by Fred Goodman
As the SEC had yet to welcome ABKCO officially to the AMEX, Klein began raising money by peddling warrants—the right to purchase shares in the future—to Wall Street. Though their value and even their legitimacy was undetermined, he had no trouble finding takers.
“We went on a dog-and-pony show,” said Harold Seider, “which is where I acquired my disrespect for Wall Street. The only thing that motivates them is greed and most of them are stupid beyond belief. We were raising money to buy Chappell and these guys were willing to give money in return for warrants in Cameo-Parkway at a penny apiece or something.”
In fairness to Klein’s backers, the chance to buy cheap warrants was nearly irresistible: Cameo-Parkway’s stock was heading for the stars. Trading at ten dollars per share in August, it rose steeply over the next few months, climbing into the thirties, forties, and then fifties.
Seider, who as Klein’s attorney had become a vice president and director of Cameo-Parkway, attributed the rise to a perfect storm of intense interest and keen skepticism. As the stock rose, speculators shorted the company, believing the price was grossly inflated and would have to drop. But its popularity with short-sellers had just the opposite effect; because the pool of available stock was so limited—there was a maximum of 240,000 shares available in the market—the price kept rising as desperate short-sellers hustled to find enough stock to cover their positions. Between August 1, 1967, and February 15, 1968, when Cameo-Parkway peaked at 76⅝, two million shares changed hands.
The dramatic price run-up led to a great deal of speculation regarding who was getting rich. “Abbey was pushing the stock and Allen was not oblivious to it,” Seider said. Cameo-Parkway had become a hot story on Wall Street. Marty Machat’s associate Eric Kronfeld handled much of Klein’s legal work on the Cameo-Parkway deal, and his failure to tip anyone off made him very unpopular at home.
“My father-in-law was particularly furious with me,” he recalled. “I said, ‘Well, if I’d said or done anything, I’d probably go to jail. It’s called insider trading.’ He said, ‘Oh, yeah? Who’d know?’ He was mad at me for months.”
Seider believed the biggest pool of winners was drawn from Butler’s friends and neighbors. “Abbey was having all the people where he lived in Brooklyn buy the stock,” he said. “They were the ones selling to the shorts. They were buying homes; people were getting rich in the neighborhood.” Asked in a shareholders’ meeting why the stock was rising so dramatically, Seider just shrugged and attributed it to the law of supply and demand. “It was true! It wasn’t that anyone was playing games.”
Indeed, when the government ultimately stepped in and halted trading in Cameo-Parkway in order to stop its runaway inflation, it didn’t blame the company or Klein and Butler. According to Seider, “The SEC guys were saying, ‘What went on?’ I said, ‘Please—we’re not crooks. We’re just stupid.’ At the time they weren’t as aggressive.”
By then, however, Klein had raised enough money to make a bid for Chappell, which was expected to fetch $45 million. Klein’s strategy was to blow away the competition from the outset; he bid $60 million. Armed with a check for $6 million as a deposit, Seider and an ABKCO accountant, Joel Silver, figured they’d close the deal on a Friday night. But though they worked through the night on a contract, the Dreyfus family balked and changed their minds over the weekend, perhaps numbering themselves among those who didn’t see a future in Cameo-Parkway stock. “They didn’t believe Allen could come up with the total financing,” said Kronfeld. “They chose not to deal with him.” Though the bid failed, Klein’s interest in the company and his willingness to pay a premium looks prescient today: Chappell subsequently became the cornerstone of Warner Music’s publishing operation, a company valued at $1.5 billion.
In the end, the Cameo-Parkway acquisition produced decidedly mixed results. Though the company did ultimately change its name to ABKCO Industries, the American Stock Exchange opted not to reinstate it for trading. Whether Klein’s apparent failure to complete an SEC audit of Allen Klein and Company’s assets was the root cause or whether the exchange was still worried about what it had witnessed, it announced that the new company “will not meet the applicable listing standards of the Exchange relating to net worth and earnings.” Instead, ABKCO continued to trade over the counter, and the stock rocket fell to earth. And in the coming years Klein would find he did not like all the oversights and restrictions that being the head of a public company placed on him.* Nineteen years later, in 1987, Klein took ABKCO private. Klein’s failure to complete the audit was typical. Ironically, while Klein was hyperaggressive and belligerent in negotiations, he ducked every other confrontational situation.
For starters, he couldn’t fire anyone. When a termination became unavoidable, he would convince someone else to do it; it fell to Abbey Butler to fire Morton DaCosta, the director of Mrs. Brown, You’ve Got a Lovely Daughter. In business he’d discovered that ignoring an unwanted outcome frequently produced another and sometimes more advantageous one—although not always. In 1963, when the IRS sent an agent on a relatively mundane matter regarding late filing of employee-withholding documents—the taxes had actually been paid but the paperwork hadn’t been properly filed—Klein made the agent wait several hours and then didn’t meet with him, a decision that would come back years later to cause Klein far-reaching and irreparable problems. Similarly, on the day SEC officials came to the office to discuss the Cameo-Parkway stock imbroglio, Klein left the job of meeting with them to Seider, electing instead to go to the movies with his assistant and mistress, Iris Keitel.
ABKCO’s inability to meet AMEX standards told a truth about Klein, as did his ostrich-like behavior toward the IRS: he didn’t have the stomach or patience to play by any rules but his own. Yet he was hard-working and had prospered because artists desperately needed the kind of brash and creative representation he could provide. And now that ABKCO was public and Klein had had to reveal a great deal of information about his business practices, it was more obvious than ever just how clever and original Allen was. In the final analysis, he wasn’t really a financial manager. He was in the business of creating new streams of revenue—for himself as well as his artists.
Two surprising facts stood out in ABKCO’s statement to its shareholders. The first was that the company had no management contracts with any artists. The second was that it did have contracts to manufacture records and made more money doing that than it did from management.
At the core of ABKCO’s financial engine was an arrangement Klein referred to as the “buy/sell agreement.” Beginning with Sam Cooke’s work and continuing with Mickie Most’s recordings and the Rolling Stones’, ABKCO—and not the respective record companies—controlled the right to manufacture records in the United States. The artists didn’t switch American record companies; Cooke remained with RCA, the Animals and Herman’s Hermits with MGM, the Rolling Stones with London Records. But each acquired a new middleman in ABKCO. When Allen picked up a client, he negotiated new recording contracts that increased the advances and royalties for that artist. At the same time, Klein frequently negotiated another deal, one in which his company would manufacture and deliver the records to the label at an agreed-upon price.
In the case of the Rolling Stones, for example, the musicians were due a royalty of 7 percent—half of the 14 percent initially negotiated by Easton and Oldham—of a record’s list price. An album such as Beggars Banquet might retail for $4.98 at the time, meaning the Stones would get approximately thirty cents per record after standard contractual allowances against returns and breakage. By contrast, Klein’s share of the Rolling Stones’ royalties was 20 percent, all of which was paid out of Oldham and Easton’s share, meaning he was already making roughly twice as much in record royalties as any member of the band. But he made a separate payday on the difference between what it cost ABKCO to manufacture Rolling Stones records and what London Records paid him to do it. If, for example, London paid ABKCO $1.25 per album, ABKCO used tha
t money to pay royalties, the cost of making and packaging the record, and other associated and incidental fees. When all was said and done, there was plenty of wiggle room; the performers and songwriters got paid what they had been promised, and whatever was left over belonged to ABKCO.
The buy/sell agreement was unique to ABKCO and starkly demonstrated Klein’s business savvy. Since the average artist was promised just pennies on a $4.98 album, Klein recognized that the record companies had tremendous financial leeway, and he used that knowledge not only to get the artists more money but to deal himself into the equation: he demanded a segment of the business—manufacturing—on which the labels themselves traditionally made a profit. Initially, as with Mickie Most, it was a way for Klein to say he was getting his fee out of the American record company and not deducting a commission out of the client’s money.
On the surface, this didn’t appear to harm the artists; they got whatever royalties they had been promised, and it was always a good deal more than they’d received before meeting Allen Klein. The rub was that he advertised himself as a business manager but didn’t enlighten his clients or maximize their income as one might reasonably expect a business manager to do. He improved their incomes dramatically but didn’t necessarily spell out where and how he’d participated or how much he was earning. He knew, as he’d told Jerry Brandt, that artists were financially abused by the record companies and desperate for money, and he sold himself to them as someone who could get that money for them.
When Klein met a prospective client, it was his habit to simply ask, “What do you want?” Invariably, the answer was money—and a young artist, a Mick Jagger or Keith Richards, could be counted on to name the highest figure he could think of, likely a million dollars. Klein knew he could get that, and he would tell all the young artists so. What he would not tell them was that they were asking for the wrong thing. But then, Klein wasn’t a CPA and didn’t have management contracts with his clients. As far as he was concerned, he provided the best and most aggressive financial representation in the music business; he could make it rain like no one else and was entitled to a commensurate fee.
Unless otherwise noted, photographs reproduced courtesy of ABKCO Archives. Used by permission.
Following the death of his mother, Klein was sent to live with his grandmother, Anita Brown, on Newark’s South Nineteenth Street.
When Klein was four, he was placed in Newark’s Hebrew Orphanage and Sheltering Home, where he and his sister Naomi remained for five years, until their father remarried in 1941. Allen, third from left, and Naomi, second from right, on a rare day out for their sister Esther’s wedding.
Klein enlisted in 1951. His years in the army provided his first exposure to the world beyond Newark’s cloistered Jewish community and spurred an intense period of self-examination and reinvention.
With help from the GI Bill, Klein worked part-time and put himself through New Jersey’s Upsala College. If his years in the army were characterized by extensive reading and soul-searching, his approach to college was strictly practical: to become an accountant and launch a career.
Ill-suited to the button-down world of accounting—Klein was fired by a Manhattan firm when he proved incapable of coming to work in the morning—he instead formed Allen Klein and Company to provide bookkeeping and auditing services to the music industry. Following his first successful audit, for performers Jimmy Bowen and Buddy Knox, he treated himself to a new car.
Klein’s aggressive record-company audits earned him the loyalty of performers and the enmity of label executives. In 1963 his career took a dramatic turn when singer Sam Cooke, impressed by the job Klein had done, made him his manager. To help Cooke secure a historic 1964 appearance at New York’s Copacabana, Klein urged him to retain General Artists Corporation founder Buddy Howe (left) as his agent.
With the British Invasion, Klein became a leading figure in the burgeoning rock industry, managing business and negotiating deals for numerous British artists, including the Dave Clark Five, the Animals, the Kinks, Herman’s Hermits, Lulu, and Donovan. Receiving gold record awards in 1964 with one of his key British clients, the producer Mickie Most.
Klein began a long and controversial association with the Rolling Stones in 1965 when he negotiated new multimillion-dollar recording contracts for the band. It was also the start of a tempestuous lifelong relationship with the band’s original co-manager and brilliant style guru, Andrew Loog Oldham, with whom Klein is pictured at the London Hilton, celebrating the Stones’ new contract.
Mirrorpix
Mick Jagger’s ever-increasing role in the Rolling Stones—and growing sophistication regarding the music business—led to a wariness between the singer and Klein. For his part, Allen liked to refer to his opulent home in Riverdale, New York, as “the house that Jagger built.”
Mick Jagger and Keith Richards after being released on bail following the infamous drug raid on Redlands, Richards’s home in Sussex. Despite his role as the band’s manager, Oldham had feared the police would target him next and fled the country, leaving Klein to work with the band and their lawyers. Chichester Magistrates’ Court, May 10, 1967.
Daily Mail/ Solo Syndication
Klein, who rarely hesitated to voice an opinion about their work to most of his clients, including Sam Cooke, John Lennon, and George Harrison, considered himself unqualified to comment on the music of the Rolling Stones and steered clear of creative discussions. “Oldham managed the Stones,” he said. “I managed Oldham.” A rare moment in the studio with Jagger and Richards, London, 1968.
A record label’s worst nightmare. “He was a sharp, bullying sort of an individual,” one record company owner said of Klein. But artists, ranging from Bobby Vinton to John Lennon, delighted in his ability to strike fear and get results. “Talk about my reputation, what about the record companies’?” Klein asked. “It’s not like I was in church kicking over statues.” Riverdale, New York, 1971.
Michael Cooper/ABKCO Archives
As the new business manager for the financially strapped Beatles, Klein attempted to regain control of their music publishing from Dick James, who instead sold Northern Songs to Lord Lew Grade’s ATV in 1969. The tense dealings were hampered by the growing rift between John Lennon and Paul McCartney. With Lennon and Yoko Ono in London during negotiations.
C. Maher/ Hulton Archive/ Getty Images
Paul McCartney’s refusal to accept Allen Klein as the Beatles’ business manager led him to sue Lennon, Harrison, and Ringo Starr to dissolve the Beatles’ partnership. “He’s nothing more than a trained New York crook,” McCartney said of Klein. “It had to be done.” Arriving at the London High Court with his wife, Linda, to hear his suit argued, February 19, 1971.
Popperfoto/Getty Images
Following McCartney’s suit, a court-appointed receiver oversaw the Beatles’ business, but Harrison, Lennon, and Starr continued to have Klein manage their solo careers. With Harrison and Ravi Shankar during a press conference at New York’s Madison Square Garden announcing the Concert for Bangladesh, July 27, 1971.
New York Daily News/ Getty Images
Ringo’s interest in pursuing an acting career led to his appearance in Blindman. The film was one of several spaghetti Westerns produced by Klein, who made a cameo appearance as a bandito dynamited in the film’s opening sequence. On the set in Spain, 1971.
Though most devoted to Lennon, Klein took pride in—and gave himself credit for—promoting George Harrison’s post-Beatles success. The two would later sour on each other, with Harrison frustrated over Klein’s inability to settle with McCartney and Klein viewing Harrison as an ingrate. The broken relationship would lead to a decades-long legal battle when Klein later inserted himself into a plagiarism suit over “My Sweet Lord.” In happier times: Riverdale, New York, 1970.
Klein’s orphanage childhood and street-brawler reputation appealed to John Lennon, who saw Allen as the antithesis of Lee and John Eastman, the father-and-son attorneys who were
Paul McCartney’s in-laws and choice to manage the Beatles’ affairs. “Allen’s human,” Lennon said. “Eastman and all them other people are automatons.” Unlike others, Klein had also assiduously treated Ono as Lennon’s equal. With Lennon and Ono at a dinner for songwriters in New York, 1972.
Unhappy with his American music-publishing deal, Pete Townshend, guitarist and primary composer for the Who, turned to Klein, who helped retrieve his rights. Townshend (far right) and Klein are pictured in New York with Terry Doran (far left), head of promotion for George Harrison’s Dark Horse Records, and Rich Totoian, national promotion director of A&M Records.
Klein’s biggest undertaking as a film producer was financing The Greek Tycoon, a thinly disguised reworking of Aristotle Onassis and Jacqueline Kennedy’s marriage, starring Anthony Quinn and Jacqueline Bisset. Filmed in Europe and the U.S., the project kept Klein hopping around the globe and led to a friendship with Quinn (far left), with whom Klein is shown dining in Greece.
Klein’s work with Sam Cooke led to a lifelong relationship with Cooke’s friend and protégé, singer / songwriter Bobby Womack. In the 1980s, Klein advised Womack in his legal battle with Beverly Glen Records and negotiated a deal that brought him to MCA Records. Shown at the record company’s offices in Universal City, left to right: Irving Azoff, chairman of MCA Records; Klein; Susan Markheim, vice president of MCA Records and executive assistant to Azoff; Womack; Jheryl Busby, president, black music, MCA Records.