Allen Klein: The Man Who Transformed Rock & Roll

by Fred Goodman

  For those around him, the results could be comical. Any new acquaintance or business associate could count on a trip to Newark, where the guided tour included the former site of the orphanage, the old playgrounds in Weequahic, and the cemetery where his family members were scattered in plots he at first couldn’t find and so eventually had consolidated. Friends and employees might be invited to kill a little time playing hearts, only to have the card game turn into an epic, days-long battle. Michael Kramer, leaving the office one afternoon to attend an evening class for law school, was waylaid by his uncle, who begged Michael to keep him company on a limousine ride to the airport for an overnight flight to London, promising that the driver would then take him to school. Once at the terminal, Klein told his nephew to walk him to the gate—and then, finally, to keep him company on the flight. It wasn’t until the next morning, when Allen was checked into his suite at the Dorchester and eager to take a nap, that Kramer was turned over to Alf Weaver, Klein’s London chauffeur, to be dropped back at Heathrow.

  Allen’s need for female companionship was just as acute. Despite being married and wanting to stay that way, Klein seemed unconcerned with being faithful to either his wife or, later, Iris Keitel. A former Miss Brooklyn, Keitel was young, cute, and recently divorced when she joined the company in the sixties as a secretary and then became Klein’s confidante and mistress. But having a girlfriend on the payroll didn’t necessarily put a crimp in his nooners, which he announced with a wink and the news that he was “going out for a cheeseburger.”

  Nor could he countenance silence. “So what do you think?” he asked whenever there was a lull in conversation. “So what do you think?”

  Perhaps his greatest financial lever was largely invisible: the day-to-day control of his clients’ money. Klein’s usual recommendation to his British clients looking to skirt the prohibitively high taxes charged on income earned abroad was to place the money in corporate accounts controlled by Klein and then take payment slowly over several years—often as many as twenty—rather than all at once in a lump sum. In fact, it worked; the money became income only as it was paid out, which allowed the clients to keep considerably more. With Bobby Vinton, who was an American, Klein followed a similar strategy, investing Vinton’s advances and paying them out like an annuity over the years so that the amount he earned was actually much greater than the original advances. Everyone was happy; as far as the majority of his clients were concerned, Allen Klein was a financial genius.

  They didn’t know the half of it. Klein’s clients, particularly the Rolling Stones, had already been paid millions of dollars that, for tax reasons, they were leaving largely untouched in New York’s Chemical Bank. Klein was bound and ready to pay them every penny to which they were contractually entitled. In the meantime, however, he put that money to work. It quickly earned a good deal more than Klein had guaranteed to pay his clients, and he wasn’t bound and ready to pay them that. After all, leverage—including making money from money—was his specialty.

  7

  * * *

  ABKCO

  WHAT KIND OF SCHMUCK reads a newspaper in a steam room?

  Abbey Butler squinted in disbelief through the wet haze of the Luxor Baths at the squat, towel-draped man in the next chair hunched over the Herald Tribune. It had to be some kind of joke—the damn thing was sopping wet, collapsing in on itself, and altogether impossible to read. He couldn’t resist saying something.

  “What are you trying to read that’s so important?” he asked.

  “I want to know the price of MGM.”

  “Thirty-seven and a half,” said Butler.

  The man with the newspaper gave him a long, funny look. “What’s General Motors?”

  “Fifty-seven.”

  “How do you know that?”

  “I’m in that business.” Butler, then a young broker with Diamond, Turk, and Company, a small New York firm handling trades on the New York and American Stock Exchanges, explained that he’d developed the ability to commit key daily prices to memory to avoid having to constantly telephone for quotes.

  Impressed, Butler’s companion began chatting him up, mentioning that he was in the music and film business and that his father-in-law owned the health club. Later, as they were leaving the club, Klein gave Butler his card. “I’d like you to come up to my office one day,” Allen said. “I have some money I have to invest and I really don’t know how to do it. I’d like to talk to you about it.”

  Butler made it his business to visit the office in the Time-Life Building before the week was out. Klein explained that he was looking at long-term investments of approximately twenty years for his clients. He said he was particularly interested in preferred stocks, which had the dual benefit of being taxed at a lower rate and accruing dividends—enough, at 5 percent, to more than pay what was pledged annually to the artists. At Klein’s request, Butler agreed to research General Motors.

  A few days later, Butler told Klein that GM preferred did indeed appear to be the kind of investment he was looking for, and Klein asked for a day to consider what he was going to do. The young broker, who rarely took an order as big as a thousand shares in those days, was optimistic; it sounded like Klein might be ready to place that kind of big order. With a little luck, he might even buy two thousand shares. But when Klein called him back the next day, he didn’t ask for a particular number of shares.

  “I want you to start an account in the name of Nanker Phelge,” he said, “and buy one million dollars’ worth of GM preferred.”

  Butler was stunned. “One million?”

  “Right.”

  “Allen, that’s a lot of money. I’ll need a bank reference before the senior partner will approve it.”

  Klein gave him the name and telephone number of a vice president at the Chemical Bank branch in the Time-Life Building. When Butler’s boss did indeed insist on bank approval, Abbey called the man.

  “I have an order from Mr. Allen Klein,” Butler told the banker. “It’s for an account called Nanker Phelge and it’s for one million dollars. I’d like to know if it’s okay to execute the order. Do they really have one million dollars?”

  The banker did not answer directly. “Any order that Allen Klein gives you, the money is good.”

  The trade was cleared. By the standard of the time, it was huge; it took three days to find and purchase a million dollars’ worth of General Motors preferred. When he finally had all the stock, Butler dropped by Klein’s office. Allen again surprised Abbey by writing a check for the full amount on the spot.

  Delirious, Butler skipped back to his office, imagining it would be a long time before he booked another deal like that. But when he got there, the telephone was already ringing. It was Klein with instructions to set up a new account in another name, and once again the order was for a million dollars.

  Klein opened approximately a half a dozen accounts in quick succession. Although they were all in varying amounts, each was for a large sum of money. Eventually, Butler’s curiosity got the better of him. “Allen,” he said, “you got to explain to me what you do and what this is about.” It was then he learned that the accounts contained money paid to the Rolling Stones, Herman’s Hermits, Bobby Vinton, the Kinks, the Animals, and Donovan.

  Butler liked Klein and loved his business, and the two were soon spending a lot of time together traveling to London and Italy, where Klein was pursuing film projects. Allen began thinking out loud about finding a public company to buy and use as a vehicle himself. The basic idea was that he would get control of a publicly traded company, fold his own Allen Klein and Company into it, raise the profile and price, and then use the stock to finance other acquisitions and deals. The question was, what company made the most sense to acquire?

  Klein was going to be making several movies. Allen had remained friendly with Tony Anthony, the actor he’d partnered with on his first picture, and he’d agreed to coproduce a spaghetti Western that Anthony was starring in, A Stranger in Town. He
’d also convinced MGM Records to advance money against Herman’s Hermits’ future royalties in order to produce a film with them, Mrs. Brown, You’ve Got a Lovely Daughter, while the Rolling Stones had purchased the film rights to a British novel, Only Lovers Left Alive, that Oldham wanted to develop into a vehicle for them and for which Klein had cajoled a million dollars in seed money from London Records. With all those projects on the board, Allen believed an existing entertainment company would be the best fit. He asked Butler to take a look at MGM and see whether buying up its stock made sense.

  Despite MGM’s racking up some of the biggest hits of the sixties—including Doctor Zhivago and 2001: A Space Odyssey—its financial performance was uneven and its record division comparatively weak next to RCA and Columbia; with Herman’s Hermits, Klein controlled the act that was likely the corporation’s biggest seller. The company also looked as if it was about to be in play. Philip Levin, a New Jersey real estate developer and one of MGM’s largest shareholders, was mounting a proxy fight against management and clearly eyeing a takeover. After hashing over the situation with Butler and Marty Machat, Allen decided to go for it. “If anybody is going to make a bid for MGM, it’s going to be me,” Allen said. “Start buying the stock,” he told Butler.

  “How much do you want to spend and how much can I pay?”

  “Just start buying it. Buy everything you can for the next couple of days.”

  Butler did just that. The money wasn’t actually Klein’s—it was from the various artists’ accounts—but Butler shrugged, figuring Klein managed and controlled the money and that was good enough. Nonetheless, Klein’s juggling of accounts was frequently felt in London, where Laurence Myers, who was now handling the Stones’ day-to-day expenses for Klein, and Jo Bergman, the Rolling Stones’ office manager, had trouble getting enough cash from Allen to pay the bills.

  Before long Klein had bid the price of MGM up from the midthirties to the midfifties. Along the way, he amassed 160,000 shares, a significant holding that didn’t go unnoticed in either Variety or the business pages. When the next MGM shareholders meeting was held, on February 23 in New York, Allen attended with the express aim of stopping Levin and hopefully tipping things his own way.

  Though Klein didn’t personally speak, he used Butler as his mouthpiece, feeding him questions to ask from the floor and prodding him to make a speech in favor of current management and against Levin. “When I sat down, Allen gave me a pat on the head and then we went home,” Butler recalled.

  Klein’s bid for MGM never got off the ground. Levin briefly got control of the company before ceding it to Seagram heir Edgar M. Bronfman Sr., who lost it a few months later to hotelier Kirk Kerkorian. Nonetheless, the shareholder meeting wasn’t without repercussions. Butler’s remarks were included in newspaper reports of the meeting, and he found himself called on the carpet at Diamond, Turk, and Company, his actions deemed inappropriate for a broker. Upset, he called Klein and asked if he could stop by his office. Butler wasn’t sure what he expected Klein to say; he was worried about his future and wanted Allen to know his ass was in a sling. But what Klein suggested caught him completely off-guard.

  “Why don’t you buy seats on the exchanges and start your own firm?” he asked.

  “Allen, I don’t have that kind of money.” A seat on the American Stock Exchange cost approximately two hundred thousand dollars at the time; one on the New York Stock Exchange twice that.

  “I’ll lend it to you.”

  Speechless, Butler just stared at Klein, a man he’d met just a few short months earlier in a steam room. Then he burst into tears.

  It was the kind of generous and seemingly impetuous offer that Klein would repeatedly toss off as he became ever more successful. Yet, although he might have acted out of kindness, Klein was always complicated. He could have had several competing motives, some of them large, some of them selfish, and all of them legitimate. It frequently seemed Allen’s best and most thoughtful deals answered to more than one master. He was, after all, the strategist who as a matter of course contemplated several competing and complementary ideas at once, examining and refining them over and over and over again.

  Butler was certainly useful to him. He was also typical of the advisers and professionals that Klein often elected to work with: young, hungry, and decidedly junior. When Klein needed outside counsel for litigation, he hired a top-notch firm but rarely relied on a senior partner. Instead, Allen would identify a young associate and direct all his requests and calls there, often monopolizing his time. Flattered and grateful, the younger attorneys invariably saw cultivating Klein as a unique opportunity and were at his beck and call. Abbey Butler himself did not underestimate Klein’s value.

  “Abbey was a terrific hustler,” said Harold Seider, Klein’s in-house attorney at the time. “And Allen made him rich.” In return, Klein got his own personal brokerage firm.

  With MGM seemingly unattainable, Butler uncovered another, albeit significantly smaller, target trading on the American Stock Exchange: Cameo-Parkway Records. Begun in the basement of Philadelphia songwriter Bernie Lowe’s home, the company had enjoyed a string of hits in the fifties and early sixties with Chubby Checker, the Dovells, Dee Dee Sharp, Bobby Rydell, the Orlons, and the Tymes, in no small part because of Lowe’s close relationship with Dick Clark and his daily television show, American Bandstand. As was the widespread practice of the time, Clark regularly received an interest in the label’s hits and just as regularly spotlighted them on the show. But the label’s power waned with the congressional payola hearings and the British Invasion. By the time the show moved from Philadelphia to Los Angeles, in 1964, Cameo-Parkway wasn’t even captivating its founder, and Lowe sold the company to a pair of investors in Texas who quickly demonstrated that they had no idea what to do with it. Klein, in comparison, didn’t have just one idea of what to do with the company—he had about a dozen.

  Klein wanted control of Cameo-Parkway for the same reason he’d wanted MGM: so he could engineer a reverse merger, in this case using Cameo-Parkway stock to buy Allen Klein and Company, essentially making Cameo-Parkway pay to be taken over. Once his assets were in a public company, Klein would be able to do many things. Along with looking to enhance its value, run up the price of the stock, and make a personal killing, he hoped to use the company to finance other acquisitions. He hadn’t completely given up on the idea of gaining control of MGM, and he also had his eye on a venerable privately held publisher, Chappell Music.

  A public company could also be a useful tool for paying his artists. Klein still had a problem to work out, particularly with the Rolling Stones. He’d been able to optimize their—and his—income while minimizing their British tax bite by staggering their guarantees over many years. But the band was becoming more and more popular all the time and was certain to earn a good deal more than the guarantee. Under the recording and publishing agreements, they were to receive that additional money as a balloon payment sometime in the future. The problem was the same old one: how to collect a big lump payment without losing most of it to the Inland Revenue.

  One traditional tool was the drop-out year. To encourage citizens to work overseas in Britain’s colonies, the government granted a year’s tax amnesty—provided the individual spent the entire year abroad and did not set foot in Great Britain. Klein, who was familiar with the strategy, had discussed with Jagger the idea of taking all the money that way, and he’d tried to employ it with Donovan, who moved to Japan. But Donovan soon decided that he didn’t like being apart from Linda Lawrence, his girlfriend (and the mother of Brian Jones’s son). He returned to England before the year was up, forfeited seven million dollars, and married her.

  The Stones weren’t that sentimental, but Klein saw another possibility that didn’t require them to become exiles: instead of taking their money as income royalty, for which they’d get creamed, the Stones could get paid in stock. As he had with Tracey, Allen set himself up as the owner of Nanker Phelge U.S., the company
that controlled the rights to manufacture Rolling Stones records in America. If Allen paid them in stock rather than cash, the Stones could then sell the shares and take the money as capital gains with nowhere near the tax penalty.

  In early 1967, with Cameo-Parkway trading at just about $2 per share, Klein and Butler made their move and approached William Bowen, the company’s principal stockholder, about a takeover. Bowen was eager to unload his investment, and by July, Klein had acquired 297,000 shares of the sparsely traded stock—a 48.5 percent stake—from Bowen for $1.75 a share. Butler bought Bowen’s remaining 50,000 shares at the same price.

  Rumors of Klein’s interest, circulating before the deal was consummated, started to drive the stock up. In the first six months of 1967, fewer than 136,000 shares of Cameo-Parkway had traded on the AMEX; in July alone, the figure was nearly double that, and the stock topped the $10 mark. Things were looking good; Klein’s stock-market killing seemed guaranteed. And then, as a trickle of rumors became a flood of speculation, the insanity began.

  Klein’s plans for a reverse acquisition were no secret. It quickly became known that Cameo-Parkway had filed to be renamed ABKCO, an acronym for the Allen and Betty Klein Company (although Allen later joked that the B stood for Bad), and investors interested in the entertainment business were intrigued by the notion of a company whose assets included the contracts for the Rolling Stones, Donovan, and others, not to mention the chance to tie their money to the industry’s storied wheeler-dealer. On top of that, Klein wasn’t willing to wait for the Securities and Exchange Commission to bless the reverse merger before he took advantage of his new financial tool. The Dreyfus family, with extensive music holdings in America and Europe, was entertaining bids for the publishing firm Chappell. Its extensive copyrights included the work of Jerome Kern, George and Ira Gershwin, Rodgers and Hammerstein, Cole Porter, Kurt Weill, Lerner and Loewe, and Jule Styne. Allen desperately wanted it.