LONDON - Robert Maxwell, his two sons and two other Maxwell Group officials fraudulently used (pounds) 122 million in company pension assets to help bail out the sinking Maxwell business empire, government lawyers have charged in opening statements of the Maxwell scandal trial.
But defense lawyers for the Maxwell sons claim their actions were justifiable. They argued the practice of using assets of one part of the Maxwell Group to support other parts was widespread among Maxwell companies and widely accepted by their lending banks. This would help show none of the defendants had intended cheating the pension funds when they used plan assets to try to save the failing Maxwell empire.
The legacy of the scandal surrounding the former publisher, who died mysteriously in November 1991, will be a long-lasting one. Pension legislation - stemming from the scandal - to regulate the U.K. pension industry is expected to be passed by the House of Commons this summer, affecting millions of plan participants. Meanwhile, Maxwell company pension funds have recovered more than 400 million in assets from Maxwell lenders and custodians to ensure pensions will not be curtailed.
In the opening days of the major fraud trial that is expected to last six months, government and defense lawyers outlined their respective cases to the jury.
The accused are Kevin and Ian Maxwell, sons of the publisher Robert Maxwell. The sons were directors of a string of Maxwell companies, including companies managing the pension funds. Also charged are Larry Trachtenberg, a former adviser to Robert Maxwell, and Robert Bunn, a former finance director of Maxwell Communication Corp., one of the late publisher's two public companies. All four pleaded innocent to the charges.
The financial problems of Robert Maxwell's businesses emerged immediately following Mr. Maxwell's death.
They included the alleged siphoning of assets of the pension funds of the publicly quoted companies to shore up his troubled private companies.
By the summer of 1991, the financial difficulties of the Robert Maxwell Group PLC could no longer be ignored, Alan Suckling, the lawyer heading the prosecution for Britain's Serious Fraud Office, told the court.
At a July 23, 1991, meeting between lawyers, accountants and RMG directors (including the three Maxwells and Mr. Bunn), it was acknowledged total debt was (pounds) 845 million. Although a reduction in debt was forecast, Mr. Suckling said the company could only remain solvent if it sold assets and its banks agreed to extend credit by rolling over loans.
Short of cash, Robert Maxwell and Kevin Maxwell already had started turning to assets held in the Common Investment Fund, a pooled vehicle containing assets from several Maxwell company pension plans, Mr. Suckling said. The CIF was managed by Bishopsgate Investment Management Ltd., a Maxwell subsidiary.
Between July 3 and Nov. 6, 1991, the Maxwells allegedly used 5.4 million shares in Scitex Corp. Ltd., an Israeli printing equipment manufacturer, as collateral to back corporate loans. Bishopsgate owned the shares on behalf of the CIF. Maxwell Group lenders were persuaded into making loans or rolling over loans on the promise of payment from the sale of the Scitex shares, which were worth around (pounds) 100 million.
These lenders included the Bank of Nova Scotia, National Westminster Bank PLC, Barclays Bank PLC, Lloyds Bank PLC, Citibank, Lehman Brothers International Inc. and Goldman Sachs & Co.
The second charge alleges all four defendants conspired together between Nov. 5 and Nov. 21, 1991, to defraud the common investment fund by using 25.2 million shares in Teva Pharmaceutical Industries Ltd., another Israeli company, to prop up the Maxwell Group.
Of the (pounds) 22 million of Teva shares, the prosecution alleged that despite proof that all four defendants knew the shares belonged to Bishopsgate - as titular owner on behalf of the CIF - they allowed the shares to be transferred to National Westminster Bank in return for credit facilities granted to the Robert Maxwell Group.
Mr. Suckling spent the first three days of the trial outlining the complex web of dealings by which he maintains the accused used pension fund assets for an "ulterior purpose."
Although he cannot be put on trial, Robert Maxwell features prominently in the proceedings. While cited in the first count, the senior Maxwell was noted by the prosecution as being "the driving force" who "exercised dominant control in the group and the operation of the pension funds." The prosecution also said Kevin Maxwell "worked under the dominant control of his father."
Despite this, Mr. Suckling said of Kevin Maxwell: "Of the defendants, he was the one most responsible for the misuse of pension fund assets."
But defense lawyers claimed the Maxwell sons were acting in good faith and innocent of wrongdoing.
Kevin Maxwell's lawyer, Alun Jones, said his client believed Robert Maxwell thought he was acting honestly when he helped remove assets from the pension funds to meet the group's debts.
Mr. Jones and Ian Maxwell's lawyer, Edmund Lawson, stressed the power the elder Maxwell had over his businesses and its chief executives, including his sons.
For Kevin Maxwell, Mr. Jones said: "It is quite possible that Robert Maxwell was guilty of the dishonesty the prosecution allege, but not his son." Mr. Jones also maintained Robert Maxwell had told Kevin Maxwell the Teva shares belonged to the Maxwell Group, and had shown him an amended memo indicating RMG also owned the Scitex shares.
For Ian Maxwell, Mr. Lawson stressed the elder son was almost entirely absorbed in his role as publisher, and, despite being a director, "was not part of the financial side."
Ian Maxwell had allowed himself "to be swayed by the powerful personality of his father," and because of his lack of knowledge of financial matters, to be reliant on others. "But that doesn't make him a deliberate fraudster," maintained his lawyer.
But Mr. Suckling accused Kevin Maxwell of "dodging and diving" and of lying to banks as he used pension fund assets to repay debts of the private companies. He produced minutes from Maxwell directors' meetings and letters to and from banks that he said showed Robert and Kevin Maxwell had indicated these shares belonged to the Maxwell companies, rather than to the pension funds.
Trevor Cook, the compliance officer at Bishopsgate, testified he had been unaware of many of the Teva-related transactions.
Mr. Cook testified that after Robert Maxwell's death, when he tried to trace Bishopsgate's missing funds, he was given assurances by Kevin Maxwell that other funds and assets of the group would be made available to make up Bishopsgate's shortfall. He said these funds were never paid to BIM.
Even before the trial, the scandal has taken a toll on the Maxwell brothers. Kevin Maxwell has become the world's biggest personal bankruptcy after being ordered by the British High Court in July 1992 to pay (pounds) 406 million to the Bishopsgate's liquidators.
Despite Kevin Maxwell's inability to pay, some 32,000 Maxwell company pensioners have had their full pension rights restored with the return to their funds of about (pounds) 417 million, mainly by the European and American banks that had received debt repayments from the sale of pension fund assets.
However, other legal action to recover funds is still going on. London accountants Robson Rhodes, the liquidators of CIF, expect a court judgment at any time on a request for about (pounds) 33 million from Banque National de Paris and the French investment trust Euris. Along with Mirror Group Pension Scheme trustees, Robson Rhodes is also claiming (pounds) 88 million from Zurich-based Credit Suisse. This case is scheduled to last until the end of the year, with a judgment expected early in 1996.