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

by A. Craig Copetas

  Rich told Gerard Demanget to stay put and to make sure that he dodged the bullets on the way to the office because there was business to be done. Rich figured that Khomeini — who had just overthrown a government that depended on petroleum for over 90 percent of its export income — needed to sell oil just as badly as the Shah and that he could probably purchase it cheaper since President Carter and other Western leaders had instituted a trade ban against Iran in response to the American hostage seizure. There was one hitch: To trade with Iran was now a criminal offense, possibly high treason against the United States. A few of his traders warned him that the public, at the very least, was against any American’s doing business with Khomeini’s gang of Shiite thugs, including many people in Rich’s own office. Rich and Green viewed criticism of their plan to do business with Iran as a sign of weakness. Rich turned to his years in Spain to help formulate a plan. Torkild “Cap” Rieber, the gutsy boss of Texaco during the thirties, had shipped $6 million worth of oil on credit to General Franco during the Spanish Civil War. And when Franklin Roosevelt threatened him with indictment for violation of the Neutrality Act, Cap Rieber sent Franco Texaco oil through Italy. Franco won the war, Rieber grew fatter, and Roosevelt soon forgot about the whole matter. Marc Rich would do the same thing, except he would buy instead of sell, filtering payments for the Iranian crude through Marc Rich + Co. AG, his Swiss company. Rich, confident that his plan would succeed, ordered Demanget to start buying oil from the new proprietors of the Iranian National Oil Company … take them out to lunch.

  The daring endeavor paid off, Rich insiders indicating that the company paid for much of the Iranian oil in weapons — particularly small arms, automatic rifles, and hand-held rockets shipped across the Indian Ocean from Thailand and through the Suez Canal from Spain. “My impression was that any arms deals were conducted by Rich and Green alone,” advised a senior Rich executive who worked in London during the hostage crisis. “The procedure would have been for us to purchase weapons outside the United States or act as the representative of a foreign manufacturer.”

  “You would have thought we had our own pipeline into Iranian wellheads,” said one of the Rich managers who monitored some of the oil deals with the Khomeini regime. “We bought millions and millions of barrels from Iran during the hostage crisis. When the price of oil went up to $40 a barrel in the fourth quarter of 1980 we were paying around half the world price in Iran. Rich got more excited than I had ever seen him.”

  “Marc dealt his way out of the Iranian revolution by taking his life in his own hands,” said Hubert Hutton, his former colleague at Philipp Brothers. “If anyone was capable of screwing over Khomeini, it was Marc. He knew how to do that.”

  The trades grew grander in style, richer in bounty, potentially deadlier in execution. When on the hunt, Rich was the consummate charmer. He entertained at his lavish oceanfront home in Lido Beach, Long Island, or in his Park Avenue apartment that once belonged to cosmetics queen Helena Rubinstein. Limousines were dispatched to collect clients for intimate business gatherings catered by the finest chefs money could buy. Green, who rarely ate anything other than melon and black coffee, stayed in the old Brooklyn neighborhood, entertaining his clients over fat pastrami sandwiches at the best kosher delis in Flatbush. But no matter where he was, the cigars were only Havana, the port certainly vintage, the grand designs always combustible.

  One of the characters on Rich’s international bandwagon was Yuri Igorov, a tough-nosed senior executive of Raznoimport, the Soviet firm that buys and sells metals. Until 1979 Raznoimport had operated solely as an agency marketing strategic Russian metals to the West, with Rich a major overseas buyer of titanium, lithium, cadmium, vanadium, manganese, and a giant’s share of the platinum-based metals used to manufacture the components used in sophisticated weapons and computer systems. Raznoimport’s Kremlin bosses knew the company could generate more hard Western currency if they embraced capitalistic markets as both a buyer and a seller of material. Igorov approached Rich to help fortify a London office where Raznoimport could base their Free World metal trades. Rich, a major purchaser of Soviet oil, rolled out the red carpet.

  “We took real good care of the Russians when they came to London,” one of Rich’s European traders related. “We bought them breakfast, lunch, and dinner. Our limos and cabs drove them everywhere in London. We put them in touch with solicitors, accountants, and Western businessmen who could help in creating the British corporation. We did everything for them.”

  “One of our staff was told to help Yuri find a flat to live in. We thought it would be no problem since the Russians don’t care how much a place actually costs. Turns out that Russians living abroad are allocated a certain number of square meters of living space in relation to their position. Not one estate agent we contacted knew how to figure out square meters so we had to go around London doing it for them. These guys from Razno would come into the office wearing dirty raincoats to pick up someone to go help them figure out how many square meters were in a flat. It went on for weeks because Yuri wouldn’t accept a square meter less than what Moscow said he was allowed.”

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  Chapter 11

  “To survive in Hollywood you need the ambition of a Latin American revolutionary.”

  — Billie Burke,

  wife of Florenz Ziegfeld

  MARC RICH needed a tax shelter. By 1981 his various trades in the United States had sucked in more money — an estimated $1.2 billion in pure cash alone — than many banks controlled: It was a problem that needed speedy action. Rich discussed his cash overload with Marvin Davis, the president of Davis Oil, one of the largest freelance oil operations in America. “Rich and Davis knew each other from a few joint ventures they made drilling for domestic oil,” a senior oil executive at Rich said. “Davis taught Rich everything he knows about the domestic crude business.”

  Davis, a hulking two-hundred-plus-pound wildcatter from Denver who made a fortune digging high-risk wells, convinced Rich that Twentieth Century–Fox would make a nice tax shelter. Rich drew back. Owning a movie studio wasn’t the kind of low-profile investment he’d had in mind. Studio bosses were in the public eye, and that was the one situation Rich could not afford to let happen. Rich’s wife, Denise, thought it was a wonderful idea. She was not the kind of woman to just sit at home raising their three daughters. While in New York, she opened a fashionable boutique on Madison Avenue and spent her spare time writing and singing songs. “Denise wanted to be known in society, dance under some limelight,” said a Rich executive who knew her. “Marc was too secretive for her taste. She wanted to get out and do the kind of things a woman with money can do. They were very much in love, but Denise just wanted a chance to strut her stuff and not have Marc deal with her like he did with people at the office.”

  Davis, who had until then been plotting to take over Fox by himself with some $650 million he acquired from the sale of Beaufort Sea oil wells to whiskey manufacturer Hiram Walker Inc., put the pressure on also because he needed the tremendous leverage Rich had at the banks. “Marvin didn’t have the necessary money to do it on his own,” said an insider to the deal. “If he’d had the capital, he wouldn’t have asked Rich.” On the surface, the buy-out looked good to Rich. Fox owned an Australian theater chain, the Coca-Cola Bottling Company of Minneapolis, a new network of home movie and videocassette distributors, interests in Pebble Beach Properties and Aspen Skiing Corporation, and a sixty-three-acre studio lot in the heart of Los Angeles. “Marc saw all this and decided Fox was a real estate deal,” explained a trader who discussed buying the movie company as a tax shelter with Rich.

  Rich was ready to bite, but only if he could be a silent partner. Davis agreed. Rich formed a Netherlands Antilles corporation called Richco Holdings to purchase 50 percent of the voting stock of TCF Holdings, a private holding company created by Rich and Davis to acquire Fox in the spring of 1981, and to serve as a repository where any profits could be split. In June, the
y formally purchased the company for $725 million. Some $550 million of the purchase price came through lines of credit Rich arranged through a group of eight banks led by Continental Illinois National Bank & Trust Company of Chicago. Rich paid the other $175 million in cash. His ownership of the giant film studio remained secret for six months. “Marc got real nervous when everybody found out that he was the mystery owner,” snickered one of his senior oil executives.

  The irony was that nobody in Hollywood had ever heard of Marc Rich and attempts to discover who he was resulted in dead ends. Davis, on the other hand, was a well-known figure who had made no secret about wanting to add Fox’s lucrative nonentertainment holdings to his portfolio. But unknown to Fox at the time of the purchase, Davis was also keenly interested in making creative decisions on scripts and casting. Marvin Davis wanted to be a movie star. The Denver oilman — a genuine film addict — was enthralled by the Hollywood spotlight and made frequent visits to the Fox lot, eventually purchasing a $21 million (paid mostly in cash) Beverly Hills estate dubbed “The Knoll.” The 25,000-square-foot home, set on ten acres with guest cottages and garage space for fourteen cars, was a movie mogul’s Xanadu and a vivid indication that Marvin Davis, at least, intended to be a very visible studio boss. Rich, however, had little taste for his partner’s public romance with Hollywood and went so far as to refuse a seat on the captains-of-industry-and-politics-studded board of directors.

  But the moment word spread throughout the trading community that Marc Rich owned Twentieth Century–Fox, his customers started calling from all over the world. Rich couldn’t believe what was taking place — calls from the Nigerian Oil Ministry asking for a dozen cassettes of Star Wars and an advance cassette of The Empire Strikes Back; a telex from a Brazilian metal supplier asking if his son could meet C3P0. Rich thought he had purchased a real estate company but soon found out that he owned a piece of George Lucas, the most popular moviemaker of the day, and M*A*S*H, the most popular television series in history. “Marc realized that buying Fox was the best thing he ever did for the trading department,” one of the oil traders laughed. “Everybody loves the movies.”

  Rich directed his traders to let it be known that any customer who wanted videocassettes of Twentieth Century–Fox movies or TV shows need only to ask and they would be delivered. Foreign offices in the Third World were instructed to tell local politicians that Marc Rich was now in a position to help them get deals on movie equipment and would be more than happy to send teams of experts to develop fledgling film industries. “I juiced up an African oil contract by telling an oil minister that if they underpriced me $4 more a barrel I’d have Fox come make a film in their country,” said one of Rich’s oil dealers. “Marc thought it was great for business.”

  Marc Rich was not the kind of studio mogul that Hollywood was accustomed to, but his credentials made him ideally suited for the job. Trading commodities, like making movies, was a speculative venture rooted in human fantasy and susceptible to grand illusion. The movies dramatized people’s fantasies; Rich delivered on them.

  Rich cast Fox in his own movie, used the studio’s assets to help package and perpetuate his own myth. He developed relationships with members of the Fox board, men like former President Gerald Ford and former Secretary of State Henry Kissinger, men he would never approach unless in total command of any situation that might develop from the rapport. In Kissinger he saw a man born to Hollywood and bred in Washington. He was the consummate character actor, always striving to usurp the role of star. Scripts mattered little to Kissinger: The destruction of Cambodia with carpet bombing, the overthrow of Salvador Allende in Chile, and his attempt to upstage Joan Collins when he made a cameo appearance alongside her on the soap opera Dynasty had made him prime time’s most popular star. Kissinger was a believable myth, manufactured under government specification, ready to be molded, manipulated, and traded like any other commodity.

  Kissinger’s first visit to Rich’s office is believed to have taken place after a morning screening of The Verdict, a Fox film, in early 1982. “Marc called him ‘K,’ and to see them together you’d think they were childhood friends,” said a former senior Rich executive who was first introduced to Kissinger by Rich in 1982. “They both came from the same background and they shared an interest in what was taking place around the world. My impression was that Marc just picked his brain for information not generally available. He always grew excited after meeting with Kissinger.”

  Kissinger made at least ten visits to Rich’s office. Sources indicate there were dozens of phone conversations between the two men. The meetings were always between Rich, Green, and Kissinger, held in Rich’s private office and segregated from the rest of the staff. On at least two of those visits, Kissinger brought along copies of his books, The Years of Upheaval and The White House Years, and autographed them for members of Rich’s staff, including Rich’s secretary Ida Levitan. Like a spider encasing flies in webbing, Rich slowly wrapped Kissinger in his intrigues. “Marc was a real sucker for prime ministers and presidents,” reflected an oil trader who met Kissinger while he was in Rich’s office. “He would use anybody.”

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  Chapter 12

  “You can’t underestimate the power of fear.”

  — Tricia Nixon

  THE HUB OF Rich’s amazingly effective organization was his lehrlings, all young men motivated by money and who would do anything for it, no matter how ridiculous or dangerous. It wasn’t necessary to have a trading background to work at Marc Rich. Hiring anyone who possessed “tomatoes” — Rich’s euphemism for testicles — he transformed holiday travel agents (“they can move anything”) into traffic managers, Madison Avenue glad-handers (“they know how to manipulate people”) into metal traders, and the blood relatives of his directors (“they know how to keep their mouths closed”) into office managers.

  “Marc preferred people who could speak a language besides English,” one of his former shareholders related. “But it always came down to whether or not a guy had tomatoes. He’d tell the staff and the people we did business with that they’d never be screwed if they had tomatoes. ‘If you got tomatoes then we can make a deal.’ ”

  The opportunity to deal with fascinating people, the fantastic salaries, the chance to manage offices in faraway places and a mandate to pursue whatever business imagination could conjure up served as glamorous recruiting incentives for dozens of young men. At the other trading houses, inexperienced dealers were usually relegated to the purgatory of a back room, but at Rich the gifted could race as far and as fast as their guts could carry them.

  Prospective employees were interviewed first by Rich and then by Green, both men firing detailed questions on any friendships they might have with traders at other commodity houses. “He despised people who had friendships with competitors that he could not in some way benefit from,” a trader Rich hired from Associated Metals explained. “He always asked if the friendship was really necessary.”

  “He told me I could develop any business that I thought had potential,” a junior trader said, recalling his interview with Rich. “He warned me that I was out the door if I talked about our business to anyone outside the company.”

  “I never encountered such a stimulating environment in my life,” one thirty-two-year-old trader boasted of his five years working for Rich in New York, London, and Latin America. “I was twenty-five when Marc hired me … man, the trading world knew I was part of the crème de la crème.”

  Life inside the Rich organization had the sensitivity of a jackhammer on an open sore. Traders began to sense that their world would go to pieces or become hopelessly dull if they stopped traveling wildly like roving linebackers. Distasteful excesses were encouraged if they helped conclude deals. Life for many traders became a dangerous and massive fascination with the out-of-control power money can buy.

  “It got to the point where I couldn’t go out after work without a $400-a-night prostitute on my arm,” one of Ri
ch’s junior traders brooded. “I was twenty-six and the whole business was driving me out of control. All the young traders in London had money. You didn’t have to work for Rich. But the guys at Rich were encouraged to out-finesse the competition, even if they were our friends. We paid for the cocaine, we paid for the champagne, and, when we were at metal conferences, we paid the brothel bills. It was madness. The logic of it, and I’m only guessing, is that we might pick up some obscure piece of information that might be profitable for Marc. I never really found anything that would make him that much richer. I suppose there were those who did. Many of the guys were afraid to talk so you never really knew. It was part of the paranoid scene.”

  “A member of the Inner Circle once told me to take a lot of petty cash to take some of our South American customers out for whores,” another former Rich metal trader said. “It made me sick. I came back the following morning and told my boss that I would never do that again. I knew right there that my career was over at Marc Rich.”