Broker, Trader, Lawyer, Spy - Eamon Javers [55]
Diamond International decided to fight back against this swash-buckling global raider, and its law firm hired Kroll to take a look at Goldsmith’s corporate holdings. Goldsmith was proposing a stock acquisition, and Diamond’s lawyers wanted to know what his worldwide holdings were. They sent Kroll on a mission to find and evaluate the companies Goldsmith controlled. Kroll looked at everything Goldsmith owned, questioning the way he accounted for his profits, the character of his business partners, and the accuracy of his official documents. “We were looking for chinks in their armor,” Kroll recalls.
The goal was to identify some weakness in Goldsmith’s corporate holdings, to demonstrate that the stock he was offering was not worth what he said. In the end, though, all Kroll could do was delay the inevitable. Goldsmith succeeded in buying out Diamond International, but Kroll was pleased with his own work. He felt the efforts of his investigators had succeeded in buying time for Diamond, turning what might have been a two-month process into a two-year pitched battle. Kroll believed that the long fight had generated a higher sales price for his client.
Kroll learned that there was money to be made in corporate takeovers, win or lose. But he still wanted his first victory. He was brought into another takeover fight: the chairman of Sharon Steel Corporation, Victor Posner, raided Foremost-McKesson, a conglomerate that ran food, liquor, dairy, and pharmaceutical businesses. These were regulated industries, overseen by government bureaucrats. Foremost-McKesson’s executives reasoned that Posner, who had already developed a reputation as a brash corporate raider, wouldn’t fit the government’s idea of the type of executive who should run a drug company. The battle, which had been brewing since 1976, turned ugly: Foremost and Posner threw allegations of mismanagement and improper conduct back and forth. To gain an edge, Foremost hired Kroll, giving his firm a mandate to find out what it could about Posner’s dealings. Any dirt the investigation uncovered could be used to push back against the takeover bid.
Kroll and his team went to work. They scoured Posner’s acquisition of Sharon Steel, and searched for sources who could describe how Posner ran his businesses. Kroll’s men knew what Woodward and Bernstein had discovered a few years earlier: investigators must follow the money. And the best way to follow that trail is often disgruntled former employees. They often know where the trail leads, and they have a motive to reveal secrets.
Working their sources, Kroll’s team stumbled across an interesting transaction. In 1975, Posner had donated twenty-two acres of land to Miami Christian College as a charitable gift and had taken a $1.7 million tax deduction. But the land wasn’t worth anywhere near that amount. In fact, the school went on to sell it for just over $500,000 several years later. This transaction looked like tax fraud, and it was a juicy find. Kroll’s team turned the evidence they’d discovered over to the IRS. Later, they found evidence that Posner’s reported corporate earnings were suspect. They turned that information over to the SEC. Kroll’s team also questioned lavish expenses at Sharon Steel that seemed to have little to do with running the company. Each new disclosure was a blow to Posner. He caved in, and by May 1981 he had sold his entire stake of the company’s stock back to Foremost-McKesson for $42 per share. Posner didn’t leave the deal empty-handed: he reaped about $65 million from the transaction, which more than doubled his investment from several years before. Still, Foremost-McKesson was free.
In 1983, Posner and a colleague were indicted in the Southern District of Florida for their roles in the tax scam. Posner fought the charges for years, but he pleaded no contest in 1987. He was forced to donate $3 million to homeless