Bernard Cornfeld - Investors Overseas Services

Investors Overseas Services

In the 1960s, Cornfeld formed his own mutual fund sales company, Investors Overseas Services (IOS), with principal offices in Geneva, Switzerland, although it was incorporated in Panama. He also established mutual funds in various jurisdictions, as noted below. Although the executive headquarters were in Geneva, the main operational offices of IOS were in Ferney-Voltaire, France, across the French border from Geneva.

In 1962, IOS launched its "Fund of funds," which meant investment in shares of other mutual funds, including some other IOS vehicles. The offering was popular in the bull market times, and Cornfeld's one-line pitch, "Do you sincerely want to be rich?" became a by-word for its success. During the next ten years, IOS raised in excess of US$2.5 billion, bringing Cornfeld a personal fortune which has been estimated as more than US$100 million. Cornfeld himself became known for conspicuous consumption with lavish parties. Socially, he was generous and jovial, and generally surrounded by a bevy of beautiful young women, including for example Victoria Principal, later widely known as a star in the TV series "Dallas".

At its peak, IOS employed around 25,000 salesmen, who sold a series of mutual funds door-to-door all over Europe, especially in Germany, to small investors. He originally targeted US expatriates and servicemen who had no access to US investing, but the main growth of the business came from the public in countries such as Germany and Italy, who had until then had no other easy access to investment vehicles of this kind. Cornfeld called it "people's capitalism."

There were several reasons for the eventual rapid downfall of IOS, and there is no widely-accepted agreement as to the cause. But it may be true to say that, had the parent company not made a public share offering in 1969, it might have survived for much longer. The pressure to make the public offering came from the salesmen-stockholders, who were eager to cash in their paper fortunes, but the money raised by the company was used by the management to diversify in a number of ways that created a cash shortage. The domicile (but not the offices) of IOS was switched to Canada, and the public offering took place there in the summer of 1969.

Cornfeld decided that mutual funds should take their fees from the profits they made for their investors, not just a percentage of the money invested. That is the way the IOS Investment Program was structured. Unfortunately no other provision was made for operating funds and international stock markets suffered a bear market in late 1969. The value of the IOS mutual funds took a serious fall, eliminating income for IOS. By March 1969, IOS was running out of operating money.

At this point, a little-known American financier named Robert Vesco, head of the failing mini-conglomerate International Controls Corporation, offered his help with $5M, funds which had inconceiveably originated as part of a larger loan from IOS to ICC. Vesco managed to take control of IOS, including the unregulated mutual funds, insurance assets, and real estate equity, after eventually evicting Cornfeld from the management. Having placed his men in key positions within IOS, Vesco ultimately succeeded in transferring over $200 million of cash belonging to the IOS funds, etc. into layered shell corporations domiciled in far-flung areas, and designed to hide the assets from international law enforcement authorities, and make the money available exclusively to Vesco and his minions.

When the SEC issued a public complaint, Vesco fled to exile in a number of Caribbean hideaways, and was reported as having died in Cuba in 2008.

Following the SEC complaint, the Canadian authorities arranged for the IOS entities to be placed in liquidation.