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

by A. Craig Copetas

  Lichtenstern passed out cold on the sofa, but the first thing he asked for on regaining consciousness a few hours later was where he could get his hands on a two-ton container of Zimbabwean banana grass. He soon developed a sophisticated taste for recreational drugs, particularly exotic marijuanas and Peruvian cocaine. He toted his stash around the world in a leather briefcase, securing his five Thai sticks in pen loops. (Thai sticks are a powerful Asian-grown marijuana entwined securely around a five-inch bamboo sliver.) On a shopping trip to a luggage store, he had a salesman customize a case so that it could hold cocaine with more fiendish economy. “Robbie like to say that his briefcases were designed to ‘carry more dope than documents,’ ” a London trader recalled.

  Robbie Lichtenstern tested taboos. Driving recklessly through the streets of Rio de Janeiro with another Marc Rich trader and two women one evening in 1979, Lichtenstern heard the blare of a police siren catching up with his rented car. Before pulling over to the curb, he handed a vial of cocaine to the women sitting next to him, assuring them that he would take care of everything if their party was busted. The police discovered the stash and took the passengers to a jail. The women were nervous — drug laws in Brazil are harsh — but Lichtenstern merely telephoned a minister in the military government who had helped him buy Brazilian metals. Since Lichtenstern was an important source of the American dollars needed so desperately to help pay off Brazil’s foreign debt — the world’s biggest — everyone was released. No questions asked.

  Drugs were used by traders in the Marc Rich organization to blunt the stress of twenty-four-hour days on the theory that simple deceleration would lighten the pain. But it was a different sort of tension that Lichtenstern began to speak of privately to intimates in 1983. “Robbie complained that selling your soul to Marc was a condition of the contract,” a trader who worked closely with Lichtenstern remembered. “He wanted a way out.”

  “It got to the point where Robbie felt there was too much pressure and it wasn’t worth it anymore,” said Robbie’s adopted brother, Warner Kolb. “He talked about that quite a lot.”

  Added one of Rich’s shareholders: “It was the oil money that made everybody crazy. There was so much money that Marc, Robbie, everybody in the firm lost touch with reality.”

  What was happening to the lives of Marc Rich traders was not a problem of simple overindulgence. It was about balance, about karma, about people who became inflated and vulnerable from breaking all the rules, not anticipating that they themselves could be broken by them. Robbie Lichtenstern — the lovable scoundrel who became the greatest trader at Marc Rich and the “guiding spirit” of its ambitious rank and file — was just coming to understand the ubiquitous danger of the Marc Rich organization when he died abruptly in the intensive care unit of a Zurich hospital on June 30, 1984.

  The coroner said Lichtenstern was killed by a cerebral hemorrhage that had hit him in a hotel room three days earlier, adding that if he had survived, he would have been blind in the right eye, his body frozen in paralysis.

  He had just turned forty-six years old.

  Two London call girls — on whom Lichtenstern had spent more love than money — stood alone outside the brick pavilion of the Reformed Jewish Cemetery in London and let the faint July breeze dry their tears. The rabbi revealed that Robbie had told her a few months before that he would not lead a long life. She added during the eulogy that “Robbie was high on life.” One of the Heavy Metal Kids pushed his tears away with a clenched fist and strained to chuckle that “Robbie was high on everything.” The Pound Lane gravedigger leaned against his shovel and said that the size of the grave was extraordinary to accommodate the casket’s girth: Robbie Lichtenstern always disliked dieting.

  “Robbie was running too fast,” said another Kid, unable to come to grips with the passing of his pal. “He’d been losing it the past few months, screwing up deals … he didn’t care. I think he wanted out … no one quits Marc Rich.”

  In life, Robbie Lichtenstern was the architect of Marc Rich’s fabulously profitable bauxite cartel, the trader who made his boss the world’s most powerful broker of aluminum, a fact evidenced by the flowers and written condolence sent by Edward Seaga, prime minister of Jamaica.

  Denise Rich attended the funeral, escorting Robbie’s widow, Angela, and their two children out of the chapel. The doges of the international commodity industry were at the Fourth of July funeral, too — nearly three hundred of them, coming in limousines and a convoy of thirty black London cabs.

  “Bastards!” one of the Heavy Metal Kids snapped when he saw Felix Posen, manager of Rich’s London office, begin talking about the future of the company’s aluminum book with a member of the Inner Circle. “Fuckers! It’s another fucking business meeting.”

  It seemed that the only two people in the commodity business who failed to appear at the Pound Lane cemetery were Marc Rich and his sidekick, Pinky Green. Oddly, they were not conspicuous in their absence, except to the man from the United States Justice Department who crouched uncomfortably near a gravestone, photographing the mourners. Along with the nervous Scotland Yard inspector beside an arbor, only the man holding the camera believed Rich and Green might come to lament the company’s top trader with the rest of their fraternity.

  Marc Rich and Pinky Green were in Zug and had no intention of braving its border to pay final tribute, even with their new non-American passports. They were not absent because of embarrassment at publicly mourning a man to whose death the company’s inertia had contributed. The pair had buried traders before. The situation was more delicate. Rich and Green were wanted men, on the lam from a fifty-one-count indictment accusing them of racketeering, mail and wire fraud, tax evasion, conspiracy, price fixing, and possible charges of treason stemming from the violation of a trade ban with the Ayatollah Ruhollah Khomeini.

  They had been charged, in great part, under the Racketeer Influenced and Corrupt Organization (RICO) statutes — laws that were enacted specifically to handcuff major dope dealers and businessmen like Al Capone. All in all, the burial of Robbie Lichtenstern was reminiscent of a Cosa Nostra funeral, with mourners who would all make splendid witnesses for the prosecution.

  | Go to Contents |

  Chapter 15

  “Confusion is a word we have invented for an order which is not understood.”

  — Henry Miller, TROPIC OF CANCER

  AS THE OLD Panhandle oil fields of scrub brush and shit-kickers gave way to the modern world — designer mesquite and $1,800 alligator boots — the business of oil, too, changed. Oil lost its frontier luster after the Arab embargo. It became a business of gluts and deficits, of write-downs and interest rates, all revolving around a legacy of depletion allowances and scumbled regulations interpreted by expensive lawyers and specialized accountants. The only real action was left to the crooks.

  There were six oil price disruptions during the seventies, and each one of them was invigorated by government regulations to control the price and production of American oil. Between 1973 and 1981, fumbling federal laws were enacted to create specific classifications for American oil, with specific prices assigned legally to each classification. These laws, which centered on how long an oil well had been producing prior to the regulations, were created ostensibly to relieve the financial burden high oil prices were placing on the American consumer. The system was an expensive farce.

  There were three oil groups: old, new, and stripper. So-called old oil was crude being pumped at or below a 1972 production level. The new federal laws required “old” oil to be sold cheapest of the three. “New” oil was crude from wells opened since 1973 or crude from wells producing in excess of 1973 levels; it could be sold at a higher price. The highest-priced oil was stripper oil — crude taken from wells pumping an average of less than ten barrels a day. Stripper oil sold for the highest price, being the only one free from price regulation.

  The regulations were administered by the Department of Energy, but bureaucratic bungling all
owed unscrupulous traders the opportunity to take illegal, short-term profits by simply passing slips of paper through a series of bogus oil brokers. The procedure was known within the industry as “flipping the price,” or by its more popular term, “daisy chaining.”

  Each reseller added a markup of 25 cents to $1 a barrel, then sold the oil to the next link in the daisy chain. Somewhere along the chain, a broker illegally relabeled the old oil as new or stripper oil, and paid himself a huge markup for his risk. Once this oil reached the hands of the final broker, it was disposed of at whatever price the market would bear.

  Since old oil was forced to sell at around $6 a barrel, dealers reclassified old as new, then offered customers crude petroleum that would legally sell at $6 a barrel for anywhere from $25 to $40 a barrel.

  American oil companies buy, sell, and refine oil into gasoline and other petrochemical products. The refineries are engineered to process certain grades of oil, some of which must be bought from outside the United States; thus, a certain amount of foreign oil is needed regularly. If foreign oil can be bought cheaply and an oil company already has a sufficient supply of that grade, it will be glad to buy and resell it at a profit. In any case, it has no choice but to sell its domestic oil to a domestic or foreign refinery that can process those grades. Therefore, a major American oil company must both buy and sell oil.

  This circumstance, the context of the oil crisis, and the new federal regulations, opened a door as large as a bank vault for the crooks. The basic scam was this: A trader bought OPEC oil, for example, at a higher price than the official OPEC price (there was an oil drought under way) but lower than the true market price, i.e., spot prices. This satisfied the nationalized foreign oil companies and, when the trader sold it to an American firm at a price still under spot, pleased the refiner. In exchange, the American oil company would sell domestic old oil — the $6-a-barrel variety that it wanted to dump — back to the trader at a slight discount (say, $5 a barrel) so the trader could pipe it into a daisy chain, where it would be fraudulently relabeled and shot out the other end at a price close to spot (say, $35).

  By 1978, the Department of Energy was unable to account for over two hundred thousand barrels of old oil that was vanishing from the government accounting system each day. This phenomenal figure — which between 1973 and 1981 added up to 400 million barrels of old oil — was reached by comparing the amount of old oil bought at the wellhead with the amount of old oil that arrived at a refinery. At a congressional hearing investigating the malfeasance and indifference of the Department of Energy in regard to daisy chaining, Michigan Congressman John Conyers, chairman of the Subcommittee on Crime, asked a federal prosecutor familiar with the scam to estimate how much of the American dollar paid at the gas pump was traceable to profits from daisy chaining. The witness, attorney Marvin Rudnick, said, “You can make an estimate that two-thirds of the 92.9 cents I paid for gas in Tampa last week could be the subject of that type of crime.” Between 1974 and 1978, consumers had been cheated out of at least $2 billion. Something was out of whack.

  Energy Department auditors cottoned on to what was happening in 1980. They figured out that a new clique of traders was discounting foreign oil to the major oil companies in return for old oil, which the traders marked as new oil to be sold at the highest possible price. The oil companies, meanwhile, were the cooperative producers who gave the appearance of doing nothing illegal; they were just selling their domestic production in accordance with government guidelines. And all the bureaucrats saw at first was a chaos of paper, unaware that one man’s confusion is another man’s devious system.

  The light eventually shed on the conspiracy was foggy, at best. Before the Arab oil embargo, there were only twelve oil resellers in the United States. By 1978, there were five hundred companies pimping old, new, and stripper oil. Many of these outfits reclassified documents of origin and then resold the oil for whatever refineries were willing to pay. Since there were long lines of gas-station customers prepared to pay any price to fill their tanks, refiners were willing to shell out a hell of a lot. The Department of Energy decided to slap a limit of 20 cents profit per barrel of resold oil, a directive that merely caused the daisy chainers to hide their profits, because they continued to sell their oil at the highest possible price.

  David Ratliff and John Troland were two Texas oil laundrymen who were wringing huge profits out of the daisy chain. In 1979, they formed West Texas Marketing, an Abilene company that bought and then resold domestic crude to whoever knocked on their office door. One of the Texans’ first visitors was Marc Rich, who had just been initiated into the rituals of the modern American oil business through a joint venture with Denver oilman Marvin Davis, his partner in Twentieth Century–Fox, to purchase wells in Louisiana and Oklahoma. “The company was thriving at the time, and we had no need to make money by buying domestic wells or daisy-chaining oil,” one of Rich’s senior oil traders explained. “But Marc and Pinky saw others making a fortune out of daisy chaining and decided that they’d be able to get away with it.”

  “Pinky really instigated the idea. He wanted to muscle in on the domestic oil business and convinced Marc that we could do it. We had recently finished an oil deal with South Africa that screwed them out of an extra $400 million on about three or four shipments. Marc said the South Africans didn’t complain, so why should anyone else?”

  Troland and Ratliff were Rich’s kind of folks — unethical and greedy. They also needed help in financing West Texas Marketing through a bank that would be more understanding of the particular needs of trading on a tightrope. Rich introduced them to Cie Financière de Paris et des Pays-Bas, the huge French bank that financed and grew fat off many of Rich’s Third World commodity deals. “Troland and Ratliff came in for a meeting,” recalled a senior Rich executive. “Marc and Pinky listened because there was a deal to be made. About one-fifth of our business was in the United States, and Marc saw West Texas Marketing as another way to increase our presence.”

  Rich and Green also arranged in 1979 for Arco to sell 18 million barrels of old Alaskan oil to a bogus Listo Petroleum, a Houston-based daisy chain tended by Clyde Meltzer. That oil was reportedly spun around as many as sixteen separate subcompanies; Arco had gladly piped their oil to Listo in return for Rich’s supplying Arco’s refineries with hard-to-get foreign crude.

  The next step in the daisy chain was for Rich’s Swiss company to resell the relabeled oil back to Listo or out to West Texas Marketing at the current market price. The buyers then sold the oil to one of Rich’s secret Panamanian companies at a loss. The amount lost was recaptured when Rich’s Panamanian company immediately sold the undervalued oil at the full market price to an outsider in what would be the final transaction in the daisy chain. The profits from these deals — that is, the amount “lost” and recaptured in the last two moves — were deposited in offshore accounts owned by secret corporations controlled by the principal links in the daisy chain sequence. It was a precise paper scam: While the oil never physically moved anywhere, the money always clustered outside the country.

  By 1980, West Texas Marketing was generating over $2 billion a year on oil. Their average daily volume was three hundred thousand barrels, much of it coming directly from Arco. Marc Rich International was responsible for some 10 percent of West Texas Marketing’s sales and was angling for more by Christmas. Troland and Ratliff were enormously pleased: They paid themselves $750,000 apiece for 1980 and celebrated their good fortune by throwing a Christmas party for their employees and business friends. Learjets whisked all over the country to fly the company’s customers to the Abilene Country Club. Expensive gifts and envelopes stuffed with year-end bonuses were passed around like so many Cheez Doodles. Troland, the chairman of West Texas Marketing, presented himself a prickly ostrich-skin jacket and matching boots; Ratliff decided on a dune buggy. Marc Rich went skiing in St. Moritz.

  The gravy train derailed in March 1981 when Justice Department attorneys, investigating
forty-seven separate cases of daisy chaining worth over $79 million, discovered that Troland and Ratliff were involved in a 1979 con (unrelated to Rich) to recertify controlled domestic oil. The high-flying Texans were shot down and sentenced to fourteen months in a federal prison camp in Big Spring, Texas. But a few days before they were to begin serving soft time, Troland met Rich in Manhattan to divvy up their loot. There was much confusion over just how much cash was in the Rich–West Texas Marketing treasure chest of illegal deals. Rich claimed that some of the records were missing; others had stains covering important figures; many critical details had disappeared all together. Rich and Troland argued, some say violently. There was only a few million dollars in the pot, much less than Troland had been led to believe. Arrangements were made to split the cash offshore. Troland went to prison an angry man.

  Troland and Ratliff were flown to Washington in May 1981 to be interrogated further by Justice Department attorneys on what they knew of other daisy-chaining scams. A few weeks after their visit to Washington, federal marshals accompanied them to Houston, where they were questioned by Sandy Weinberg, a thirty-year-old federal prosecutor from the United States Southern District Court of New York. Weinberg asked the two men if West Texas Marketing had ever helped another company avoid paying taxes by handling money for them. Troland and Ratliff, hoping for a deal, said “Marc Rich.”