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those who sensed Maxwell’s increasing problems was John Holloran, the manager of BPCC, the former printing division of Maxwell’s empire, who had bought the company in a management buy-out in January 1989. Ever since, Halloran had been pressing for payment of £97 million owed by BIM to the BPCC pension fund. Maxwell had resisted, but the sum was to be paid in July 1991. In the meantime, anxious to get more cash, Maxwell had persuaded Cook that it would be better eventually to pay BPCC in money because share prices would be falling. So BIM began selling shares. As the proceeds arrived, they were deposited on Maxwell’s orders in the account of RMG, his private company. From there they were used to repay his private debts. Halloran, with excellent sources in Maxwell House, detected the crisis and reminded the Publisher that he expected prompt payment with interest in the summer.

      The financial crisis was no longer a secret. Jean-Pierre Anselmini recognized the critical sign: bankers were telephoning daily and Kevin was often avoiding their calls. Yet, like so many others, he believed that the Maxwells’ fortune in Liechtenstein could cover the debts. After considerable negotiating effort, Anselmini proudly presented Maxwell with a plan to repurchase MCC’s debt at a 25 per cent discount from certain European banks. ‘Can’t do it,’ said Maxwell. The profitable deal could not be completed because there was no money. Anselmini, like Ron Woods months earlier, was still too gullible to understand. Maxwell instead wanted another deal. Proffering a document written by Robert Bunn explaining all the outstanding loans of the private companies, he asked: ‘Can you arrange to get these restructured? Just as you did for MCC?’

      Bunn’s report suggested that those private companies had debts of £1 billion against assets of £2 billion. Naturally, Maxwell did not confide that some of the assets belonged to the pension funds. Even so, Anselmini reported shortly afterwards: ‘It’s impossible.’ Maxwell’s disappointment was only too plain. ‘I don’t have a magic wand,’ added Anselmini. The mood in the City was deteriorating. A wave of financial scandals, the deepening world recession and the threat of a gigantic leap in oil prices because of the Gulf war had made bankers naturally wary. Now Anselmini’s telephone calls to the banking village had sparked suspicion. Bankers began contemplating Maxwell’s stricken finances and noted a crop of adverse newspaper reports. The burden to find a solution was firmly placed upon Kevin.

      That month, Kevin began negotiating the extension of loans for MCC and the private companies with dozens of the banks. His negotiations with Julie Maitland persuaded her to write a new strategy paper about MCC (following one composed the previous July). Once again the bank, which had accepted £100 million in collateral for private loans, failed to take account of the fact that the shares were registered in the name of BIM. Some would claim that the omission was proof of negligence. The bank would plead ignorance, insisting that it had no duty to investigate.

      Robert Maxwell’s palliative for the problems was to board the Gulfstream. On Sunday, 12 January he flew for dinner to Munich, departing early the following morning for New York to embark on a renewed effort to sell his Central European Fund on the West Coast. By the 20th his absence from London had fractured his relationship with reality. Instead of seeking solutions to MCC’s indebtedness, he flew to Bulgaria and then Croatia with Rudi Perpich, the former governor of Minnesota, to negotiate investing millions of dollars in those countries’ newspapers and television services. His hopes of profits were distant dreams. In London, the reality was increasing turmoil within the Maxwell empire caused by fears that the auditors’ finalization of BIM’s accounts might instigate a new dispute among LBI’s directors.

      The trouble had started when Mark Tapley, LBI’s managing director, had returned to work on 2 January to find Larry Trachtenberg sitting in the office. ‘I don’t know what your role is in this firm,’ Tapley said angrily to the fat American, ‘but you’re meant to be out.’ Trachtenberg shrugged; despite Kevin’s promise to halt the stock lending, he had not been removed.

      Unknown to Tapley, Maxwell had received a report from John Pole, the head of security, about Trachtenberg’s strange activities. During a routine search for a missing cassette tape of Trachtenberg’s telephoned market dealings, Pole discovered that the American was being threatened by a BIM employee. After some negotiations, a woman deposited the tape at the Mirror headquarters’ reception. Maxwell had clearly decided to ignore the incident, for Trachtenberg had celebrated his fortieth birthday hosting an expensive party at Mossiman’s, the Knightsbridge restaurant.

      Trachtenberg was clearly secure within the Maxwell citadel. That very day, 2 January, he had typed a memorandum to the Maxwells setting out his value to them, now that it was time to calculate the 1990 bonus. Not only had he arranged transactions totalling $725 million in the previous year, but, he added in chilling prose, ‘If one were to include stock loans which were ultimately used in cash generation exercises, the total would easily surpass $1 billion.’ There it was, a stark admission of the misuse of the funds. Not surprisingly, his bald statement of facts encouraged Maxwell to increase Trachtenberg’s salary to £200,000 and to add a 10 per cent contribution towards his pension, a performance bonus of £100,000, a car and a rent-free house estimated to cost the London & Bishopsgate Group £78,000 every year.

      These favours had not gone through without internal opposition. Gillie Bryson, an accountant, had noted to Kevin that Trachtenberg’s income had risen 154 per cent in two years and that he was ‘earning more than many of the top Chief Executives of the top FT-SE 100 companies’, despite the loss by London & Bishopsgate Holdings (LBH) of ‘a great deal of money’. Although Bryson complained, ‘I am at a loss to understand what possible justification there would be for any bonus to be paid,’ the Maxwells understood Trachtenberg’s value very well. Keen to capitalize on that sentiment, Trachtenberg’s latest proposal was that he exchange his shares in LBH, estimated by himself to be worth £250,000, for his house, which was valued £599,000. Although LBH was actually worthless, the Maxwells had agreed to consider his proposition.

      Trachtenberg’s inviolability encouraged Tapley’s anxiety to resign, but he was persuaded by Anselmini, Willett and especially Bernard ‘Manuel’ Donoughue ‘not to rock the boat’. Pointing to the letters from lawyers and accountants approving the stock-lending scheme, Donoughue urged, ‘We’re going to arrange a buy-out of LBI so we can keep it for ourselves.’ Tapley was becalmed. By then, Trachtenberg was concealing the use of the pension fund shares while John Cowling completed BIM’s accounts.

      On 5 February, Cowling asked Cook for a detailed explanation of the stock lending. He was answered with a statement of ignorance. Cook replied, ‘I don’t know much about the arrangements except that I have an agreement with LBI.’ In his files was a letter from Trachtenberg sent in early January assuring him that all BIM’s assets were safe. Attached to that letter was a note from the American acknowledging receipt at LBI of another batch of shares owned by BIM. Unknown to Cook, on that very day Trachtenberg had sent those same shares to Crédit Suisse to raise more money.

      Cowling’s questions raised doubts in Cook’s mind. Three days later, on 8 February, he met Maxwell and asked for assurances about the stock lending. Since the beginning in December 1988, over £200 million of pension fund shares had been passed over on Maxwell’s orders to Trachtenberg. ‘Everything’s fine,’ said BIM’s chairman, not revealing that at 3 p.m. that day Kevin would telephone Julie Maitland to ask for a further $3 million loan guaranteed as he knew by pension fund shares.

      Cook’s sanguine response to this reassurance did not immediately placate Cowling. By mid-February, the auditor had become puzzled by Trachtenberg’s vague replies, especially after he had provided two different lists of the pension fund shares held by LBI. There were other good reasons for Cowling’s unease. He had not seen any written authorization for the stock lending from BIM’s directors; and there was a letter from Mark Haas of Lehmans confirming that the pension fund’s shares handed over by Invesco were held as ‘collateral for loans in connection with the stock-lending agreement’. (Haas would subsequently claim that either Trachtenberg or Cook had composed the letter.)

      In an attempt to clarify his confusion, on 13 February Cowling listened to a telephone conversation between Cook and Trachtenberg. ‘Can you put the whole position in writing because it seems you’re doing collateral swaps which aren’t authorized?’

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