Maxwell's Money Laundry p. 10

By: George Garneau Judge says the late Robert Maxwell used the New York Daily News
to launder money for his faltering global publishing empire sp.

THE LATE ROBERT Maxwell used the New York Daily News to launder money for his faltering global publishing empire, U.S. Bankruptcy Judge Tina Brozman said recently in rejecting a claim by another Maxwell company.
Brozman threw out a $92 million claim by Mirror Group Newspapers PLC, which alleged that Maxwell, his son Kevin and their confederates siphoned money from MGN companies and pension funds and funneled it to the Daily News through its parent company, Maxwell Newspapers. Max-well controlled MGN, which owned the Daily Mirror, London.
"The evidence here compels the conclusion that Maxwell's interest, both in purchasing and operating the Daily News, was to keep the newspaper alive so that Maxwell Newspapers could function as a money-laundering device," Brozman said in a scathing 23-page decision riddled with references to fraud, misappropriation of funds, deceit and self-interest.
"The fraud which the Maxwells committed was one against Maxwell Newspapers not on its behalf," she said.
Maxwell, who was hailed as a savior when he acquired the Daily News in March 1991 after a five-month strike that nearly killed the paper, drowned mysteriously nine months later. His debt-ridden empire soon collapsed like a house of cards as investigators uncovered an alleged $2 billion fraud of misappropriated pension funds and loans made under false pretenses. The Daily News filed for bankruptcy in December 1991.
From the outset, the Maxwells' motivation was to further their interests not benefit the Daily News, the judge said.
Brozman ruled March 8 after hearing testimony during two days in August. Her rejection of MGN's claim set the stage for resolution of $50 million in claims by 1,800 creditors who are expected to get about 20? for every $1 claimed.
Describing transactions, she said funds rested only briefly at the Daily News before they were transferred to hundreds of other Maxwell-controlled companies shrouded by an impenetrably complex corporate veil.
Maxwell moved $238 million through the Daily News in the nine months that he owned it, Brozman said.
In one instance, she said, Maxwell used the Daily News to secure a $78 million loan from Bankers Trust but gave the tabloid only $8.45 million.
Another time, he negotiated to borrow $86 million from Bankers Trust for MGN and "sent the funds off on a great circular ride" through the Daily News and back to Bankers Trust to repay another loan, the decision said.
In October 1991, when the Daily News' finances were so precarious that one newsprint supplier had halted deliveries, $113 million moved through the Maxwell Newspapers account in just four days and actually left the cash-strapped newspaper $376,000 the worse.
"Nothing could paint a clearer picture of the Maxwells' cavalier disregard," Brozman said, referring to those transactions.
Even the $65 million that Tribune Co. paid Maxwell for taking the Daily News off its hands was not immune to the Maxwell sleight of hand.
"The ink had not dried on the closing documents when Robert Maxwell shuttled all but $16,000 of the $60.016 million initially paid to Maxwell Newspapers out of Maxwell Newspapers' reach" and into his Pergamon Holdings Ltd., Brozman said.
When Tribune's $5 million balance arrived, it too was removed "within days."
The entire $65 million eventually was returned in dribs and drabs to meet severance pay and staff reduction obligations and to keep the money-losing paper afloat.
During his tenure, Maxwell ? who courted New York City from aboard his lavish yacht, cultivated the image of billionaire publisher and promised to rebuild the tottering tabloid ? contributed just $6.7 million to its sustenance. Where the money came from nobody knows. Meanwhile, the paper hemorrhaged $36 million in operating losses during his nine months at the helm.
"The Maxwells were doing no more than keeping the enterprise perched at the brink of disaster," Brozman said.
Robert and Kevin Maxwell perpetrated "an elaborate ruse" in which they hid the source of the money and where it was going and concealed "their intent to strip Maxwell Newspapers of still more money at a time when its ability to publish was in jeapardy," Brozman wrote.
The Maxwells lied to the Daily News and Bankers Trust, she said. They used forged corporate minutes to obtain loans and betrayed MGN, but their scamming "harmed, not helped, Maxwell Newspapers, just as it harmed MGN." The Daily News' parent company "derived no benefit and retained no fruit of the Maxwells' fraud," Brozman said.
Only after Maxwell died and the Daily News filed bankruptcy did its managers begin to realize what had happened.
Maxwell's two sons and other former executives of MGN and Maxwell Communication Corp. have been charged with fraud in Great Britain. His majority stake in MGN was sold to a group of investors.
Brozman's decision has no effect on the current Daily News, which got a new lease on life when Mortimer Zuckerman acquired it from bankruptcy court in January 1993 in a $26 million deal. After building on layoffs and contract concessions gained by Max-well, Zuckerman has said, the paper is profitable.
About 1,800 claims worth about $50 million are pending against Maxwell Newspapers, and assets worth about $12 million are left from the Zuckerman acquisition, said Jay Swardenski, vice president and general counsel at Maxwell Newspapers.
Lawyers hope to begin paying unsecured creditors about 20? on the dollar in about 45 days.
The biggest of these creditors is Tribune, which claims it is owed about $20 million for leased office space, newsprint, syndicated features and other services.
A Tribune spokesman had no immediate comment on the decision.
Employees are owed about $1 million for such items as unpaid vacation pay. Other claims could keep the case alive to midyear, Swardenski said.
MGN has not decided whether to appeal, and its attorney refused comment.
"This represents the last chapter in the Maxwell Daily News saga," said Jim Willse, editor under Maxwell who became publisher during the bankruptcy.
"Life with Maxwell was theater of the absurd," he said.
Asked if there was any indication of wrongdoing, Willse said, "The financial people asked about the money and did not receive any answers to their satisfaction."
Swardenski, who joined Maxwell after the acquisition, said he never would have left his law practice had he known then what he knows now.
"People who are far more sophisticated than I had no idea what was going on" and assumed Maxwell was operating legally, he said.
"As it turned out, he was doing nothing fancy. He was just stealing the money from other places," Swardenski said, taking an old lesson from the entire sordid affair: "All is not necessarily what it seems."
?( The late Robert Maxwell) [Photo]


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