and produced no accounts to prove that it controlled any money. It was a legal fiction managed by his Swiss lawyers, who were paid to refuse answers to any questions. Maxwell was chairman of the trustees and, in his opinion, beyond mortal scrutiny. ‘There are no Liechtenstein accounts,’ Cook wrote to IMRO. Surprisingly, there was no reaction.
Maxwell’s escape from the potential trap had been effortless. Since the law required that BIM be owned by a registered charitable trust with proper accounts, he just invented one. The figment of his imagination was called the Maxwell Charitable Trust, its creation partly supervised by Deborah Maxwell, his legal adviser. Under the proposed structure, the Trust would control BIM, although neither actually employed any staff. The Trust was effectively just Robert Maxwell, without any trustees appointed by the pension funds, though including one trustee, David Corsan, a retired Coopers auditor who was also an IMRO director. BIM’s manager Trevor Cook and his staff were employed by Headington Holdings, a subsidiary of Headington Hill Investments. That extraordinary structure was ignored by the government’s regulator after the initial application was withdrawn, and on 6 April 1988 BIM received formal approval to manage the pension funds of over 20,000 employees from offices at 4/12 Dorrington Street, near Maxwell House. Cook was appointed the compliance officer, formally responsible for BIM’s obedience to the laws and for the company’s liaison with the regulatory authority.
Under BIM’s articles, Robert, Kevin and Ian Maxwell, the leading directors, wielded only limited powers, but inevitably those rules were ignored by Robert Maxwell, albeit unchallenged by Ron Woods, Trevor Cook, Robert Bunn (until his resignation in 1990) and the other directors. Unknown to them, in a legal ruse to protect himself in the event of any future inquiry, Maxwell had falsified the board minutes to appoint himself the sole arbiter of the company’s management. In the event, he decided on investments – sales and purchases – without reference to anyone else. His action mirrored MCC board minutes of November 1981 which permitted him to act as a ‘committee of MCC’s board of directors’, bestowing upon himself uncontrolled powers over the public company, including the right to be the sole signatory of cheques for unlimited amounts. Naturally, these changes in the running of BIM were kept a close secret. They existed only as a legal safeguard if trouble arose.
Maxwell quickly established a pattern of management of the pension funds. At BIM’s monthly meetings, religiously attended by Robert and Kevin and occasionally by Ian, the directors reviewed and approved BIM’s portfolio of investments. Cook and his deputy, Jeffrey Highfield, merely took care to monitor the minutes, acknowledging that the right to buy and sell shares belonged to the directors. Every month, they circulated a schedule of BIM’s portfolio of shares. So none of the Maxwells could ever be in any real doubt whether particular shares belonged to the pension funds or to their private companies.
In September 1988, Maxwell decided to establish tighter control over the pension investments. His excuse was the discovery of a fraud of £7,000 in the payment of pensions to former employees. A subsequent report by accountants concluded that the pensions administration was a ‘shambles’. Summoning Cook and Highfield, he announced that authority for the management of BIM and the CIF investments was to be vested in Robert Bunn, the accountant employed by his private companies. ‘Bunn will handle all relations with the brokers and investment houses,’ he said. ‘We are involved in a large number of take-overs and mergers. Bunn has better expertise. Bunn will have all the powers. Your responsibility will be solely BIM’s administration.’ At the end of their employer’s ten-minute speech, neither man protested.
But within weeks Highfield was complaining to Cook: ‘Bunn isn’t telling me about the actual investments.’ Cook remained silent, unwilling to question Maxwell’s edict that ‘We are ruled by IMRO, and we must not reveal price-sensitive information.’ Highfield was puzzled. Cook had already accepted another limitation upon himself. Three months earlier, in July 1988, Maxwell had decided that BIM and the pension funds would enter into a special and unusual relationship with yet another private Maxwell company, London & Bishopsgate Investments. LBI was the preliminary vehicle for Maxwell’s ambitions to control a bank. Not surprisingly, Cook did not understand the importance LBI would assume. ‘Go and talk to the LBI people,’ urged Maxwell soothingly, ‘and satisfy yourself of their competence.’ Cook had obliged and did not object to the relationship.
The creation of LBI was the direct consequence of Maxwell’s introduction to Larry Trachtenberg and another American, Andrew Smith, renowned as ‘a smooth New York computer jock’. Modelling himself on the Wall Street brokers in Tom Wolfe’s novel, Bonfire of the Vanities, Smith was a fast-talking, self-confident smoothie wearing braces over heavily starched shirts. His appearance and manner shrieked a dealer determined to make his fortune. In 1989, Smith, introduced to Maxwell by his father, a German banker, had professed that his hero was Michael Milken, the American arbitrageur and junk-bond specialist who by 1990 was on course for imprisonment.
Trachtenberg and Smith had met at the London School of Economics in 1985, both of them eager to join the rich in that booming era. Their initial ploy had been to exploit the exploding market for information and sell newsletters of financial and political analysis to banks, industrialists and investors. The information had been compiled by LSE students based on published sources. That easy money fed the two men’s ambitions. Technology was their answer. By 1987 when they met Maxwell, they had invented a computer system which, in theory, monitored all the international economies and markets to identify perfect investment opportunities before any mere mortals could do so. Calling themselves Global Analysis Systems (GAS), they were presented to Maxwell, an unrestrained admirer of technology, not as mere analysts but as investment managers. All they required was other people’s money to earn millions.
Entranced by their gimmick, Maxwell felt that they lacked gravitas. They needed the respectability that could be provided by employing in their firm an established personality in the financial community. That role, he believed, could be best performed by Lord Donoughue, a socialist academic who in the 1970s had served as a policy adviser to Harold Wilson before self-interest prompted him to switch ideologies in the 1980s to capitalism. In 1988, Bernard Donoughue, aged fifty-four, was employed as a director at Kleinwort Benson, the merchant bank, where he was responsible for research. Maxwell, the frustrated Labour politician, was keen to recruit any of Wilson’s team, and Donoughue leapt at the giant salary offered. He would be paid £180,000 per annum, plus £36,000 annual contribution towards his pension and an annual Christmas bonus of £200,000. In addition to that total of £436,000, Maxwell would provide a home in Westminster, close to parliament. An added attraction to LBI’s new, full-time executive vice-chairman (under Maxwell himself) was his belief that £300 million of Maxwell’s money was ‘sloshing about’ in various merchant banks waiting to be invested.
Donoughue’s income matched those of his two colleagues and co-directors. Trachtenberg’s initial annual salary in 1988 had been £80,000 but his income was boosted in the following year by a performance bonus of £125,000. Soon after its payment, Maxwell’s auditors realized that the bonus for all three directors had been paid on what were called ‘erroneous figures’, but it proved impossible for Kevin to overcome Donoughue’s stubborn objections and recover the money. That largesse, the loss of hundreds of thousands of pounds by sheer dilatoriness or negligence, contradicted the cultivated image of Maxwell as a ruthless cost-cutter and was a measure of the true state of the empire’s finances. Accordingly, in 1989, Trachtenberg’s income was consolidated at an annual salary of £185,000 plus £18,500 towards his pension, and Smith was paid £150,000 without any pension contribution. Trachtenberg was assured of a Christmas bonus of £125,000, Smith one of £200,000.
The trio, Trachtenberg, Smith and Donoughue, were formally embraced within Maxwell’s empire as directors of LBI – London & Bishopsgate Investments – with Robert and Kevin Maxwell. (Headington Hill Investments, the controlling company of all Maxwell’s private companies, bought a 60 per cent stake in GAS, which was then renamed London & Bishopsgate International Investment Inc. – LBII.) It was no coincidence that ‘London & Bishopsgate’ featured in the names of a growing number of Maxwell’s private
