Marc Rich, half-owner of Twentieth Century-Fox Film Corp. and one of the largest crude-oil traders in the country, is under investigation by a federal grand jury in New York to determine whether he improperly diverted $23 million in questionable crude-oil profits in 1980 and 1981 from his U.S. company to a Swiss affiliate, according to a government source.
The investigation began earlier this year in the U.S. attorney's office for the Southern District of New York, which has sought assistance from the Internal Revenue Service to determine whether Rich's intricate worldwide oil trading practices violated tax law.
Central to the investigation is an alleged conspiracy between Rich and two Texas crude-oil traders, David Ratliff and John Troland, who at that time were operating West Texas Marketing Corp. of Abilene.
Both men pleaded guilty and served 10-month prison sentences in an unrelated series of oil transactions.
They have cooperated with federal authorities by outlining their allegedly illegal transactions with Rich's companies.
Ratliff and Troland said in telephone interviews during the weekend that they told federal investigators their firm engaged in the following transactions described in the investigation:
Marc Rich and his U.S. company, Marc Rich + Co. International Ltd., sold volumes of allegedly price-controlled crude to the West Texas company.
Subsequently, the Texas company allegedly claimed the crude was unregulated and more than doubled the price, thereby generating enormous profits.
Most of the profits allegedly were held for Rich and later transferred to the account of his Swiss company. To cover up those profits, Rich's Swiss affiliate and the Texas company allegedly faked additional transactions that lost an amount of money equal to those profits.
Rich could not be reached for comment on the allegations being investigated and declined an earlier request for an interview.
In an Oct. 7 letter, Rich's secretary said, "Mr. Rich has aked me to advise you that the policy of our firm is not to grant interviews."
Rich's attorney, Edward Bennett Williams, said, "I can't comment, I never comment on a client's problems or activities, especially when it involves a grand jury."
Rich's vast crude-oil trading operation reportedly has controlled tens of thousands, perhaps hundreds of thousands of barrels of crude oil a day and commanded premium prices on the spot market during the 1979 world oil crisis touched off by the Iranian revolution.
During the peak of the 1979 oil crisis, Rich and his affiliates reportedly controlled up to 150,000 barrels a day of Nigerian crude-oil production alone. One major U.S. oil company that fell drastically short of its crude requirements in early 1979 paid Rich $5-a-barrel and $8-a-barrel premiums over the official Nigerian price for access to some of that crude.
Rich, 48, runs his international commodities trading operation from Fifth Avenue offices in New York.
It is a business he built after leaving Philipp Brothers (now Phibro Corp.) in 1974.
At Philipp Brothers, Rich was a senior trader and reportedly quit in a salary dispute in the wake of the 1973 Mideast oil embargo.
Rich went out on his own, taking several top Philipp Brothers' traders with him.
Rich's name did not surface publicly when Denver oilman Marvin Davis negotiated the $722 million purchase of Twentieth Century-Fox that was approved by Fox's directors in June, 1981. Several months later, Fox officials said Rich was a partner in the deal.
In later filings with the Securities and Exchange Commission, Fox reported that Rich's Netherland Antilles affiliate, Richco, was a half-owner in TCF Holdings Inc., the Davis company that purchased Fox. Fox reported that Richco contributed at least $75 million in purchase money through an irrevocable letter of credit and an undisclosed amount of cash.
Through the purchase, Davis and Rich have turned the publicly held film company into a privately held one.
Davis subsequently added several prominent Americans to its board of directors, including former president Gerald R. Ford, former secretary of state Henry A. Kissinger and Washington attorney Williams, who has handled legal matters for Davis for some time.
There has been no suggestion that Rich's participation in the purchase of Fox was related to the crude-oil transactions under investigation.
According to Ratliff of West Texas Marketing, he and Troland were introduced to the Rich organization by one of Troland's former colleagues who had gone to work for Rich.
Ratliff also told investigators that beginning in September, 1980, Rich's company allegedly sold cheap, price-controlled crude oil to West Texas Marketing, which in turn sold equal volumes of crude at world prices, thus creating a huge profit margin, much of which was retained for the Rich firm.
The transactions were allegedly illegal because they required West Texas Marketing to knowingly switch the certifications on volumes of crude oil from price-controlled levels of about $12 a barrel to high, world price levels of $30 a barrel or more.
Instead of paying the allegedly illegal profits directly to Rich's U.S. firm, the Texas firm allegedly transferred the money to Rich's overseas affiliate and disguised the actions by creating paper losses through a series of foreign crude transactions.
The transfer was allegedly arranged this way: Rich's Swiss affiliate sold on paper certain volumes of foreign crude oil at world prices to West Texas Marketing. The Texas firm turned around and resold the fictional crude at less than the world price, thus creating huge losses.
The losses were formulated to equal Rich's profits from the domestic crude-oil sales.
By manufacturing this loss, the West Texas Marketing officials "balanced" their books and allegedly hid the Marc Rich profits that had been transferred offshore to Marc Rich & Co., AG.
A spokesman for the U.S. attorney's office in New York declined to comment on the investigation.