Robert Vesco was no doubt the most spectacular figure to emerge from the conglomerate mania of the 1960s.  His meteoric rise to wealth and fame was quickly followed in the early 1970s by a spectacular fall, then flight from the United States to avoid the possibility of serving time for securities fraud.  In this biography Arthur Herzog, in the words of The New York Times, has "painstakingly followed Mr. Vesco's odyssey." VESCO untangles the web of myth and deceit woven around the canny financier, at the same time exposing the roles played by men of wealth and power in facilitating his rise from obscurity.  It is a fascinating study of greed and self-delusion in the world of capitalist high finance.


Excerpts from VESCO

All excerpts copyright©1987 by Arthur Herzog

Robert Vesco is a historic figure, though not the type who appears on postage stamps.  The quarter billion dollars (426 million in 1986) the U.S. Government accused him and others of looting from Bernard Cornfeld's Investors Overseas Services put him at the pinnacle of white collar thieves.  That he had simply walked off with all this money was an article of popular faith and it made him a legend despite his comparative youth — Vesco was born on December 4, 1935 — as well as the object of probably the most extensive effort on record to bag an alleged white collar crook.  He was, if nothing else, durable, and proceeded to hype his way through several small countries on the basis of wealth the Securities and Exchange Commission seemed to have claimed he took, until finally, in Cuba, the strange game ran out, at least for a while.

So notorious did Vesco become, so sullied his reputation, that a man who had worked with him, having most reluctantly admitted me to his office, demanded whether I carried a gun; he was concerned that Vesco had sent me to kill him.  I put my hand in my pocket and deliberately pulled it out with a pointed forefinger.  "Bang," I said.  "You're dead." He nearly jumped out of his skin.

An oddity in the Vesco saga — and there were many, especially after he began to leapfrog around the Caribbean in terror, perhaps demented by then — was that with even a fraction of what he was supposed to have stolen he could have disappeared.

Plastic surgery, a new identity, would have sufficed, or merely a low profile in Costa Rica, for instance, where other purported pirates and brigands have been able to live peacefully.  Sooner or later the United States would have lost interest and Costa Rica would have been disposed to let Vesco and his family stay.  The fugitive — because Vesco wouldn't return to stand trial — did nothing of the sort.  He called attention to himself repeatedly and had the familiar compulsion of the accused to declare his innocence — though not from jail, of which Vesco had a horror.

His protestations went unheard for several reasons.  First, though much of the SEC's claims went unproved — defense lawyers attacked them effectively — the news media treated them as established fact, whether they were or weren't, and the case against him seemed overwhelming.  The SEC refused Vesco a forum even when he asked for one, albeit on his own terms, and his attempts to clear himself were feeble from a public relations point of view.  Second, neither Vesco nor his closest lieutenant, Norman LeBlanc, would or could account for the missing money.  More than a dozen years later the receivers remained in the dark.  Nor did Vesco explain the sources of his at least once abundant cash.  Third, the same qualities that had worked for Vesco when he was on the rise — games playing, secretiveness, manipulation, bravado, a slippery streak — worked against him when he was down.

Vesco, intelligent if not articulate, lacked insight into himself.  His massive ego and pride led to a self-defeating flair for trouble.  Arrayed against him was a savvy, self-righteous government agency that not only detested Vesco for what it called lying but had motives of its own.  Lost sight of almost entirely, in the forest of headlines, was that Vesco's supposed crimes had little or no bearing on American investors, normally the SEC's protectorate.

Vesco did not function alone.  Assisting him at almost every step in the early days were accountants and attorneys (more than a dozen law firms earned high fees because of Vesco), the cream of their profession, well-tailored, handsomely paid, experienced.  Did they knowingly and deliberately participate in a superscam? Were they in their naïveté deceived? Were they objects of SEC overkill? Conceivably, could Vesco not have been guilty except of wolfish ambition, minor league gyps and influence peddling? Or did he in spite and revenge make the SEC charges realities?

Vesco was a child of the roaring sixties, the "wildest and looniest since the 1920s" in Tom Wolfe's opinion.  The period tolerated excesses to a greater extent than we do today, maybe even encouraged them.  It encapsulated all manner of high hopes — military (Bay of Pigs, Vietnam), revolutionary (student movement, black riots, the women's movement), monetary (the stock market go-go years), and festooned ambitions.  Nobody doubted the sixties would burn still brighter even as the giddy decade skittered toward the fall.

Memory lies, of course — accents the vivid colors, ignores the darker ones, shapes jagged ravines into pretty valleys, deserts into gardens.  That house which to childhood's eye appeared to ample is, when revisited, less so. Thus it may be with the past if we remember it as bigger and better than it was.  And yet there was a special quality about those years — charming, euphoric, insular, greedy, overconfident, comic, extravagant, maybe immature and unfair, as President Kennedy claimed life was.  A sense of invincibility abounded.  Americans thought they could accomplish (or get away with) just about anything and often did, heedless of the consequences.

The high flying, big new money people, of whom Vesco was one, had a permissive attitude toward the get-rich-quick clause in the American dream.  The SEC frequently disagreed with their methods and sought to impose its yoke, sometimes by making examples.  Many of the upstart superwealthy, poor to start with, had a contemptuous attitude toward the "establishment" that, for them, the SEC served.  Their ambitious intransigence caused the agency to react.  Since the American securities industry was increasingly international, the Vesco case related to the expansion of U.S. power over securities markets abroad as well as at home, just as the pax Americana of the period sought to impose an American vision of peace upon the world.

Almost like an expression of that superior attitude, an NBC team with a long distance lens sneaked a shot of Vesco, who was prevented by the Cubans from granting interviews, outside his Havana house.  If the picture is fuzzy, the mood of the subject is not.  A morose man stares across a gap of not just yards but years.  He had taken a tortuous road of defiance that had led him and members of his family from New Jersey to the Bahamas, Antigua, back to Costa Rica, Nicaragua and Cuba from which he wanted out.  His hosts would be happy to have him leave, but Vesco, thus far, has nowhere safe to go.

If Vesco is guilty as charged, he should be understood and learned from.  If he is a victim of narrow justice and his own character the same holds true.




The about-to-be-tycoon — from the Japanese taikun (shogun), derived from the Chinese for "great ruler" — immersed himself in literature on acquisitions, mergers, proxy fights, accounting and other techniques for corporate aggression.  Spotting a relevant law book in his attorney's office, he borrowed it and returned it a few days later with the contents memorized.  "I woke up with a substantial interest in various small companies, and I decided to put them all together into one company and run it like a business.  That, I suppose, was the birth of an idea which materialized into the company called International Controls," said Vesco.  the only substantial asset Vesco had was captive Seal, heavily in debt, and his notion of running a business was to increase its size.

But his instincts were unerring.  What was to be the go-go decade on Wall Street had begun badly, with the Dow Jones industrial average dropping from a previous high of 734, in mid-November 1961 — the Bay of Pigs occurred during this period —to 524 by May 1962, a decline of about a third.  On one day alone the market dropped almost 35 points — read more than 100 points in today's terms — many feared the Big Bear, a 1929-type collapse.  Starting then, though, the market turned buoyant, breaking 1,000 in 1965, which, if subsequent inflation is weighed in, would be 2,500 now.  Conditions were ideal for the rise in price of the stocks of conglomerates.

Far-sighed people understood that serious inflation was in the wings — that "A dollar was a deposit on ten".  Borrowed dollars could be repaid with inflated dollars that would cost far less.  Acquisitions made sense if you borrowed to pay for them.  And interest in what we call today "high technology" was increasingly intense, especially if the technology concerned missiles and military equipment needed by the U.S. government for the Vietnam war.

In 1965, Vesco incorporated International Controls.  The name meant little unless as an unconscious expression of his intense need to control every aspect of his environment.  Another dwarf, Cryogenics, headquartered in Virginia, manufactured ultra-cold devices.  Though its esoteric technology had promise, Vesco wanted it for a different reason.  Also in debt, Cryogenics was a public company, listed over the counter and Vesco saw it as a vehicle to list International Controls without having to undergo SEC filing and registration proceedings.  He got in touch with Richard Pershing, vice-president of Western Business Associates, the majority owner of Broadway-Hale Stores, and bought with ICC stock 51 percent of Cryogenics' outstanding shares.  Vesco appointed himself president and, with stockholder approval, merged International Controls into Cryogenics, which changed its name back to International Controls, the corporate survivor, legally domiciled in Florida.  "...we became a public company through the back door," Vesco said.

The new company issued additional stock that could be used to acquire other companies.  "Vesco had an uncanny ability to find people who were weak," said a former associated and pointed to the 1965 example of a New Jersey machine shop Bob learned was in financial trouble.  He had the machinery appraised, took the appraisal to a leasing company and borrowed money on it.  Paying the company's debts, he issued preferred stock in the same company and gave it to the owner as payment.  The thing is, the owner could have done the same himself." But Bob insisted that the stock, convertible into ICC shares, would gain in value and the profits far exceeded what the original owners might have earned by running their own business. And as long as the ICC stock price rose everybody was happy.

Vesco was always on the trail in search of money.  Warren Dunn, his personal lawyer, kept a briefcase in his office with socks, underwear, a toothbrush and a razor in case Vesco called at the last minute, as he did, for instance, from an airplane, wanting Dunn in Houston by 11 p.m. that night.  After a bargaining session that lasted until dawn, Vesco wangled another loan.  He was talented at raising funds and making acquisitions, and he had to engender trust or people wouldn't have lent to or merged with him.  By the end of 1966, tiny ICC showed a paltry net income of $229,000 on sales of about $4.5 million from the manufacture and assembly of precision parts for computers, airplanes, cryosumps, rocket casings wheel hubs and so on, but the company consisted of only two machine shops employing about forty people each.  The business was mostly military.  Like hundreds of small companies, ICC had qualified as a government contractor.  The General Services Administration issued letters as to its needs and the contractors bid.  ICC's performance was not unusual.

The company, however, was public and that made the difference.  In 1966, with ICC trading over the counter in the $2 to $4 range, Vesco, at thirty-one, had achieved his final adolescent objective.  With about 26 percent of ICC stock, he was a paper millionaire.  He was gathering a small, loyal, youthful and bright management group — for instance, Dodd, vice president of production and planning, was a former assembly line worker who earned a BS and MBA in night school — attracted by Vesco's nerve, imagination and energy and who thought the company was going places.  Morale was high.  The executives would often be at their desks until ten or eleven at night and be back in at eight or eight-thirty.  "You didn't want to miss a workday.  They were too exciting," said one.  "We were on a rocket headed up." Every Saturday, the team met to talk about the next step down acquisition road.




Tired of minnows, the predators at ICC's Fairfield headquarters decided to harpoon a "whale", their word for a large company.  Apex Brakeshoe, Fairchild Aviation and electronic Specialty (ELS) were the candidates.  Vesco required greater capitalization for such an undertaking and, in raising it, showed entrepreneurial flair.  He had become a limited partner in Orvis Brothers & Co., a stockbrokerage house — he invested $300,000 of ICC stock in Orvis, probably unregistered — and was around the Street touting his company.  (He was a silent partner in another brokerage house, Blalock Wells.) Orvis underwrote ICC's first public offering, which, fully subscribed, brought almost $7 million into the treasury.  When the price of ICC spurted the company called in part of the units, so that warrant holders bought the stock at one half the market price.  ICC thus made $3 million more.  At Orvis, the partners regarded Vesco with something like awe, especially when he enabled them to buy INC (ICC's trading initials) at less than the market price.  They made good profits on 30,000 shares.  To become a limited partner, Vesco had to pass an investigation by the New York Stock Exchange, where Orvis had a seat.  Nor would Orvis, one hundred years old and respectable, have touched Vesco had it had the slightest suspicion that he was shady.

Still, to Fergus Sloan, Orvis' managing partner, Vesco was cold and all business, a nonentity in social situations.  He once had to push Vesco's feet off his desk.  Sloan felt that the purpose of Bob's involvement in Orvis was to control underwritings of his own.  "When I blocked him, he lost interest except for getting his stock back.  In 1969, the company needed additional capitalization — ICC was our most important asset — but Vesco wouldn't return phone calls and we went under along with a lot of other Wall Street firms." To try to improve its position, Orvis declared uncollected revenue as capital and, as a result, three of its executives served light terms in jail.

ICC was acquiring as fast as it could.  "It's as easy to take on a large company as a small one.  The steps are the same," Vesco said at one usual Saturday skull session at company headquarters.  And certainly acquisitions were preferable to starting businesses from scratch — nobody in his or her right mind did that, unfortunately, perhaps, for the American economy.  Having considered compatibility, size and potential legal problems, ICC selected as the whale Electronic Specialty, A California-based make of electronic components, heating and cooling equipment for aircraft and major structural parts for Boeing.  It had started by manufacturing electric razors and had grown in much the same fashion as Vesco's company.  Through Richard Pershing of Hale Brothers, Vesco arranged a $10 million — ultimately $19 million — loan from Bank of American, only two years after the $200,000 Axe transaction that he had been flabbergasted to have pulled off.  The BOA backing, as he would tell anyone who would listen, made his corporation extremely desirable.  BOA, the Eurobond issue success and the Goulandris deal financed the whale hunt.

Vesco had convinced a group, which included a Greek shipping family named Goulandris, to buy about $4.6 million of ICC shares at a 12 percent discount, the money to be used in a takeover.  ($1 million was deposited in Butlers Bank.) Said Toub, who arranged the transaction, found Vesco "personable and really impressive" — he had checked on Vesco's credentials.  the only trouble was that Vesco guaranteed that the group wouldn't lose money and it did, about 75 percent of its investment, but there had been no deal, except to Toub maybe a moral one, that Bob make good.

Henry Buhl had come through on his promise to introduce Vesco to investment bankers.  In New York, he brought his protégé to Lazard Frères; Salomon Brothers; Allen & Co.; John Loeb, Sr. of Loeb & Rhoades; Lehman Brothers; Smith Barney; and so on — the top of the profession.  Buhl said about Vesco, :He always acted haughtily and never conducted himself humbly with very successful men.  I thought he should show a little bit of humility and they all called me to ask me not to bring him back again.  At one meeting I attended at Arthur Andersen (a large accounting firm), he told the executive V.P. that he didn't know what he was talking about.  I would say it was just bad manners.  Bobby had a chip on his shoulder, but he was goddam smart and turned out to be correct about Andersen?"

Smith Barney agreed to work for the troublesome tycoon in the still secret Electronic Specialty merger, which Vesco apparently expected to be amicable.  He made his intentions know through an intermediary to ascertain how well the ICC embrace — "bear hug" it would be called today — might be received, and instructed Butlers Bank to buy 100,000 shares of ELS for prices less than $40 a share; but Butlers had time to pick up less than half of that, amounting to 2.5 percent of the company, before Vesco met with Electronic Specialty's founder and chairman, William H. Burgess, in Los Angeles.  Burgess was shocked at the prospect of becoming junior partner to a pint-sized concern he'd never heard of, especially as he had his own plans to merge with Carpenter Steel (later Carpenter Technology), which, like ELS, manufactured airplane components.  (At one point, to stop Vesco, ELS searched desperately for Carpenter's president, who was on a fishing trip in Wyoming.)

The two met at Burgess' large Pasadena house and the ELS president may have shown his nervousness by reverting constantly to the topic of butterflies, of which he had a magnificent collection.  Vesco reported to his board that Burgess had been cooperative and friendly, but he nonetheless suspected that the ELS men stalled and felt the deal must be quickly resolved.  (An important motive was that ICC needed a takeover to maintain the price of its stock.) Burgess for his part, asked Vesco how much ELS stock ICC had bought and he came away with the impression that Vesco had more than he really did.  "These are negotiating tactics and we did not say anything untrue," Vesco insisted to the SEC.  "But we didn't answer the question, either."

The misrepresentation issue intensified after Vesco took a call at Smith Barney, talking in private to a Wall Street Journal reporter from which came an item that ICC had 5 percent of ELS.  (ICC people were shocked that Bob would talk to a reporter during delicate negotiations.) Vesco maintained he hadn't mentioned such a figure which made ICC seem more powerful and menacing than it was, but he probably did.  Later, a judge, blaming "the frailties inevitable in human communication", wouldn't take sides in the trial but disapproved of Vesco's tactics.

Burgess and Vesco met on Saturday, August 3, 1969, in New York, after which the men and their wives had dinner.  The merger appeared off, with ELS agreeing to buy its shares held by ICC for $42 a share, about what ICC had laid out.  But a snag soon developed.  ELS, which was to pay ICC's expenses on the deal, wanted a strict accounting and Vesco, either fearing the purchase would fall through, or trying to provoke a dispute, or both, refused.

On August 5, both sides announced that the merger talks had ended but Vesco still drafted details of a tender offer.  After lunch on Tuesday, he suddenly sold 5,400 ELS shares on the phone — "stupid of him," said one of his officers "He just did it." Vesco had planned to unload more, at not less than $35 a share, but his investment banker and lawyers stopped him because the transaction would be viewed as manipulation of the market ICC made a formal offer and, indeed, Vesco was attempting to lower the price of ELS so the premium ICC would have to pay would be less.  That would have been illegal.

Though proxy fights were commonplace then, "hostile" takeovers, in which "raiders" pursued "targets", gobbling them up with stock purchases, were not.  So-called white shoe investment bankers wouldn't touch them.  If a company didn't wish to be acquired it was generally let alone.  Not so Vesco, who in hostile-acquisition terms was ahead of his time — even his board had been against an unfriendly takeover.  He remarked of ELS, "top management was more interested in playing golf and chasing girls.  There was no harm in chasing girls, but you can do that on your own time.  And going off on safaris down to Africa.  But this was their idea of big time management, so to speak." He implied acidly that ELS, whose new headquarters opened on the day Vesco's takeover broke, had moved to Pasadena for Burgess' convenience because he lived there.

The events that followed resembled the hostile acquisitions we read so much about today.  On August 14, 1968, ICC sent a telegram to ELs to probe its willingness to go through with the purchase of ICC's ELS shares, but there was no response and the next day Vesco recommended a tender offer to his board; the black knight from New Jersey intended to fight and Smith Barney resigned.  The irregularities disturbed it.  Smith Barney's Hugh Knowlton said that in an unfriendly acquisition they would all be sued and the risks weren't worth the bother.  Vesco went straight to Carl W. Anderson, the partner in charge of corporate finance at Orvis Brothers, also respectable, though less rich, which agreed to be the underwriter and which had participated, with Butlers, in the $25 million Eurobond issue.  On August 19, hastily prepared advertisements announced the offer to buy 500,000 shares of ELS on the New York Stock Exchange at $30 appeared, to the horror of the whale's executives.

Burgess, evidently furious, wrote ELS stockholders "DON'T ACT IN HASTE.  Electronic Specialty Co. is being raided by a small AMEX company called International Controls, financed by foreign investors.  It is a much smaller company with sales in 1967 of $6.8 million compared to our 1967 sales of $112 million."

Days passed.  Vesco offered to return the ELS stock to those who had tendered if they felt misled, but not much ELS stock had come to ICC depositories.  Over the weekend, Vesco convinced his board to tender not just for part of ELS stock, as had been announced, but all of it, even though the Bank of America had not agreed to finance such an amended deal. BOA eventually did but, as said a participant, "Vesco was playing high-risk poker.  If the bank hadn't come through, we might have lost."

The California company sought a temporary restraining order, which a judge denied, although agreeing there was "a reasonable probability" that ELS would be able to substantiate its accusation that ICC made false representations.  Burgess had said that if the ruling went against Electronic Specialty he and other key officers would resign and tender their shares, assuming Vesco would gain working control.  However, the ICC board thought that Burgess didn't believe ICC had the money and would be forced out.  When ELS executives suddenly tendered their shares, ICC, backed by BOA, ended with 59 percent of ELS and a paper loss of $17.4 million in the selling off of ELS stock that followed.  From the Eurobond offering and the BOA loan, ICC had to pay $3 million annually in interest charges, and its shaky finances led Vesco to conclude that still other acquisitions were required.

Said its former executive vice president Frank G. Beatty, "ICC had been a collection of dogs and cats.  ELS turned it around." The California concern was to be the heart of the business, and Vesco closed its Pasadena office, firing most of the employees, although he brought a few of them East.

After a trial, a judge found, in December, like the one before him, that Vesco had allowed published, misleading reports to go uncorrected and had violated securities laws prohibiting fraud and deceit, but that to force the company to divest itself of ELS stock would be "impractical, inappropriate and punitive" as well as unprecedented.  ELS stockholders might want to take advantage of the ICC offer.  A month later, an appeals court dismissed ELS' suit.

Vesco was jubilant, though others in his company, touring the East Coast to examine the prize were a little awed by the size of the conquest.  In existence only four years, ICC at one stroke became 688 by sales among Fortune's 1,000 largest American industrial corporations.  But the ELS victory had its cost to Vesco, who, meeting Benjamin Payn by accident at a restaurant in December, said lividly, "Why, that goddam judge came close to calling me a crook."

Even during the takeover, which cost ICC $52 million, it picked up two more companies with sales of $15 million.  The corporation decided it needed more office space, and Vesco asked for and received a raise to $50,000 a year from ICC.  (He was paid another $50,000 from ELS.) It was time he said, to consolidate.

By 1969, when Vesco talked into a tape recorder for Munro Schwebel, he was successful in every respect, though he'd emerged with the reputation of a raider.  He had the admiration of perhaps overly loyal associates, the potential of building a major business, strong political influence in New Jersey, serious money, a family that appeared to love him, and yes, a long-lasting affair with another woman -- in short, the components of what many would consider the good life.  He could be mendacious, overbearing, secretive, boastful and something of a con artist, but no major scandal had yet been attached to him.  "If Bob did all those things he's accused of, and I'm not saying he didn't," observed Carl Anderson — formerly of Orvis and closest in business, along with Dodd, to Vesco, who had few if any purely social friends — "something happened to him.  The question is what.  Maybe it was a latent quality that we didn't see, but even so, what is supposed to have gone on is hard for us who knew him well to believe."




Bernard Cornfeld started Investors Overseas Services in Paris with a capital of $300 in 1956.  It was originally aimed at selling Dreyfus Fund shares to GIs in Europe for as little as $25 a month.  At one point, Cornfeld's group of salesmen, broke American expatriates, brought in one-third of Dreyfus' new money.  In 1960, interested in independence and management fees, Bernie, as everyone called him, formed International Investors Trust (IIT), a mutual fund that was followed by Fund of Funds in 1962.  The notion behind Fund of Funds was to invest in American mutual funds, because of their market-guessing skills.  The "great money catcher", as they called it, was an enormous success, as was IOS itself.

Fund of Funds caught the attention of the Securities and exchange Commission in Washington, which argued that it was misleading to imply that a fund containing ten other funds in its portfolio would be ten times better.  The SEC (See Everything Crooked, as it had been dubbed) seemed oblivious to the enormous impact the eager IOS sales force had on customers too small for ordinary financial institutions to bother with and began to watch IOS with a cold eye.

Cornfeld, originally named Benno Cornfield, was born in Istanbul, Turkey, in 1927, of European parents.  A former social worker, he worked fourteen hours a day, as Vesco did, and his business also grew with astonishing speed as did Bernie's wealth.  At its height, his paper worth was over $200 million, read $400 million plus today.  Normally so soft-spoken that people had to strain to hear him, his temper could be violent.  He threw ashtrays and was known to scream profanities in restaurants and stalk out.  He had stuttered all his life, but, except when he was tired or angry, he had learned to control the difficulty with the aid of therapy.  He forced himself to pause, even for long periods, until the hazard passed.  About five-foot-five, plump until he entered the jet set with the aid of his friend the designer Oleg Cassini, Bernie was a lover of gadgets and elegant clothes.  Despite wit, charm and high intelligence (Cornfeld spoke four or five languages, later perfecting his French in a Swiss prison).  Bernie seemed to need to show off and to have constant companionship.  though he neither drank nor smoked, he'd stay up half the night in discothèques, sometimes sleeping in his office.  His attention span was notoriously short and he was always late, sometimes by days.  Women preoccupied him.  He always had girls around, including Victoria Principal, later of "Dallas", who got a London court order against Cornfeld for roughing her up; they reunited briefly.  Bernie believed in "sexual anarchy and hadn't married, he said, because family responsibilities would detract from his job, to which he was devoted.  Cornfeld and the company he created were for him inseparable, and he might have said, in the manner of a French king.  "L'IOS, c'est moi." Although he often held others in contempt, Cornfeld was usually loyal to those who had been in the IOS family from the early days.  One was Edward Cowen, who, as much as anyone else, was responsible for the crisis in IOS that opened the way to Vesco.

Cornfeld saw Vesco as hardly better than a hood, while Vesco perceived Cornfeld as a business dandy who richly deserved being dumped.  To Vesco, Bernie's company had too little will and too much jet set.  Allan Butler, knowledgeable about IOS, agreed with Vesco's appraisal.  The two "talked quite often about his plans for IOS.  He had a fantastic ability to encompass the whole mess, such as IOS then was and get to the root of the matter.  He pointed out that in his opinion IOS was not in need of additional funds, that was not their problem.  He felt they were basically in need of discipline.  He talked very sensibly, very comprehensibly, about the horrors of the Cornfeld era, about the inadequacy and criminal negligence in the...IOS board at that time, and I think we at Butlers Bank felt that [he] was probably the only individual alive who stood a chance of rescuing that operation...I don't think at that point he had any firm plans.  I mean, it was a day-to-day emergency operation with the Cornfeld people still on the board of the company, with Cornfeld doing insane and crazy things on a daily basis and with the savings of thousands of small people involved."




"The idea was simple," Vesco said.  "ICC was going to come in and do the negotiating because we were a little more agile than other people.  Get an agreement, turn around and lay off on some institutions, become white guys and, with all the banking institutions around the world, pick up a profit or some sort of continuing participation.  That was why we got involved in IOS.  That was the whole intention.  I could use my quick wit, legal knowledge, accounting things, to try to influence the (IOS) board as best I could."

The ICC board, meeting in Geneva, was far from united.  Down-to-earth Ralph Dodd opposed the IOS involvement strongly.  He barricaded Vesco in a revolving door with his foot to force him to discuss the matter and they talked all night at Vesco's hotel.  Dodd believed ICC was slipping because it needed Bob and he wanted the company to concentrate on manufacturing as he always had.  Vesco finally said, "You don't see the whole picture." Wilbert Snipes, senior vice president of American National Bank and Trust Co., which had lent ICC its start-up money and was on the board, was frightened by IOS' size and financial condition — he would have preferred a smaller target: an acquisition was in the air.  (Pat Vesco didn't understand IOS' allure in the first place.  "Oh God," she cried, hearing of the possible takeover of IOS, "who needs that?") After Norman LeBlanc, vice president in the Paris office of the ICC accountants Coopers & Lybrand, explained IOS to the ICC directors, Vesco insisted on a unanimous vote for such a momentous step, and Dodd and Snipes finally voted in favor, though Dodd recorded his objections in the minutes.  Typically, Vesco brushed aside questions as to where the money was to come from.

Was the idea to purchase IOS? Vesco said mushily, "Not to purchase IOS.  Get a handle on it.  The problem with it was mish-mash.  Cornfeld was in, Cornfeld was out, you know.  When White was in, nobody got a handle on the mush, okay, and you had Marine Midland, the Royal Bank of Canada, Chemical, the Bank of America and all those funny little people [the would-be-rescuers of IOS] all wanting to get a piece of the gravy and get in.  They could not get a handle on the deal.  They couldn't deal with the IOS board.  That was the problem.  So I, we, said, okay, we'll go in and use our, you know, skills, whatever they were, to get a handle on IOS.  But we got shafted in the process."

Vesco next appeared at an IOS board meeting.  The atmosphere was tense, with half the directors hating Cornfeld and the other half detesting Vesco, who was cool and tough, though not so tough as he would be after he won.  While aware the ICC loan might not be enough, he said, sounding reasonable, he wouldn't have gone this far without being sure he could obtain additional financing.  His company, whose net worth was $42 million, less than half that of IOS, was prepared to wager $10 million on that.  Vesco underscored the interest of the Bank of America and indeed, Alvin Rice, a vice president, had sent to Geneva a team of a half dozen or so — headed by Samuel H. Armacost (later BOA's president) of the bank's London office — that stayed at La Reserve, though to Buhl the bankers seemed to pretend they weren't there.  That was the kind of backing IOS coveted.  A committee was formed to negotiate with Vesco, consisting largely of former Cornfeld supporters.  Henry asked not to be included because of bias — he was a Vesco man.

Under the so-called "Peace of Paris", if Bernie dropped his lawsuits and proclamations, he could return to the board.  Cornfeld had bought, for $1 million, a 10,000-acre tract of land near Palm Springs that he developed as the movie-making capital of the world, to be called Cinema City, and he proposed to raise $50 million by selling participations of $5,000 each, using the redoubtable sales force to give IOS a new lease on life.  His presentation struck the board as vague and Bernie, rejected and having threatened to put the directors in jail, went home with his girls.  He'd appeared twice that day, on a boat festooned with them.  He weary of trying to make the directors understand that IOS didn't need Vesco, whom he called a "hoodlum".  One of his four Great Danes was dying and so, Cornfeld, feared, was his company.

When Vesco visited Cornfeld at Villa Elma the next day, Saturday, August 8, Bernie's impression of Bob was snobbish.  To him, Vesco was a shoe-salesman type in bizarre, undesigner clothes — loud jacket, socks of the wrong color.  Earlier, Bob had said, "I've looked at the company and the only person who's worth anything is you." Secretly Cornfeld agreed.  Bob had gone on, "I want to put the company back on track with you." Bernie had responded crisply, "Sorry, I don't think you can be of help.  There are people who can contribute and you're not one of them."




The press accusation again Vesco and his group was that they bilked IOS and the funds of some quarter-billion dollars.  It would seem to follow, and the SEC stressed the point, that Vesco lacked a legitimate business purpose.  Still, the reorganization of IOS was discussed repeatedly at ICC headquarters in Fairfield, N.J., in January and February 1971.  One meeting, on January 27, involved over twenty lawyers and accountants and lasted more than eight hours.  The "business purposed" seemed to have been to make money.  The question was how and for whom.

"We met in my office," Vesco said, "because I had the largest table.  There were three meetings going on at once; and six phones working at the same time." Vesco's style was to present the broad outlines, leaving details to the professionals.  Using a flip chart with large blank pages he wrote his ideas with a Magic Marker, though lawyers spoke too.

They faced diverse problems.  IOS was losing, Meissner estimated, $5 million a year and one answer was to cut costs.  The staff would be reduced from 1,000 to 100.  The sales force, already demoralized and dwindling, would be eliminated.  No sales force meant no sales.  The answer arrived at was to shut down the funds after the fundholders had a chance to redeem.  Everyone agreed at that time the fundholders must have the opportunity, legally and morally.  The lawyers punched away at the point again and again.

At the heart of the plan was the old IOS belief that a pot of "hot", "flight" or "black" money wouldn't be reclaimed, because it had been illegally invested in the funds in the first place.  The black money records were kept in numbered accounts.  The figure of between $100 million and $150 million was mentioned and Meissner had a number of $200-$300 million that came from an unofficial computer run at the IOS data center at Nyon, Switzerland, one of the largest in Europe.

IOS salesmen, who either lived in or visited their areas frequently, would take payments in cash.  The hot money, sometimes carried out by suitcase, would be deposited with IOS under false names and, if a customer wanted a payment, he would contact his salesman.  After the sales force evaporated, the customer had no means of reaching his representative.  Nor, in a few cases, did IOS know who the customer was.

Vesco, according to Beatty, spoke of making money legitimately from IOS through management fees.  "With his tremendous drive for success, he turned himself inside out to accomplish his goals.  He could never admit failure.  But after St. Antoine, he said, 'I can't do it.  I'll move the assets out.' And it can be construed as stealing when legitimate owners lose control."

Vesco aimed as he did later to close-end the funds and put the boodle in an independent company controlled by him.  After he was accused of "looting and plundering", Vesco wanted to call the new entity "LPI", for "Looting and Plundering, Inc.", a suggestion he repeated often enough to make the Ivy League lawyers gag.  (He also called it "RPL" — for "Rape, Plunder & Loot.") The name that emerged first recorded in Hogan & Hartson handwritten notes dated January 4, 1971), was "ABC" which, though said to stand for "After Bernie Cornfield", was standard business nomenclature for as-yet-uncreated corporations and Vesco had used the letters before.  (ABC was also known in Wilkie Farr files as "FUBAR" for "Fouled (or Fucked) Up Beyond All Recognition".  "Ultimately, it would appear," noted Robert M. Jeffers of H&H, "that Hogan & Hartson will be counsel for ABC Corp." Louis Lundborg, the Bank of American's board Chairman, was listed for H&H as future chairman of ABC.

ABC was to be an offshore company that would "do lots of deals," Vesco said.  IOS stock would be split so as to benefit those who had paid $10 a share on the open market, with a far lesser return to insiders who had opposed Vesco.  IOS stock would be swapped for ABC's.  Fundholders electing not to cash in would receive ABC-related shares.  The other assets would be sold.  The plan called for leaving behind the very name IOS — Vesco wanted to eliminate the "past crap with King and Cornfeld" — and liabilities like losses and lawsuits.  That raised questions about fairness to creditors but they weren't focused on.  (Dumping liabilities was a standard Vesco technique.)

Although the details would change continually, the general idea remained the same until the bitter end with the SEC.  In essence, Vesco aimed to create, from the "hot" money pool a new company with investment capital.  He, ICC or both would own one-third of ABC in exchange for reorganization and management.  A third of ABC would go to IOS, which would swap its assets.  The final portion would be sold, for $11 million at one point to new investors, and Vesco procured a list, perhaps fabricated, that included a Rockefeller fund, a Rothschild fund and various banks.  ABC would make a public stock offering.  It would have its home in an "international business (or maritime) zone," over which the company would have virtual sovereignty.  Sites studied and/or visited by Vesco or his people included the Bahamas, Costa Rica, Morocco, the Azores and islands off Haiti and the Dominican Republic and one in the South Pacific.  The scheme was ambitious, complex (Vesco reveled in complexity) and potentially profitable — the "IOS deal could mean huge economic benefits for ICC," an H&H lawyer noted.

Vesco, who had been considering such a reorganization since the summer of 1971, pursued his plan to the point of ruthlessness.  In January 1971, the Fund of Funds board met at the Castle Harbour Hotel in Bermuda.  It had commissioned a law firm, Donovan Leisure, to write a report on John King's relations with FOF that was less than flattering toward King and it recommended that the fund sue Big John.  Vesco became enraged.  Not a bit intimidated by illustrious names like Wilson Wyatt, former Lieutenant governor of Kentucky; Pat Brown, former Governor of California; Dr. Pierre Rinfret, a financier, Vesco yelled profanities, pounded the table and threatened to take "each and every one of them to court for innumerable years" for having exceeded their "authority in authorizing" the King Arctic investments, said Rinfret, who quit.  Wyatt reported that Vesco's statements "made me much more doubtful about [his] judgment." Brown's reaction was "one of suspicion, dislike and distrust...." The Donovan Leisure man called Vesco's performance "extortion in Bermuda," adding that "Vesco was a very bad man and he acted badly." Vesco didn't want FOF to sue John King because his reorganization would be impeded and, though the directors found Vesco rude, aggressive, arrogant, abrasive, a blackmailer and just about everything else, the board failed to sue King Resources and Donovan Leisure resigned.  Vesco had won.

Vesco told a reporter that his intention with IOS was "getting the beast by the tail so that we could beat its head against a wall." "Won't you have a dead cat?" "Yes, but it could have nice little kittens." Even before the ICC loan, Vesco and Meissner had spoken of spinning off the banking, real estate, management and insurance business of IOS to bring down costs but had kept the kittens secret because they feared that IOS would conclude it could do the same without them.  In November and December 1971, after the Canadian court victories, the assets were spun off as International Bancorp Ltd., of which ICC received 22 percent of the voting stock and Value Capital Ltd., of which ICC got 38 percent, again because of its IOS holdings.  Said the SEC in a 1978 brief, "Since Vesco controlled both ICC and IOS he was in a position, about [sic] any sense of fiduciary obligation to IOS shareholders, to dole out to ICC any amount of IOS (IBL-VCL) shares."

Although International Controls had received valuable assets, Vesco was more with ABC by then.  "I was interested in and infatuated with the offshore financial world. . . .It's intrigue, it's out there, something new, you know, it's a challenge. . . .(We (I) are not too good at assembling valves on an assembly line but we (I) can sure spit out agreements. . ."

Vesco could never confess to bad judgment and easily swayed others.  His quick mind, almost total recall of numbers, and, as the corporate world admires, untiring work habits masked for the lawyers and accountants who seemed deficient in insight, his psychological problems.  He was always highly compartmentalized, perhaps even from himself, motivated by whatever grandiose fantasies.  Nobody was permitted to know more than a fraction of his internal equations — where this accounting piece or that legal maneuver or, ultimately, the disposition of the IOS board, fitted into the schemes he kept to himself.  Because he always appeared in complete control, others were discouraged from prying, though they should have.  They might have discovered that Vesco's universe was designed almost exclusively to benefit himself.  He would pursue his schemes to the point of folly, regardless of the SEC or the growing effect it had on ICC.