On a larger scale than before, he used pension fund assets as collateral for the borrowing of his private companies. When there was a legal requirement to make announcements about certain share transactions, the statements were misleading. Indeed as the crisis deepened, "misleading" was too mild a description of Maxwell's public pronouncements. They were lies. He employed liars and they lied for him.

Maxwell would give undertakings designed to ring-fence different assets, but he omitted to carry them out. For instance, it was decided that when Mirror Group Newspapers was floated on the stock exchange, it would have its own separate treasury function and its own treasurer. That never happened. It is simple really: makes promises but don't keep them.

Then Maxwell began to obtain unauthorised overdrafts from the banks by pretending that back-office problems were the explanation of delayed payments. The banks soon caught up with this. It was getting shabby. These were no longer the masterstrokes of the big criminal, rather, the tricks of the small-time crook.

I am certain now that Maxwell committed suicide by drowning in November 1991. He had started to default on his loans. Some of his cheques had bounced. The bankers were about to start selling the shares in his companies which had provided security for his borrowings. He couldn't face the disgrace. Either he jumped, or he would end up in prison. It's a sad story, but it contains everything anybody needs to know about corporate fraud and what the warning signs are. To all those in positions of responsibility in the City I say, please read it.

¿ aws@globalnet.co.uk

The essence of Maxwell's crime was this. On the one hand, he had companies where he owned 50-70 per cent of the capital and whose shares were publicly quoted on the stock exchange; the employees of these companies subscribed to a company pension fund. On the other hand, he had private companies. The game was to siphon off cash and assets from the public companies and from their pension funds into the private ones.

Of course, Maxwell was secretive. His objective was to prevent anybody having a full picture of his activities. Only Maxwell himself knew how everything fitted together. He engaged in deceit by confusion. His private companies were given different financial years, constantly lent and borrowed to and from each other and transferred assets between themselves ­ all so that the bankers lending to these entities would never be able to see clearly what was going on.

Certain decisions must be ratified by a company's directors. So all companies, public and private, must hold board meetings. When he couldn't avoid them, Maxwell called them at short notice, provided the necessary documents only a few minutes before and taking back the papers as soon as the meeting was over. If, as was necessary in the public companies, a board meeting had long been scheduled, then it would be postponed at the last moment and be re-arranged with the result that often only a few directors could attend.

If secrecy was Maxwell's rule number one, then securing all power into his own hands came next. He made sure that he was the only director able to sign cheques for more than a trifling amount. On the same evening that Maxwell acquired control of Mirror Group Newspapers, he went to the Mirror Building in Holborn, London, and ordered that a board meeting be summoned. It took place at 2.45am. Maxwell obtained agreement that he had the authority to sign cheques and make transfers from the company's bank accounts on his sole signature for any amount. In effect, he had picked the lock on the company safe.

A second method of securing power was to get the directors of the public companies to agree that the entire powers of the board be delegated to him as a committee of one. He told board members that this was necessary because he was often abroad when quick decisions were needed. Actions taken would be reported to the next meeting of the board so that they could be ratified.

The third element in Maxwell's technique was to wear the cloak of respectability at all times. He was able to get high-class advisers ­ merchant banks, accountants and solicitors ­ to put their names to his documents. They were greedy for the fees. And among them there was always one that badly needed some lucrative business. In the same way Maxwell hobnobbed with leading statesmen round the world. He had once been an MP. He owned newspapers in London and New York. He had the chutzpah.

These were Maxwell's methods in good times as well as bad. But after he had paid too much for Macmillan in the US and borrowed $3bn in November 1988, his businesses began to implode. They were not generating sufficient profits to meet the debts. Now the thief must cover his tracks and avoid getting caught.

On a larger scale than before, he used pension fund assets as collateral for the borrowing of his private companies. When there was a legal requirement to make announcements about certain share transactions, the statements were misleading. Indeed as the crisis deepened, "misleading" was too mild a description of Maxwell's public pronouncements. They were lies. He employed liars and they lied for him.

Maxwell would give undertakings designed to ring-fence different assets, but he omitted to carry them out. For instance, it was decided that when Mirror Group Newspapers was floated on the stock exchange, it would have its own separate treasury function and its own treasurer. That never happened. It is simple really: makes promises but don't keep them.

Then Maxwell began to obtain unauthorised overdrafts from the banks by pretending that back-office problems were the explanation of delayed payments. The banks soon caught up with this. It was getting shabby. These were no longer the masterstrokes of the big criminal, rather, the tricks of the small-time crook.

I am certain now that Maxwell committed suicide by drowning in November 1991. He had started to default on his loans. Some of his cheques had bounced. The bankers were about to start selling the shares in his companies which had provided security for his borrowings. He couldn't face the disgrace. Either he jumped, or he would end up in prison. It's a sad story, but it contains everything anybody needs to know about corporate fraud and what the warning signs are. To all those in positions of responsibility in the City I say, please read it.

aws@globalnet.co.uk

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