Maxwell & Regulators

Some people deride Michael Walters, I find myself in agreement with his views on many occassions. The following is his latest example from his site at


The Maxwell Lessons
Tue 3 Apr 2001

1. The money comes first. 2. Never give a sinner a second chance. 3. If it worries you, walk away. 4. The City is not on your side. 5. Nor is the Stock Exchange. 6. Or the DTI. 7. Or the FSA. 8. Or any regulator.

SOONER or later, I will be able to pick up a copy of the DTI investigation into the Maxwell affair. I look forward to it, all 700 pages. It will be fun to renew old acquaintance. Since he went for his swim, I have missed the old villain.

He was always good for a story – and so much about his dealings and his empire was so obviously, so transparently, wrong that it provided me with endless hours of entertainment when I worked full-time on the Daily Mail City desk.

Ten years later, that is perhaps what stands out most about Maxwell – it was so damned obvious that he was up to no good. Half – no, nine out of ten – in the City knew he was bent. And yet he rolled on and on, crushing little people, and soiling practically everyone who did business with him, or was supposed to be watching over him.

This is not a piece about how clever I might have been, and how I hammered away at him constantly, to his face and in print. I did, but so did a few others. This is a piece suggesting that the Maxwell story confirms a few simple lessons for small investors.

Loud and clear, one glaring, shrieking, flat out, in-your-face lesson is that you cannot rely on the so-called authorities, those laughably called the great and the good, or those who merely consider themselves so. Faced with the bluster of a man with money to hire expensive lawyers, or the opportunity of receiving a big fat cheque for turning the other way – or even climbing aboard the gravy train – all too many will take the easy option.

When Maxwell returned to the City to rescue what was then British Printing, he was introduced to the world by Sir (maybe Lord by then) Frank Kearton. When I sensed the press conference was going Maxwell’s way too easily, and asked about the earlier DTI verdict which called him a liar and declared him unfit to run a public company, Kearton brushed it aside.

Maxwell stormed at me afterwards, but that did not matter. What was important was that it suited an eminent industrialist to brush the truth aside. Maxwell had money, and was going to use it. I seem to recall that his second coming had to be blessed by the Bank of England, then much more of a power in the City. Even the Bank bowed to the man with money.

Later, when Simon Cawkwell (Evil Knievil) and I were delving away to discover the meaning of option deals which had not been properly reported by the Stock Exchange, and which were being used to prop the Maxwell share price, there was nothing but obstruction from officialdom.

How could a mere journalist challenge Maxwell, especially if it appeared that the Exchange might have been sleeping and proper disclosure rules had not been followed? Yet if those options deals had all been properly declared, it would have been more apparent to the City that something strange was going on between Maxwell and Goldman Sachs.

And I recall those telephone calls to the grand American investment house of Goldman Sachs suggesting that something was not quite right about the reporting of share deals which helped prop the Maxwell price. People were so often in meeting, unavailable for comment. And then there was the transatlantic call which required the supervision of a Goldman lawyer, located at lunch in New York. All terribly polite, blandly uninformative, and with the pretence that if Goldman was involved, it was almost an impertinence to question it.

And so on, and so forth. Almost everywhere you went in the City, people would suggest privately that Maxwell was headed for a fall. If you dared to suggest to anyone in authority that something was not quite right somewhere with this man who had been damned in an earlier DTI report, down came the shutters.

No-one who could do anything wanted to know. And yet they all knew – it had been there in black and white, if anyone cared to re-read the DTI report.

And they were there again, the big names, in the Mirror flotation. Maxwell told me at one press conference that I understood nothing of accounting when I pointed out that one of his answers blatantly contradicted what was there in the fine print of the document. The expensive advisers, some of the finest in the City, chuckled. Not one indicated that he, too, could understand what was written for all to see – if they cared to look. Afterwards, they smiled at me, and joked. Silly boy, how could he question such things?

Pointless for me to go on. What I mean to say is that, where money changes hands, it is unwise to assume you can rely on the City establishment. No matter what the code, how carefully the accounts are certified, how grand and glorious the great glass atrium, when it comes to pocketing the cash, far too many in the City can be persuaded to see things slightly differently. Oh they are all innocent, the boys and girls who took the Maxwell shilling, poor feckless things.

Of course you cannot disbelieve everything, distrust everyone. Most City people are honest most of the time – which leaves an awful lot of room for wriggling around the edges. Above all, use your common sense and value your instincts. If it seems wrong to you, stay away, no matter how mighty the name.

If it is difficult, the authorities would rather not bother. The last thing they want is the time, trouble and expense of wrangling with highly-paid lawyers. The rules might be in place and terrify the little people, but the big boys will take the battle to court. So much trouble, that. Look, even now, how they rush to close down trivial financial websites, yet nodded through the extraordinary fudge at Equitable Life.

Never look to any regulator for help. Too late by the time you discover it is wrong. You are on your own then, unless it is a monster scandal. Then it will take years to resolve (how many Maxwell pensioners have lived to see this report?), and will never come out quite right for you. Too many high-powered, highly paid people will be rushing to cover their own backs to bother about the smaller players.

Do not be convinced by big names. They might mean something, they might not. It really is impossible to be dogmatic. Above all, ask questions. See if the answers make sense to you. Defer to no-one until you are convinced they deserve that deference. If something does not sound right to you, good enough. Leave it. The money you will risk by taking something on trust, assuming that someone in the City must know better because they are part of the real team, is your own.

We all make mistakes, of course. One of mine has been to give company promoters a second chance. This spark of naïve generosity has almost always ended up burning me. I had seen too much of Maxwell in action to give him a second chance. And I had the original DTI report into Pergamon. They rarely change for the better, these bad boys. Remember it when you come to check any prospectus, any new issue. Look in the back for previous convictions, previous involvement in problem companies. And do not be persuaded easily that it was a one-off.

That rule is so easy for the private investor. If in doubt, stay out. There are thousands of other companies to invest in. Try one without an obvious question mark.

And despite the nonsense about proper corporate governance, it so often happens that one man drives successful companies, as well as the dubious ones. Individual integrity counts. If there is a black mark somewhere in the background, not necessarily in the company the man is driving, be warned. Do not count on the other directors, the auditors, the authorities, to keep him on the straight and narrow. Walk away.

Assessing the advisers is tricky. It was with Maxwell. But S.G.Warburg stayed away. Other relatively big names rushed in. Goldman? Well, American banks over here have always specialised in aggressive pricing – the emphasis on making millions has often appeared excessive. It is hard now to find any big investment houses which are not foreign-controlled. But the Americans have a rougher, tougher approach to the private investor – if they ever notice that they are there while they steamroller on towards the next billion bucks.

It is truly amazing now to read now that Goldman never really realised what was going on with Maxwell. These, surely, were the real masters of the universe, come to reside in Fleet Street and teach us how investment banking was really done. Now, though, we must believe that they never really understood what the old rascal was up to all along. I think I did.

I do hope Goldman’s massed multi-millionaires know what they are doing now. But I would never, ever wish to subscribe for any new issue which they are backing, just in case.

Nor would I wish to take anything from the likes of Helen Liddell, Lord Donoghue, Geoffrey Robinson, Peter Jay, Peter Walker, Charlie Wilson or any of the others who demonstrated the quality of their judgement by sitting alongside Maxwell.

Obviously, I expect no-one to allow a word I say to go unchallenged. Best of all, though, invest £45 in a copy of the DTI report, and read it, carefully. I have not seen it yet, but I make a point of reading these reports. They are rushed to the press who have to skim them quickly for the next day’s papers, and can scarcely do them justice.

It is amazing, though, as you plough through them, how the lies seem to leap out of so many apparently respectable mouths. And how you come to realise that things are very rarely as you see them presented in public. They can be hard going, but they leave most investment primers looking lame.

They come closer than anything else to giving a glimpse of the inside. That might sometimes be unedifying, but it can be an enormously valuable lesson in how the City and the investment game really works. Private investors, never get beyond mere dealing fodder.

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