Bernhard Cornfeld
Bernard "Bernie" Cornfeld (b.1927, d.1995) was a failed US mutual funds financier. When his funds collapsed, about 500 million dollars of investment money was lost.
Bernald Cornfeld was born in Turkey in 1930. When he moved to USA, he first worked as a social worker but became a mutual fund salesman in the 1950's. In the 1950s the fund market was first starting to boom, and Cornfeld decided he could play the game as well.
In the 1960's Cornfeld formed his own mutual fund, Investors Overseas Services (IOS), which he incorporated in Canada and headquartered in Geneva, Switzerland. He hired 25,000 salesmen who sold his 18 mutual funds door-to-door all over Europe, especially in Germany, to small-time investors. He targeted US expatriates and servicemen who sought to avoid US income tax. Cornfeld called it "people's capitalism".
In the next ten years, IOS raised capital equal to $2.5 billion. Cornfeld himself invested into conspicuous consumption with lavish parties, and became a famous jet setter. At the time the markets were in a fairly long bull market phase, and practically any diversified holdings would make money.
In 1968 IOS launched its "Fund of Funds", which meant investment in shares of other IOS offerings, which offered fixed dividends. The offering was very popular, but then the market dropped and the guaranteed dividends could no longer be made out of capital gains, and had to be paid by cashing in the capital -- in effect, it had become a Ponzi scheme, investors cash was being used to pay off the existing investors.
In order to meet costs and keep the funds going, IOS eventually did an initial public offering to raise funds. However the high fees charged by IOS drove the stock value down, and the share value decreased from $18 to $12 in the spring of 1970. Cornfeld attempted to save the share price by forming an investment pool with some other investors, but the halt in downward movement was temporary, and the shares eventually dropped to $2. Even IOS employees and portfolio managers sold their shares.
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 Corp. When he was discovered, Vesco fled to Bahamas.
IOS collapsed and in the process ruined a number of US and European banks.
Cornfeld moved to Beverly Hills and tried to become a movie director. When he visited Geneva, Swiss authorities arrested him and he served 11 months in a Swiss jail before he could post bail and charges were dropped. He returned to Beverly Hills and to his previous lifestyle. In one stage he dated Heidi Fleiss.
Bernard Confeld died 1995 in England. He kept blaming Vesco at the very end.
