Metal Men: Marc Rich and the 10-Billion-Dollar Scam

by A. Craig Copetas

  Dapper Doug’s insight and reputation had made him one of the commodity world’s most popular sounding boards during marketplace freak shows. Zebby James, Lee’s fiery Irish blond assistant, was assuring panicked traders from around the globe that her boss would be more than happy to take their calls if they could only hold on and lower their voices. After a few minutes of brisk conversations, Lee had persuaded metal men in Germany, Japan, Spain, France, Italy, Switzerland, and Hong Kong — and a drunk specialty steel-maker in Sweden — that Reagan was most likely alive and that “some bozo” in New York was probably long on silver and wanted to push up the price and get out of the position before going off to lunch at the Four Seasons. “I must tell you that no one wants to believe it’s a scam,” Lee explained while fondling a Valentine chocolate bar fashioned to resemble a bar of Crédit Suisse gold bullion. “These things happen all the time, and the result is always the same. A few people are going to go home tonight with a great deal of money, and a lot of people are going to visit a bar to drink away all the losses.”

  “If I’m wrong,” Lee added impishly, “you can buy me a double vodka and tonic after the silver ring closes because I won’t be able to afford it.”

  Ronald Reagan rose from the dead at approximately 4:47 P.M. GMT, and Dapper Doug Lee sauntered past the pub on his corner and drove his metallic gray BMW to Harrods. The stroke that felled the president and elevated the closing gold price to $379.75 an ounce, a healthy $2.50 higher than the day before, turned out to be a brilliantly executed scam by a few gold and silver traders in New York acting under orders issued from high atop a Swiss mountain. The rumor was ignited allegedly to raise the price of silver (which in turn raises the price of gold) because the company was long on silver and the price was falling steadily. Reagan’s death bolstered the silver price nearly 20 cents an ounce — a substantial price jump for the metal men, for whom a minimum silver contract constitutes 10,000 troy ounces. And why not? Spinning yarns to exploit unwanted assets has been a cornerstone of the economic system since Rumpelstiltskin.

  “Whoever started the rumor was very smart,” Lee mused, while poking through a wicker basket of loud polka-dot bow ties on the ground floor of Harrods. “If you get more than one personality involved in starting a market rumor, it adds much more credibility to the scam. I must say some of those pit dealers are real professionals at starting rumors. It’s a lot of bullshit, mind you, but you can’t help admire them in an odd sort of way.”

  “The imagination and taste of people involved in the commodity markets are at somewhat of a low standard,” said a groggy Peter Grote the morning after Reagan returned to the living. “The structure and psychology of the marketplace are not always good. We often do not have the best interests of the public at heart. It is unfortunate that it reaches the level of game playing, but some of us must create these situations, these opportunities, just to get out of positions we should not have been in in the first place.”

  Although the trickery and turmoil that whipped the metal markets in New York and London on February 14, 1984, sounded as legal as offloading Bolivian cocaine at the Statue of Liberty, venality carried the day. An investigation official from COMEX responded to the entire, extraordinary deception as if the illusionary death of a United States president were a natural way for individuals and corporations to remove themselves from unwanted financial positions before lunch:

  “If we investigated every rumor that swept the marketplace for possible illegality,” prattled the COMEX solon several days later, “then all COMEX would ever do is investigate rumors.”

  The price of gold, silver, and most strategic metals skyrocketed that St. Valentine’s afternoon, which slammed the dollar back 1.5 cents in thirty minutes. The day after, cupidity soared when those traders who had bought cheap dollars made small fortunes selling them again.

  “Even the downing of the Korean airliner didn’t do what Reagan’s death did this afternoon,” babbled a trader for Marc Rich International over double martinis at Morion’s, a fashionable club on Berkeley Square where the metal men gather after the market closes. “Shit salesmen, that’s what we are. Two hundred people get killed and gold doesn’t move. Say that Reagan’s dead and we’ll make at least two dollars an ounce.”

  “Who can we kill off tomorrow?” he slurred darkly. More Russian vodka dusted with Italian vermouth primed the dialogue, which was no longer funny; it was an alcoholic black comedy, scripted by a trader scared that forces he could not control would bring a similar manipulated tragedy to one of his own positions the next morning.

  | Go to Contents |

  Part II

  Rags to Riches

  Chapter 3

  “As I recall, Marc has the frame to become a pretty good baseball player, but he never owned a mitt.”

  — A Former Friend

  WHEN THOSE PEOPLE who know Marc Rich try to explain what made the man, they all begin with Antwerp, the city of his birth. At first glance, Antwerp is a curiously silent city. A continuous drapery of thin cloud flutters over its pristine streets, the scud falling gently away into the surrounding countryside. The shafts of sunlight, winter and summer, somberly highlight the petroleum refineries, industrial mills, assembly plants, textile factories, and Old World farms that shutter Antwerp from the North Sea, fifty-five miles down the deeply dredged Scheldt River.

  Antwerp was a town built by cultured men and managed by businessmen. Christophe Plantin, the foremost master printer of the Middle Ages, refined his artistic techniques in Antwerp, printing financial broadsheets for the wealthy merchant class. Masons chiseled the city’s panorama into a picture postcard dominated by a 400-foot Gothic spire; they were also commissioned to construct the bourse, Antwerp’s sixteenth-century stock exchange. Splashes of bright color, in the form of Rubens masterpieces, inject life into the otherwise dull, modern office blocks. The archaic and guttural-sounding Flemish language is still the preferred language of the corner vegetable-sellers, harshly clipped Yiddish the vernacular of the Hassidic diamond arcade, and, when pressed, everyone speaks their own peculiar brand of French patois.

  Antwerp proffers a cleansed beauty, a flavor too bland for one of the continent’s melting pots. The piquancy that enlivens business cities such as New York and London has been scrubbed out of Antwerp, leaving a homogenized life for businessmen, who roam the lunchtime harbor like owls, listening to the grinding purr of anchors being mechanically dragged back aboard ship. But the inscrutable sterility of Antwerp lends itself to the conduct of business. The city is a temple of learning in that respect, an imposing fortress of silence where business can be noiselessly transacted, prudently understood.

  Before World War II, David Reich had come from Frankfurt, Germany, to join the thousands of Antwerp’s Jewish merchants, a massive enclave of struggling dealers who were constantly importuning the rich Ashkenazi traders for a slice of the industrial trade they controlled. David Reich was not a wealthy man, nor a member of that small band of elegant Jewish businessmen who would flee, impeccably dressed, aboard luxury steamers, the sound of invading Nazi jackboots. David Reich was a low-level trader pursuing one of the few occupations offered to Jews: buying and selling anything available that would turn a profit. It was a business born in the back alleys of the Industrial Revolution, in the effluence of factories, where tired and oppressed Jewish merchants pulled junk-laden wooden carts in the hope of making a few coppers by selling scrap or a discarded bolt of soiled cloth.

  Jewish traders, many of whom constructed empires from selling their wares off rickety barrows, were known as rag-and-bone men, the characters who would arrive at the back door or the factory gate to scoop up whatever had been thrown out. In the process, the tribe of rough-and-tumble traders developed an international network of buyers and sellers, ultimately making them sought-after middlemen to supply goods such as metals, leather, cloth, and gems. But success did not come easy to men like David Reich. Trading was, and remains, a heartless, sometimes vulgar game peppered wi
th heavy-mannered and bare-knuckled business techniques that taught the Jewish merchant how to survive, above all else.

  Pelikaanstraat, Antwerp’s most famous commercial street, bears witness to the city’s deep Jewish trading roots. Hugging close the ancient facades, elderly Orthodox Jews in fur caps and ear locks scurry between buildings with cases and pockets full of diamonds. The business of diamonds, like all businesses in Antwerp, is not showy. The swirling tempest that hallmarks the North American diamond market center on Manhattan’s 47th Street would be out of place here. Business in Antwerp is swaddled in silence. Negotiations are conducted in quiet back rooms, behind inviolable doors, and with the utmost of discretion. The lessons of doing business in Antwerp were uncompromising, and David Reich would insist that his son understand their ruthless dynamic. It was into this life that Marc, the only child of David Reich and Paula Wang, was born on the afternoon of December 18, 1934. It appears that Marc spent most of his youth alone, following the lead of his strict parents who had few close friends. It was a childhood of anonymity, shattered only by the domineering presence of his father. The overbearing influence David Reich had on his son was more than an inheritance; it would come to settle over him like an ever-present shadow of a statue.

  Like thousands of other impoverished Jews fleeing the Nazi nightmare, the Reichs made their way to the United States sometime in the early 1940s, first landing in Philadelphia. With the help of a Jewish placement agency, the family was soon resettled in Missouri and their surname Americanized to Rich. The first glimpse of Marc Rich’s life in America appears in 1944, when the Richs moved into a first-floor apartment at 4404 Holly Street in Kansas City. Former neighbors recalled that the family was laconic and entertained few visitors. Marc, who then spoke only French, was enrolled in the E. F. Swinney Elementary School, a typical inner-city school infused with a culture his father would never permit him to understand fully. Rich’s parents ruled his life with Old World determination: Marc was their son first, a Belgian Jew second, and an American kid last — and only if he had the time. But there was little time. His hair the proper length, his clothes never muddy from the playground, Marc Rich moved on to Westport Junior High School. And although he became a United States citizen on St. Valentine’s Day, 1947, his life at Southwest High School in 1949–50 was not an endless summer of malt shops, football games, and cheerleaders in the back seat of dad’s DeSoto.

  Marc Rich did, however, become a Boy Scout; thus the summer of 1949 found him at Camp Osceola in the Ozark Mountains. “He kept to himself,” remembered Calvin Trillin, a New Yorker magazine writer who, as a teenage camper, lived for two weeks with Rich in the same “chigger-filled” tent. “Skipper Macy ran the camp, and one day after lunch he started off on one of his famous campfire talks. The topic was languages, not one of your normal subjects at Camp Osceola, and he started asking if anyone there could speak more than one language. Rich put his hand up. The Skipper asked if anyone spoke three languages, and Rich again put up his hand. Rich just kept raising his hand as everyone looked on in amazement. As I recall, he spoke French and German.”

  “The funny thing is that Rich was the quietest kid at Camp Osceola, and he’s the only fellow camper I remember,” Trillin added perplexedly. “There was just something about him.”

  The student from Antwerp who spoke three languages made no lasting impression on the high school teachers and students of Kansas City. School records indicate that Rich was an “inferior to mediocre” student, participated in no activities, and attended few classes. His classmates at Southwest High School, some of whom are pictured near him in the yearbook, have absolutely no recollection of the lanky, bushy-haired kid. “It’s hard to believe that a guy could have come through Southwest and have little contact with his classmates,” mused Marvin Rich (no relation), who graduated from Southwest in 1952. Marc Rich, by all accounts, lived his high school years in solitude, a teenage ghost.

  Rich’s father, meanwhile, in 1946 used what little money he had brought from Antwerp to open the Petty Gem Shop, a cheap costume jewelry outlet on Kansas City’s East 11th Street. He upgraded the Petty Gem Shop into a wholesale jewelry distribution center in 1948 under the name Rich Merchandising Company and moved his headquarters into the linoleum-floored Sharp Building. “I had no idea who was working in that office,” remembered Victor Prudden, an optometrist whose office was located across the hall from David Rich’s suite. “That man made no impression on me.”

  By the late 1940s, the family, armed with a $10,000 bank loan, purchased an $18,000 red brick house at 429 East 72nd Street. Long-time residents of East 72nd Street, like everyone else in Kansas City who had any contact with the immigrant family, said that the Richs made no lasting impression. “As far as I am aware,” recalled one Jewish woman who lived near the Rich home, “the family never involved itself in the Jewish community.” On May 16, 1950, the Richs sold the house and moved to Queens, New York, departing Kansas City as quietly as they had lived there. It was a solid and practical European posture. The family asked no questions and sought no answers from the culture that a distant war had forced them to adopt. For David Rich and his family, Main Street was replaced by Pelikaanstraat the moment the front door was closed.

  David Rich had left Missouri with his family to enter into partnership with Bronx businessman Maxie Korngold. Rich and Korngold managed the Melrose Bag and Burlap Company, a trading firm that imported Bengali jute to manufacture burlap bags. The Melrose Bag and Burlap Company, like everything else in David Rich’s life, was enveloped in silence. The company never even joined the Bronx Chamber of Commerce, something that the chamber considered “odd” in a community where membership came with the address. Melrose Bag and Burlap was the foundation for David Rich’s varied and successful business ventures. Within ten years, profits from Melrose would allow Rich to expand into retail fashion jewelry, spare car parts, and tobacco speculation. He made frequent trips to La Paz, where he eventually teamed up with Bolivian businessmen to form Sidec Overseas, a diversified agricultural trading company selling everything from flour to bicycles to sewing machines, to the landlocked Andean nation. In the late 1950s, Rich plowed Sidec’s trading profits into a banking venture and started the American Bolivian Bank with his Bolivian business partners. “He was very personable, caring, and extremely intelligent,” one of Sidec’s former employees said. “He started with a small department and jewelry store in Kansas City and became a man of means.” David Rich did not agree with the culture swirling around his family in the wealthy American paradise of Queens, where he had installed them, but he became an American millionaire, the embodiment of the immigrant’s dream.

  At first, however, Marc’s future did not seem as bright. Poor grades and a uniform lack of distinction at Forest Hills High School prompted Rich’s parents to enroll their son in Manhattan’s Rhodes School, the prep school known to New York City as a “rich man’s reformatory” from its subway-car advertisements proclaiming “Be a Rhodes Scholar.” Records from his senior year at Rhodes suggest a bright student, one who did poorly in math but presided over the French club. Observing Rich in a 1952 classroom report, one apparently clairvoyant teacher described the “shy” student who would become the most dominant and commanding trader in modern history as “purposeful, actively creative, strongly controlling, deeply and generally concerned, assuming much responsibility and exceptionally stable.”

  “Marc Rich took his education extremely seriously,” Don Nickerson, Rhodes’s present headmaster, advised. “His record shows a very ambitious young man who under today’s standards would be a straight-A student. It’s funny though; here’s a student who had one hell of a time with math going on to become a millionaire.”

  The kudos did little to fire Rich’s personality or endear him to fellow students. “Marc never had many friends,” remembered one of his classmates at Rhodes. “He was always alone, he kept to himself, the kind of kid you’d want to poke fun at.” The evaluation of Marc Rich — earnest,
conscientious, and essentially dull — was not a result of Rhodes training, but an immutable product of being the only child in the household of David Rich. His life was different, punctuated with German, a relentless language of command, the language of the trader. “I always had the impression that no matter how much his father loved him, the relationship was more along the lines of master and apprentice than father and son,” explained a New York City jewelry dealer who knew the family. “You could sense the pressure whenever you were around them.”

  Marc Rich was graduated from Rhodes and, with his father footing the bill, entered into the four-year marketing program at New York University in the fall of 1952. By all accounts, the halcyon quality of Greenwich Village in the fifties escaped Rich totally. He had been raised to be a trader because his father had been a trader and his grandfather had been a trader and that was all he knew. New York University bored him quickly. His chance to get out came in early 1954.

  Philipp Brothers, the largest raw-material trading company in the world, was scouring American universities for young men they could snatch and mold into lehrlings — the Yiddish word used to describe young men apprenticing to be traders. The man in charge of the program was Henry Rothschild, who, like everyone else at Philipp Brothers, had escaped the Nazi holocaust.