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

by A. Craig Copetas

  Sandy Weinberg had never heard the name.

  | Go to Contents |

  Part IV

  There was a Crooked Man

  Chapter 16

  “There was a crooked man, and he went a crooked mile,

  He found a crooked sixpence beside a crooked stile.

  He bought a crooked cat, which caught a crooked mouse,

  And they all lived together in a little crooked house.”

  — Mother Goose

  ON THE FLIGHT back from Houston to La Guardia Airport, Sandy Weinberg pondered what he had heard in the Houston hotel room a few hours earlier. He had yet to see any documents, but he knew the sheer dollar value of Rich’s daisy chain would make any litigation against him galactic in scope. Weinberg had an impressive trophy case of successful white-collar criminal prosecutions. He had been with the Justice Department for only five years but had already handled twenty-five criminal cases, more than any other prosecutor in the New York office. A Tennessee hills boy with a long Fess Parker drawl, he was responsible for successfully prosecuting the largest Medicare fraud in history, a decision that sent a doctor to prison for ten years and collected fines of $800,000. He had also helped sanitize the Agency for International Development, cleaning up a situation in which freight shippers were overcharging the agency $50 million to forward food and medical supplies to Bangladesh. “The Rich case would be different,” Weinberg thought as his plane landed in Queens. “I’m really going to have to start from absolute scratch.”

  Sandy Weinberg started drafting a prosecution team in the fall of 1981. It would come to include agents from the Federal Bureau of Investigation, the Treasury Department, the Customs Service, and the State Department. At its core were federal attorneys Jane Parver, Martin Auerbach, and Larry Pedowitz. The elder statesman of the squad was Special Agent #633, Morty Dick, a fifty-year-old Brooklyn Law School alumnus with a .38 caliber snub-nose clipped to his belt. Dick’s Bowery Boy face had seen every hustle and dodge ever invented. He even had a few of his own. His last assignment effectively shattered a movie tax shelter fraud by proving a 108-count federal indictment. “The trick to this case,” he told Weinberg, “is to take the complications and make them simple.” Putting Dick’s advice into action came to be a long, tedious, and ridiculous task.

  Weinberg’s team had no real idea of what they might find. The only certainty was that its lawyers were anathemas to Marc Rich’s trading world. This was particularly true of Sandy Weinberg, an individual whose life was magnetically opposed to the man he was preparing to tangle with. Sandy Weinberg’s real name was Morris Weinberg Jr., but his mother, a Tennessee Baptist who married a New York Jew, convinced the family that their son should be called Sandy. Sandy’s brother was a Rhodes scholar who changed his name to Keda Sari Weinberg after joining a Buddhist ashram in England.

  Sandy Weinberg was schooled during the Tet Offensive and the Watergate Summer, graduating with an understanding that criminals need not look like guest stars on Kojak to be sent to jail. He had experienced an age that gave him a special reason for going after men like Marc Rich, the kind of crooks whose money, power, and political clout obviated any need to holster guns underneath their coats. Weinberg didn’t arrive at the Foley Square courthouse in a chauffeur-driven Mercedes-Benz; he came by subway and walked around the bums huddling for warmth over the steam grates in front of his office. He wasn’t a zealot for social justice, but he had a unique affinity for the little guy; moreover, he knew that Marc Rich was ripping off the system. And that was against the law.

  In the beginning of 1982, a federal grand jury issued subpoenas to John Piskora, Greg Garrick, Dick Mantel, Clyde Meltzer, Robert Aronson, Jim Lancaster, John Harris, and ten other executives working for Marc Rich International in New York City. At the top of this list was John Piskora, one of Rich’s oil traders and the man who first introduced Rich and Green to Troland and Ratliff. Also served with federal subpoenas were Arco oil executives Bill Ariano, Frank Smith, Joe Wortman, and Rus Osborne. By the time the grand jury concluded its investigation, it would have called fifty people to provide testimony.

  Over the next few months Weinberg subpoenaed two hundred thousand pages of financial, traffic, and telex records from Rich’s New York office and convinced Mobil, Exxon, and Shell to turn over further documents without issuing any court order. Weinberg had to navigate through a floor-to-ceiling maze of boxed documents to reach his desk.

  Rich and Green remained in New York, conducting their business from the Piaget Building as if the government probe was of no importance. Their chief lawyer was Washington kingpin Edward Bennett Williams, who, thought Rich and Green, was being paid enough money to contain any problems that might arise out of the grand jury investigation. The only executives squirming were Rich’s oil traders. “We knew that we were dead the first quarter of 1982,” one of them explained. “No one else in the company cared because they had somehow come to believe that the Department of Energy regulations we were being accused of breaking were no longer in effect. What they failed to understand, or maybe didn’t want to understand, was that the government was still enforcing the laws if you broke them while they were still in effect.” Of course, they had probably done more than break a handful of ill-conceived Department of Energy regulations.

  According to Rich insiders, Pinky Green convinced his partner that the government would never indict them. “At first Marc wanted to try and negotiate a payoff, but Pinky talked him out of it,” said one of Rich’s senior European oil traders. “Pinky was really arrogant … treated the United States like a sleazy Nigerian oil minister. You know, let’s out-deal these bastards; they’re just like anyone else we deal with.”

  Sandy Weinberg had other ideas and incessantly recalled Rich employees for testimony in front of the grand jury, offering immunity if they divulged all. Many of the traders called had only a superficial understanding of the daisy chain, but to be offered immunity is to imply guilt. Not sure of what they might be guilty, most of them gladly accepted Weinberg’s deal and handed the team detailed accounts of Rich’s commodity empire.

  Rich and Green grew worried. Although only privileged, ranking insiders had full knowledge of the corporation’s global affairs, it was eminently clear that Weinberg had the subpoena power to construct an indictment that might force Rich publicly to reveal the full extent of his business operations. Edward Bennett Williams visited Weinberg and offered a $100 million settlement if he dropped the pending charges against Rich and Green to misdemeanors. Weinberg said no, telling Williams that “as long as we have Rich and Green, it’s a case of people, not money.” Weinberg’s reaction to the offer floored Rich and Green: they thought everything had a price.

  Weinberg, however, had the ammunition to shoot for something much bigger than any settlement money. Under grand jury questioning, Rich trader John Piskora revealed that he kept a personal log of oil transactions between Marc Rich International, West Texas Marketing, Listo Petroleum, and Marc Rich AG — International’s Swiss parent/protector. Rich, according to sources in his office, was stunned. He apparently had had no idea that Piskora was keeping a record, believing that all dangerous documentation had gone through the office paper shredder or been sent to the safety of Zug. Weinberg churned out more subpoenas, ordering Rich’s Swiss company to deliver “any and all records, documents and other papers pertaining to any and all foreign and domestic crude oil transactions for the years 1980 and 1981.”

  An inescapable spectre of treachery was settling in over Rich’s New York headquarters. Too many people were talking and Rich had to do something about it. He knew that Weinberg would subpoena any traders whom he fired. And if any of the traders who had already testified were dismissed, he would forfeit any opportunity to discover what they might have told Weinberg about the corporation’s activities. It was essential that a façade be erected — make Weinberg believe that it was business as usual at Marc Rich.

  But employees called in front of the grand jury — wh
o had been ensured all the moral and financial support they might require — were beginning to be discriminated against by Rich and the rest of his Inner Circle. Fellow workers would avoid them in the hallways, and they were told not to attend meetings at which they had been scheduled to appear. “It all depended on how much money you made for him,” said a witness who testified in front of the grand jury. “If you made a lot of money for him, you got a personal summons to visit his office to be told that everything was okay.”

  “If you were in a non-money-generating position, then you got the cold shoulder. Marc didn’t want to know about you. You were treated like a piece of shit.”

  In April 1982, Marc Rich refused to comply with the grand jury’s request to turn over documents being held in Zug. His lawyers argued that as a Swiss company, Marc Rich AG was immune from any United States court order. Rich’s position ignited a year of intractable appeals and motions in front of Leonard B. Sand, a federal judge with a white beard and a striking resemblance to Walter Matthau. Rich used his vast cash reserves to pay the best lawyers money could buy — so many defense attorneys that finding enough table space to accommodate them all in Judge Sand’s courtroom became serious business. Over the next two years Rich’s legal staff would grow to include the firms of Edward Bennett Williams; Proskauer, Rose, Goetz and Mendelsohn; Arnold and Porter; Curtis, Mallet-Prevost, Colt & Mosle; Kramer, Levin, Nessen, Kamin and Frankel; Milgrim, Thomajan, Jacobs and Lee; the Swiss law firms of Paul Stadlin, Hans Barth and Rudolf Moismann — as well as Boris Kostelanetz, the brother of composer André Kostelanetz; Peter Zimroth, the husband of actress Estelle Parsons; and Michael Tigar, an attorney who defended the Chicago Seven and the Seattle Eight. Back in Switzerland, Rich and Green were being referred to as the “Zug Two.”

  There was more cash than eloquence displayed during the seventeen motions, six appeals, and 3 million documents argued in courtroom number 128. “Face it, Marc Rich is a golden tit,” said one of Rich’s lawyers, commenting on a story that any third-year law student could telephone Rich, say that he was interested in the case, and be sent a retainer for $25,000.

  Rich treated his lawyers like bears dancing for their supper. The hearings were sloggy affairs designed by Rich to muddle, bedevil, flummox, and take advantage of every legal loophole his cash could unearth. Whenever a particular legal issue became especially murky, requiring everyone in the courtroom to spend a week at the law library, Rich would change counsel so that the whole procedure could be repeated to stretch delays even further. At one twisted point in the hearing, Judge Sand looked down from his bench to see an entirely new set of defense lawyers trying to explain the issues of the day’s hearing to yet another gaggle of new faces. “I will take a five-minute recess to enable counsel for Marc Rich incoming, outgoing, or whatever, to confer with each other.”

  At issue throughout the eighteen months of hearings was Article 273 of the Swiss Penal Code, a clever bit of legislation that supported Rich’s contention that it would be “economic espionage” for his Swiss company to release the documents that Weinberg wanted to add to the government’s collection. Weinberg argued that eleven of the traders employed by International in New York were actually working for AG in Switzerland, and that there was ample evidence provided by the grand jury that documents pertaining to Rich’s activities in the United States were being hidden in Switzerland.

  Judge Sand agreed. On September 15, 1982, he issued a contempt of court citation ordering Rich to deliver the documents or to start paying a fine of $50,000 per business day until they were delivered. Rich’s lawyers flooded the court with appeals and the fine was shelved until May 1983, when the Second Circuit Court of Appeals ordered Rich to deliver a cashier’s check for the full amount on a twice-weekly basis to the Federal Clerk of Courts.

  Trying to circumvent the fine, Rich claimed that to comply with Judge Sand’s order would be to violate Swiss law, but in a great fanfare of accommodation, he loudly urged a Swiss court to rule that Marc Rich AG must comply. Meanwhile, knowing full well that he was one of Zug’s largest employers of Swiss nationals and a major source of cantonal tax revenue, Rich pressured officials in Berne to induce the court to rule against compliance on the grounds that, if he opened his books on business conducted abroad, then every American company with a Swiss doppelgänger could be forced to open its books.

  The situation Rich created was a classic double bind: Which country’s laws should be honored? The fallout from the dilemma stood to disrupt the entire, global marketplace. When the American hostages were locked in the embassy in Iran, President Carter froze all of Iran’s assets in the United States and in the foreign branches of American banks. Although the host governments grudgingly complied, the action opened up an entirely fresh can of worms. What was to be done about Dresser Industries, an American company, if its European arm honored a deal to supply France with equipment with which to construct the Soviet-European natural gas pipeline? How was the Securities and Exchange Commission going to appeal a decision by Switzerland’s highest court not to reveal the names of American citizens who conducted insider trading in connection with the $2.5 billion takeover of Santa Fe International by Kuwait Petroleum Corporation, because insider trading is not a crime in Switzerland? And what about the other grand jury sitting in St. Louis, investigating whether or not International Telephone and Telegraph tried to sell Iran $4.2 million worth of the bolts needed to join electrical wires, via fake bank accounts, false shipping labels, and salesmen with Finnish and Swedish passports?

  Defending the Swiss court’s action in the Rich case in another appeal a few months later, the chief prosecutor of Zug wrote:

  The defendant trades largely (but not exclusively) in crude oil and crude oil products. It trades, as well as all trading firms, in and with countries which are from a political aspect extremely sensitive and which are partially involved with and against each other in political arguments and clashes (for instance, the Near East, South America, Africa, China, the states of the Eastern bloc). In addition, the trade goods, in particular crude oil and its products, but other raw materials in which the defendant trades, are of high political significance. It is not difficult to understand under these circumstances that especially governments or state-operated trading companies prefer to use intermediary trade (such as, for instance, through the petitioner) for trading with other countries. The reasons for this are many: especially the wish to keep the purchase and sales strategies for certain trade goods secret, to cover up contradictions between economic and political actions, or also only to avoid difficulties resulting from the import — export — or trade obstacles raised by individual states. A disclosure of such transactions and their details would have considerable and very disadvantageous consequences for all participants, and not only for the defendant but primarily also for those responsible in the individual countries who may be jeopardized, not excluding physical harm.

  Sandy Weinberg started crawling walls. He told Judge Sand in open court that the whole thing was “ludicrous, contrived, and concocted.” Klaus Weber, the Swiss cantonal court judge who issued the injunction keeping Rich’s documents in Zug, said: “I’m embarrassed by [my] decision.”

  The Swiss court’s order was scandalous by American standards. Rich was represented in Switzerland by Rudolf Moismann, the chief prosecutor for Canton Zug, who was also a director of Marc Rich AG, as well as thirty-three other foreign firms registered in Zug. Peter Hess, Moismann’s chief assistant, sat on twenty-six corporate boards, and Zug police chief Urs Kohler was a member of another ten. Rich went beyond covering all the bases; he bought the ballpark.

  Based on the decision of the Swiss court, Rich’s American defense team went to the United States Supreme Court to ask that the $50,000-a-day fine be thrown out. The Supreme Court refused to hear the appeal. On June 29, 1983, Marc Rich was ordered to commence payment of $50,000 a day to protect documents that Sandy Weinberg called the “golden nuggets” to a successful prosecution. Although the
fine was, in the words of a Rich trader, “Saturday night boogie money for Marc,” Rich refused to pay. There were still a few more tricks he could use to confuse the man who was fashioning an indictment that could send him to jail for 325 years.

  Sweating from a crowded subway commute down from Manhattan’s East 77th Street station, Sandy Weinberg trudged into his office on St. Andrew’s Plaza the morning of June 30, 1983, and knocked over a twenty-three-inch-high stack of documents as he reached for his ringing telephone. He had yet to have his coffee and was not in the mood to deal with the noisy machine. Weinberg picked up the stained receiver, said “Hello,” and listened. The early morning silence of the seventh floor was broken when everybody in the office heard Sandy Weinberg scream, “He did what!!!”

  On the evening of June 29, Marc Rich prepared a two-page, forty-line document that sold Marc Rich International to a new company called Clarendon Limited, a firm with the same fifty traders, twelve traffic managers, thirty-five finance executives, phone numbers, and address as Marc Rich International. Even the company’s board remained the same. Almost. There was one cosmetic change: Marc Rich and Pinky Green were no longer listed as directors. Willi Strothotte, the Inner Circle member who was installed as Clarendon’s chief operating officer, asserted that “any charges arising against Clarendon would be strictly a matter of money,” because there “aren’t any personalities involved,” despite the new company’s bank credit being guaranteed by Marc Rich.

  A fresh flock of lawyers representing Marc Rich’s doppelgänger plodded into court a few days later to tell the judge that the new company was not liable to pay the $50,000-a-day fine. Judge Sand listened politely before exploding. He angrily called the scheme “a ploy to frustrate the implementation of the court’s order.” On July 17, 1984, he ordered Marc Rich AG to pay $500,000 of its outstanding fine and told Weinberg to freeze all of AG’s assets in the United States. But since Marc Rich AG had sold its sole American asset — Marc Rich International — to Clarendon, Weinberg slapped restraining orders on companies that owed money to Marc Rich AG. Weinberg then blocked a whopping $55 million owed to Rich, on top of enforcing the daily fine. By the end of the year, the frozen assets would have grown to include $50 million worth of American oil wells controlled jointly by Marc Rich and Marvin Davis, Rich’s Guam Oil and Refining Company, and $116 million worth of Twentieth Century–Fox voting stock.