Investors Overseas Service
Encyclopedia
Investors Overseas Services, Ltd. (IOS) was founded in 1955 by financier Bernard Cornfeld
. The company was incorporated outside the United States
with funds in Canada
and headquartered in Geneva
, Switzerland
. In the 1960s, the company employed 25,000 people who sold 18 different mutual funds door-to-door all over Europe, operating mostly in Germany
with small investors. The company mainly targeted American expatriates and U.S. servicemen who sought to avoid paying income tax. The mutual fund offerings by the company were called “people’s capitalism” by founder Cornfield.
In the following decade, the company raised $2.5 billion, due in part to its “Fund of Funds,” which meant investment in shares of other IOS offerings. The offering was very popular in the bull market times, but then the market dropped and the guaranteed dividends had to be paid straight out of the capital—in effect, making it a pyramid scheme
. IOS was forced into an Initial Public Offering to meet its costs. The next bear market made many investors cash their funds as stock value decreased.
Share value decreased from $18 to $12 in the spring of 1970. Cornfeld formed an investment pool with some other investors, but they lost when the share value dropped to $2. Even IOS employees and portfolio managers sold their shares by this time.
Financier Robert Vesco
who, at the time, was also in financial trouble, turned to Cornfeld and offered his help. Vesco proceeded to use $500 million worth of IOS money to cover his own investments in his International Controls Corporation
. When he was discovered, Vesco fled to the Bahamas. IOS then collapsed and in the process ruined a number of US and European banks.
Bernard Cornfeld
Bernard "Bernie" Cornfeld was a prominent businessman and international financier who sold investments in US mutual funds, and was tried and acquitted for orchestrating one of the most lucrative confidence games of his era.-Early life:Bernard Cornfeld was born in Turkey...
. The company was incorporated outside the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
with funds in Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
and headquartered in Geneva
Geneva
Geneva In the national languages of Switzerland the city is known as Genf , Ginevra and Genevra is the second-most-populous city in Switzerland and is the most populous city of Romandie, the French-speaking part of Switzerland...
, Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
. In the 1960s, the company employed 25,000 people who sold 18 different mutual funds door-to-door all over Europe, operating mostly in Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
with small investors. The company mainly targeted American expatriates and U.S. servicemen who sought to avoid paying income tax. The mutual fund offerings by the company were called “people’s capitalism” by founder Cornfield.
In the following decade, the company raised $2.5 billion, due in part to its “Fund of Funds,” which meant investment in shares of other IOS offerings. The offering was very popular in the bull market times, but then the market dropped and the guaranteed dividends had to be paid straight out of the capital—in effect, making it a pyramid scheme
Pyramid scheme
A pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public...
. IOS was forced into an Initial Public Offering to meet its costs. The next bear market made many investors cash their funds as stock value decreased.
Share value decreased from $18 to $12 in the spring of 1970. Cornfeld formed an investment pool with some other investors, but they lost when the share value dropped to $2. Even IOS employees and portfolio managers sold their shares by this time.
Financier Robert Vesco
Robert Vesco
Robert Lee Vesco was a fugitive United States financier. After several years of high stakes investments and seedy credit dealings, Vesco was alleged guilty of securities fraud. He immediately fled the ensuing U.S...
who, at the time, was also in financial trouble, turned to Cornfeld and offered his help. Vesco proceeded to use $500 million worth of IOS money to cover his own investments in his International Controls Corporation
International Controls Corporation
International Controls Corporation was an American holding company incorporated in 1965. Before being taken private in 1997, its subsidiaries included Checker Motors Corporation and Great Dane Trailers...
. When he was discovered, Vesco fled to the Bahamas. IOS then collapsed and in the process ruined a number of US and European banks.