Court Freezes Holdings of Maxwell Sons : Finance: The action is the latest step in a bizarre debacle. British officials are trying to figure out how the fraud went undetected for so long.

Kevin and Ian Maxwell were pleading with British authorities early today for a last chance to salvage the remains of a financial empire that stands in rubble, the legacy of a larger-than-life father who turns out to have been much less than he seemed.

By mysteriously falling from his yacht into the Atlantic last month, Robert Maxwell himself escaped the fast-approaching exposure of his massive financial improprieties.

But as fresh allegations surfaced that Maxwell had played a shell game involving more than $1 billion in the assets of his global publishing businesses, a British court took steps to see that the sons would be called to account.

On Monday, a British High Court judge froze Kevin Maxwell’s worldwide assets, said to total $810 million, and ordered the two sons to surrender their passports.

Early today, an appeals court freed Kevin Maxwell to fly to New York for talks aimed at saving the New York Daily News.

But as suspicion about the sons’ role in the financial turmoil deepened, they were ordered to help investigators locate an estimated $700 million in cash their father had allegedly grabbed from the pension funds of the Mirror Group newspapers he controlled--money he is accused of using to prop up other debt-ridden family business interests.

Kevin Maxwell, 32, also put his London mansion up for sale.

“We have a mortgage like everyone else,” his wife, Pandora, told reporters.

The Daily News, now in bankruptcy proceedings, is one of the Maxwell family holdings allegedly buoyed by funds siphoned from the publicly held British firms that the family dominated.

The latest developments capped one of the more rapid and spectacular business collapses in memory--a debacle marked by ever more bizarre revelations, with Maxwell tagged as everything from a friend of Israeli spies to a KGB stooge.

Meantime, British authorities, European bankers and Maxwell associates are trying to figure out how so Gargantuan a fraud--by so public a figure--could have gone so long undetected. While Parliament plans to examine apparent loopholes in British financial regulations, blame also is being assigned to British libel laws, which the portly publisher is said to have used to bully his critics into silence.

Besides Mirror Group--publisher of the Daily and Sunday Mirror newspapers in London--Maxwell owned a majority stake in Maxwell Communication Corp., whose U.S. interests include the Macmillan publishing house, Official Airline Guide and Collier’s Encyclopedia.

Family interests included the weekly European newspaper, newspapers in Eastern Europe and Kenya, and British soccer teams, as well as the Daily News.

But at its core, the empire was hollow; the private and public companies’ combined debt exceeds $5 billion.

Last week, most of the Maxwell family assets--including the majority stakes in Mirror Group and Maxwell Communication--were placed in the hands of British bankruptcy administrators. Britain’s Serious Frauds Office was investigating not only the missing $700 million in pension money but also an additional $400 million in assets allegedly taken improperly from the public companies and pledged as collateral for new loans.

Meanwhile, efforts to complete the sale of Berlitz International to Japanese interests--a sale designed to raise a desperately needed $260 million for Maxwell Communication--was stalled upon the discovery by executives that some of the Berlitz stock has disappeared.

Maxwell’s biggest burst of financial deception evidently began only months before his death.

Over the summer, the price of stock in his public companies began falling. But Maxwell had been using shares in his public companies as collateral on bank loans that totaled about $1.33 billion. With share prices falling, the banks began calling for more security on their loans.

The accounting firm Coopers & Lybrand Deloitte, chief auditors for most of Maxwell’s interests since the 1970s, said it traced some of the siphoned-off money, including about $144 million used to prop up the European and the Daily News. Coopers this week characterized the misuse of pension funds and other assets as desperate steps that were sure to have been detected within a short time.

“The whole episode was doomed to failure,” a Coopers spokesman said.

Word that Maxwell’s legerdemain was falling short in the weeks before his death has fueled speculation that his death in waters off the Canary Islands may have been a suicide. Still, there were reports Monday that an autopsy report delivered to the Spanish judge who will rule later this week on Maxwell’s cause of death points to natural causes.

On Monday, Theodore Kheel, an unpaid adviser to the Daily News’ unions, said it appeared that no funds had been removed from the tabloid’s pension funds. But the fact that pension money from the London-based Mirror Group apparently had been used to pay some of the Daily News’ operating expenses raised further doubts about the New York tabloid’s ability to survive.

How did Maxwell keep his patchwork domain intact for so long? Legal and accounting experts said the fiasco in part stemmed from the laxity of British accounting and financial disclosure laws--along with British libel laws that enabled Maxwell to stifle his critics.

The Czech-born publisher seems to have protected his dealings from criticism through bullying and litigation. He filed a flurry of libel suits, taking full advantage of British laws that heavily favor libel plaintiffs. Under those laws, libel plaintiffs don’t have to prove that what a newspaper publishes is false. Instead, the burden of proof is on defendants, who are given little right to subpoena documents to aid their case.

British law also allows the subject of a forthcoming article to file suit in advance to prevent publication--a tactic that U.S. courts almost never allow, but which Maxwell employed in Britain with frequency. Thus he was able to wear down many opponents.

Roy Greenslade, editor of the Daily Mirror until last March, says magazines, newspapers or television programs that sought to inquire into Maxwell’s business dealings “knew they would have to fight a long way through the courts.”

Said Greenslade: “Upon his death, he still had a hundred (libel) writs outstanding. It’s said that the only people mourning him are lawyers.”

Much of Maxwell’s personal financial dealings were hidden from public scrutiny through holding companies he established in the tiny principality of Liechtenstein. Secrecy laws there are extremely strict, surpassing even those of Switzerland.

But Maxwell’s awesome personality, persuasiveness and drive--which enabled him, among other things, to become a member of Parliament--persuaded banks to lend enormous sums despite the lack of hard information.

The House of Commons, in which Maxwell sat briefly in the 1960s, now is launching probes of whether shortcomings in Britain’s corporate accounting regulations and its rules for the management of pension funds also made it easier for Maxwell to mislead investors and regulators about his financial condition. There is growing concern among members of Parliament about the lack of coordination among British financial regulators.

Maxwell rescued the Daily News from closure in March, declaring that he intended to greatly expand his U.S. holdings. He continued to push acquisitions even as his house of cards came closer and closer to collapse.

If the Maxwell empire wasn’t what it seemed, neither was its founder. A war refugee of desperately poor origins, Maxwell shed his original name and identity and worked feverishly to assume the persona of a British aristocrat.

Born Jan Ludvik Hoch in 1923 to a nearly penniless Jewish family in a Czech village near the Romanian border, Maxwell lost nearly all of his family in the Holocaust. In later years, he gave heroic accounts of his escape from Eastern Europe, including tales of fighting Germans with the retreating Czech army, guiding refugees to freedom and being captured by Nazis only to escape again.

Yet at least one authoritative biographical account suggests that the 16-year-old Maxwell simply joined up with a group of Czech soldiers and took a train to Yugoslavia--and freedom.

Maxwell found his way to England, rapidly learned English and English mannerisms, and became a private with a British regiment. By all accounts he was courageous in combat, earning a top decoration for valor and emerging from World War II a British captain.

According to a biography by British author Tom Bower--a book whose distribution was limited because of Maxwell’s libel threats--young Hoch’s name had undergone several permutations by the end of the war--from Hoch to Leslie du Maurier to Leslie Jones before the Czech youth finally settled on Ian Robert Maxwell.

Maxwell’s postwar start in business was modest, distributing German newspapers to German prisoners of war still interned in Britain. But from the start, boundless ambition was evident and his goals grandiose: an international publishing empire and control of a major British newspaper that would give him influence and social status.

Capitalizing on postwar export and travel restrictions in occupied Germany, Maxwell capitalized on his new British citizenship to set himself up in London as a global distributor of German scientific journals and textbooks. He was able to parlay that into his own publishing company, which became Pergamon Press.

But he lost control of the company in the late 1960s, after a scandal resulting from an attempt to sell Pergamon to U.S. investor Saul Steinberg. Steinberg backed out of the purchase after reporting that Maxwell had severely misrepresented Pergamon’s assets. In an investigation that followed, British regulators concluded that Maxwell wasn’t fit “to exercise proper stewardship of a publicly traded company.”

Maxwell rebounded from the scandal, however, and eventually regained control of the company. As his holdings grew, he lived ostentatiously, often traveling by private helicopter or aboard his private yacht, the Lady Ghislaine.

Since his death, bizarre new allegations have surfaced almost daily.

Over the weekend, published excerpts from a newly revised version of Bower’s book alleged that Maxwell did favors for the KGB. The allegations come on top of reports, in a book by investigative reporter Seymour Hersh, that Maxwell also had close ties to the Israeli intelligence service, the Mossad.

Correspondent Jeff Kaye reported from London and Times staff writer Scot J. Paltrow reported from New York.

Robert Maxwell’s Shell Game

As his publishing kingdom disintegrated, British tycoon Robert Maxwell apparently accelerated a frantic shuffle, using assets of the publicly held British firms whose stock he controlled to bolster his family’s shaky private holdings. British criminal investigators and auditors are continuing to sort out the rubble.

Where the Money Was Taken From:

Mirror Group and Maxwell Communication Corp. pension funds: $774 million

Mirror Group corporate assets: $171 million

Maxwell Communication corporate assets: $252 million

Total siphoned from public companies: $1.197 billion

Where the Money Went:

Cover operating losses and interest payments at New York: Daily News, the European and other Maxwell family holdings: $144 million

Collateral for loans: $216 million

Contribution to pension fund of BPPC PLC, a company Maxwell sold in 1989: $180 million

Undetermined (perhaps used to bolster stock price of Maxwell Communication): $657 million

Total: $1.197 billion

Source: Associated Press