Do You Sincerely Want To Be Rich? (61 page)

    By October, Milosis and Summit Associates were getting worried. They then received a promissory note from Cowett for $1.8 million, and Cowett managed to get Robert Vesco interested in the shares. Butler's Bank of the Bahamas brought in, and an option agreement was drawn up. In early 1971, Cowett maintained that his obligations to Milosis were 'in process of being honoured', while Vesco himself told us that he had secured the voting rights on the shares.

    The down period found Cowett more relaxed and affable than the tense days of 1969 and 1970. He was always available to advise an old colleague on a Panamanian company, to deliver a homily on the evils of speculation, or to analyse the downfall of IOS. His break with Cornfeld appeared to be absolute: quiet contempt was his most amiable mode for discussing his great collaborator. Although Cowett is secretive about the inner details of his finances, it is certainly true that his amazing manipulations with IOS shares left him with heavy obligations and no obvious profit.

    But Cowett, perhaps, was one of the few men in the organization who did not 'sincerely want to be rich'. Obviously, he liked to have money. What he sincerely wanted was the joy and fascination of composing elegantly complicated, audaciously vast schemes and leverages, whose true beauty was known only to himself. If you ask him what he was doing it for, he says: ‘I just liked going into the office every day to face something completely different and new.'

    A good many of those who had sincerely wanted to be rich achieved their purpose. They may not have become as rich as they wanted to be, or as they thought they were. But for some of the people in IOS, all the money in the world would still not have been enough. The one penalty of wealth was being submitted to some rather rude questions from time to time.

    Arthur Lipper III, for instance, the stockbroker, spent a good deal of 1970 trying to fight off the sec. The unforgiving Commission alleged that Lipper had improperly returned parts of his broking commissions to IOS during 1967 and 1968. The money was paid to Investors Planning Corporation, Walter Benedick's old firm which IOS owned in those years before the sec made Bernie sell it off. The sums involved only came to $r.6 million, which by this stage in the IOS story was virtually small change, but Lipper and Cowett had to appear in public hearings in New York, and at the beginning of 1971 the case was still not resolved. Lipper, no doubt, was able to comfort himself with the thought that during the years with IOS his brand new firm had built up a net worth of $14 million.

    George Landau stayed on with an office in 119 Rue de Lausanne, coming to terms with his relatively diminished wealth. Landau's shares had been worth $12 million at the offer price of IOS, and he had received $1.2 million cash for selling 10%. There was obviously going to be some left. Don Q. Shaprow, his old partner, decided to retire. It took a clerk a whole day to write him out of the override system.

    Things really did not turn out too badly for most of the veterans. Eli Wallitt said: ‘I can't honestly regret those ten years. It's just that they weren't real.' The solid Swiss banker's mansion that Mr Wallitt owns, at 35 Quai de Cologny, is very real. He fives an agreeably leisured life there, punctuated by business trips to England or Germany.

    Dick Gangel, that other old Socialist, was selling a house at the end of 1970: it was in Rutland Gate, London, just by Hyde Park. Gangel was asking a million dollars for his house, the highest price ever asked for a private house in London. It was the kind of solid Victorian palace that Soames Forsyte might have lived in, except that Soames might not have bothered with a heated indoor pool, solid gold taps throughout, and such details as twin Gothic lavatories for the children. Gangel was planning to set up a company called Financial Partners International, to finance ex-IOS salesmen starting up their own businesses. It was much-felt need, although at the time of writing Mr Gangel had not announced any specific ventures.

    The more successful salesmen, of course, did not require it. Werner Kunkler, for instance, had diversified sensibly into hotels and into women's hairdressing shops. However, he had an eye to the future: when we talked to him in 1970, he thought that what IOS
t was a good thing for IOS to have some people like himself, who were
not
afraid of losing their jobs. Allen Cantor stayed; his view was that most of IOS's troubles had been got up by the press. Having addressed his salesmen on Truth, he addressed the authors on Responsibility. 'How does it feel,' he asked, 'when you write that little word, "sell"? Do you think about the little people, the ones who get hurt in the stampede? Do you think you have a responsibility there?' What we felt responsible for was that we had
not
written that people ought to sell out of the IOS funds. That was partly because we had taken some of Mr Cantor's earlier effusions at their face value.

    Harvey Felberbaum, who was busy turning himself into an orthodox Italian businessman, was rather franker. 'You have to feel bad about putting people into some of those investments, the way they turned out. I just want to stick around long enough to see that nobody can horse around with the customers' money any more.'

    The miraculous institutions of the offshore world were collapsing one by one. In September, Keith Barish and Rafael Navarro of Gramco had to suspend redemptions on usif, their 'liquid real estate' fund. ‘I think we've shown that this concept needs rethinking,' said Robert Long, Gramco's investment chieftain. 'The whole offshore business is a dead apple,' Pierre Salinger told us frankly. The directors of Gramco Management met, and decided to pay themselves a suitable fee for selling off the large pile of real estate they had built up. It was hoped that by turning Gramco into an ordinary real estate company something might be saved for the customers.

    Gramco at least made some attempt to explain themselves, and Rafael Navarro sent one of the authors a velvet Christmas card. As for Jerome Hoffman, his enterprise simply collapsed, to the considerable embarrassment of Reginald Maudling, Lord Brentford and Mr Hoffman's numerous creditors.

    Not all of the customers elected to 'take their lumps' quietly, when it really began to sink in that large chunks of their money seemed to have vanished more or less permanently. In the nature of things offshore, it was hard to know where to sue, but people began to put lawsuits together. And in January 1971, roughly one year after the season of his greatest triumph, a group of Fund of Funds investors committed the ultimate
lese majeste,
and filed suit against Cornfeld himself in Switzerland. The circumstances must have raised a laugh at the sec offices - after all of Cornfeld's skirmishing about keeping the identities of his customers secret. The suit was taken out by a group of Swiss attorneys, acting for a series of numbered accounts.

    The suits aimed to test, under Swiss law, firstly whether it had been legal to start putting Fund of Funds money into the Natural Resources Account, and secondly whether it was then legal to 'spin off' the holdings into a separate closed-end company. These interesting points were still unresolved at the time of writing, but what was fairly clear was that it was not going to be easy to get back any substantial part of the supposed $217 million shunted into Global Resources from the Fund of Funds.

    On December 31, 1970 - exactly one year after taking the famous fee for revaluing it - IOS admitted that a good part of the Fund of Funds Arctic holdings had 'little present economic value'. In an 'interim report' Global Resources said that many of its permits were for acreage 'at water depths making development under presently available techniques impractical'.

    Four days before the suit was filed, Bernard Cornfeld had severed the last of his links with Investors Overseas Services. The three months since he had been re-elected to the IOS board had not been particularly happy ones. There was, for a start, a row over his old office with the raw silk walls. Sir Eric Wyndham White had moved into it on assuming the chairmanship and the presidency, but a couple of days after the compromise with Vesco was fixed up, Sir Eric arrived at 119 Rue de Lausanne to find Cornfeld moving back in. There was a brief argument, which led to one of Cornfeld's famous, but now much less effective rages. Then Cornfeld moved out again.

    There had been some kind of vaguely expressed hope that Bernie might spend some time inspiring the sales force, but in fact he spent very little time in the shop, beyond going to board meetings. One reason, perhaps, was that his personal affairs required a good deal of attention.

    The strict tally of Cornfeld's personal wealth had naturally been exaggerated during the boom years, when a man needed to have an alleged worth of at least $300 million in order to be considered for the title of 'financial genius'. Even so, while the good times lasted he was a very rich man indeed.

    After he had received $8 million cash for selling a small slice of his IOS shareholding in the offer, he retained holdings in IOS worth around $90 million at the rate of $13-14 per share. He also had large load-free holdings in IIT and the Fund of Funds, and his shares in the subsidiary IOS Management were worth more than $3 million alone. He had a quarter of a million dollars in State of Israel bonds, and about half a million dollars in the Playboy enterprises and he was about to take delivery of a bac i-ii airliner, priced at around $4.4 million. Together with his two castles, his three town houses and his apartments and some other investments, he was worth about $150 million around the New Year of 1970.

    There were, and are, men with larger personal fortunes, although not many people have acquired so much wealth so rapidly. But Cornfeld carried with him, concentrated upon his otherwise unremarkable person, the glamour of two and a half thousand million dollars. It was not, granted, his own money, but people did not really see the distinction. It was money controlled by IOS, and Cornfeld to an unusual degree personified the corporation that he led. Indeed, for many of his followers and admirers he was the incarnation of the idea of wealth: they would almost have weighed him in gold, as the Ismailis do with the Aga Khan.

    The scale of Cornfeld's personal wealth telescoped with violent speed during the year. The shareholding which had been worth the better part of $100 million shrank to $5-6 million at most. And what was worst about this was that it no longer possessed the marvellous liquidity of the boom years. Cornfeld had originally created and owned, for virtually no investment, all of the shares in IOS: over the years, he had been used to selling off small parcels of this substance whenever he needed particular sums of cash, and according to his own account he sold off about $6 million worth before the public offer.

    From the time of the May crisis onwards, IOS shares were no longer saleable in any ordinary way. Small parcels might occasionally be bought in the same spirit as a lottery ticket, but the only reason Cornfeld's holding retained real interest was that it was by far the biggest single block of shares in IOS. Therefore anyone who wanted to gain effective control of the company must buy, or in someway neutralize Cornfeld's shares. For a few months, Cornfeld remained bitterly unwilling to surrender this vestigial remnant of his once-great power.