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Million Dollar Yeggs

Vesco

by Robert A. Hutchinson
Praeger, 376 pp., $9.95

In 1939 a British businessman of my acquaintance was sent by the Department of Economic Warfare to Ankara. His mission was to buy up certain Turkish commodities of strategic value and thus deny them to the Germans. Generously supplied with cash, he went to work with a will. But he began to find his patriotic labors impeded at every turn by the British ambassador in Ankara, Sir Hughe Knatchbull-Hugessen, a person subsequently best remembered for having had the misfortune to employ a German spy as his valet. The businessman tried to explain to Sir Hughe the strategic importance of his activities. The ambassador brushed his explanations aside. “Don’t speak to me of commerce and finance, sir,” he impatiently exclaimed. “It goes in one ear and out the other.”

Recollection of what we might term the Knatchbull-Hugessen response is appropriate here since we are considering the swindler Robert Vesco. The sad fact seems to be that coarse details of financial speculation lack the general appeal of crimes of violence or even of political skullduggery. To put it another way, there is a market for stories about people violently robbing banks, less of one for stories about banks peacefully robbing people. Yet contemplation of banking practices would lead one to suppose the latter to be the more thriving and popular of the two industries.

Indeed the potency of the Knatchbull-Hugessen response seems to be readily conceded by artists and journalists. Alain Resnais recently managed to make a film about the noted swindler Stavisky with little more than the barest indication of what Stavisky actually was up to in the swindling line. His tedious love life, on the other hand, received copious attention. Resnais’s scriptwriter, Jorge Semprun, avoided examining French capitalism by making mysterious references to Leon Trotsky—loyal of Semprun but not very illuminating about Stavisky.

Accusations of vagueness on the topic of Robert Vesco cannot be leveled at Robert Hutchison. Hutchison, in his account of Vesco’s business career from its commencement in an East Detroit car repair shop to its current phase in Costa Rica, proves himself no devotee of the Knatchbull-Hugessen rule. He speaks of nothing but commerce and finance. For over 350 pages he unrolls a saga of unrelieved financial chicanery, culminating in this final citation of the central character’s achievements:

The total IOS swindle, therefore, clearly qualified as unprecedented and gigantic: More than $1 billion in unprotected investments had evaporated or been diverted. In cash and hard assets, Vesco and his group accounted for the removal of at least $500 million—although, obviously, no exact accounting existed. Concerted action by the [US government’s] inter-agency committee resulted in three-fifths of the plundered assets being blocked. By all accounts, that left the Vesco group with between $200 and $300 million secreted in offshore havens, in foreign banks, hidden trusts, and little known Hong Kong trading companies.

Should one allow oneself a tinge of admiration for Vesco for having engineered so colossal a theft? Actually it is impossible to generate any such emotion. At least as Hutchison presents him, Vesco becomes the business equivalent of a pornographer’s creature, grinding through his acquisitive program with vehement and undiluted greed.

As a matter of fact we should be alert to the benefits of Hutchison’s somewhat soulless approach to his material. Stories about businessmen, particularly those by journalists unfamiliar with balance sheets and the entrails of the business world, often retreat into the study of epiphenomena—the businessman’s style of life, his philosophy, and so forth. This type of material diverts attention from the central question about businessmen, particularly criminal ones, namely what happened to the cash. Hutchison really does seem to know what he is talking about here. The quality of his achievement and the difficulties of this type of business investigation should not be underestimated. What we might term aggressive investigative journalism in the business world is rare, partly because most journalists are not trained accountants and partly because corporate secrecy, particularly in Europe, can be totally impossible to penetrate. There is often simply no way to get behind a business address in Liechtenstein or in the Caymans.

The situation in the United States, with its more strenuous regulatory traditions, is a little better. But anyone who has read the 17,000-word complaint charging civil fraud against Vesco and forty-one other defendants, assembled by the SEC and made public in November, 1972, will realize the difficulties of independent investigation. The SEC, after all, worked on the case for twenty months, using eight lawyers. It also had subpoena power. A fair amount of Hutchison’s material evidently derives from the facts assembled in the SEC’s dramatic story of Vesco’s swindles. The SEC account is in fact a classic. Connoisseurs rank it with Carmine Bellino’s less spacious work on the Rebozo-Hughes check connection for the Senate Watergate Committee. But one’s admiration for Bellino or for Stanley Sporkin, who led the SEC investigation into Vesco, should be tempered with the thought that their work is impossible for independent investigators to duplicate. Newspaper reports about business, therefore, often subsist on leaks from the SEC, which is all very well up to a point, but leaves—assuming newspaper proprietors were ardent to see the material published—large regions of our economic and business environment undescribed.

At any rate, undisturbed by any psychological complexities, we can contemplate the successful conquest and pillage of the IOS empire of mutual funds that had been assembled by Bernard Cornfeld in Switzerland. This victory has been somewhat obscured by a distracting detail. Vesco’s $200,000 cash contribution to Maurice Stans in April, 1972, ultimately failed to deflect the immense SEC investigation. Yet the reverberations of that contribution—among them the prosecution of John Mitchell and Maurice Stans—gave Vesco the notoriety he should justly have earned for the manner in which he managed to take over IOS.

Vesco, to be sure, should not get all the glory for that and subsequent achievements of plunder. Balzac remarked that every fortune hides a crime. He forgot to add that every such crime usually hides a good accountant. Accountants slither through the pages of Hutchison’s book, usually from “reputable” firms and usually swift to sign a bogus balance sheet or statement of assets. By far the most ingenious of them appears to have been Norman LeBlanc, Vesco’s accountant after 1970, formerly an employee of the prominent firm of Coopers & Lybrand, and in 1956 the winner in his final accountancy examinations of the highest marks in Canada. But LeBlanc’s hour of glory came only in the third act, as he engineered the looting of the IOS funds, forging complex labyrinths of paper companies through which he shoveled the millions from the IOS funds.

The first interesting phase of Vesco’s business activities began in 1965 when he bought a small concern called Captive Seal. It cost him $50,000 to be paid in five yearly promissory notes, and with its acquisition he launched himself as a conglomerateur. He was twenty-nine and could look back on engineering jobs with Reynolds and Olin Mathieson. His transfer from engineering to entrepreneurial preoccupations came with his discovery of a firm called Eagle Aluminum Products, which had a plant in Dover, New Jersey, with excess capacity. Vesco became a kind of agent for Eagle, finding customers to fill this excess capacity and taking a part of the profits from the business he brought in; he also took a share of some of Eagle’s customers’ profits in return for giving them credit. Finally, from those companies which could not pay at all he took equity instead. Gradually Vesco became more and more involved with the financial and administrative problems of these companies. One of them was Captive Seal.

Captive Seal was a money-losing concern making valves, regulators, and switches for NASA and the US Navy. Vesco’s efforts to keep it afloat led to a couple of introductions that paved his way to the big time. First he met Malcolm McAlpin, a brokerage company executive and chairman of a Delaware company called All American Engineering. Although McAlpin was interested in acquiring Captive Seal, he decided that the majority stockholders were asking too much for it; but he was much taken with Vesco. Indeed All American Engineering immediately offered the “very charming, bright, and presentable” young Vesco a job. Vesco turned it down, but stayed in touch with McAlpin as a splendid guide to those contacts in Wall Street essential for his further advancement. Even more opportune for Vesco was the fact that a 50 percent owner of the venture capital firm that provided the initial funding for Captive Seal was Banque Privée, the Geneva merchant bank owned by Baron Edmond de Rothschild. Vesco had met an American adviser to the Banque Privée, who in turn introduced him to its managing director, Georges Karlweis.

At length the venture capital firm half-owned by Banque Privée decided to wind up Captive Seal as an irreversible loss. Vesco took this opportunity to acquire an operating concern. He made the venture capital firm an offer to acquire all outstanding Captive Seal stock. Presumably his acquaintance with the Rothschild adviser in the US and also with Georges Karlweis helped to finance the purchase entirely by credit, in the form of the $50,000 worth of promissory notes mentioned above. Vesco then went to McAlpin, inviting him to join the board and telling him, incidentally, that he had paid between $100,000 and $200,000 for Captive Seal.

Almost immediately Vesco formed International Controls Corporation, into which he poured Captive Seal’s assets and debts. Finally, he bought 51 percent of a nearly defunct Florida business called Cryogenics Incorporated. Since Cryogenics was a public company with a million shares of over-the-counter stock, Vesco was able to merge ICC and Cryogenics Inc. to produce a public company already registered for stock trading purposes.

So by a few fortunate coincidences Vesco was already hooked into European sources of finance in the mid-Sixties. Banque Privée remained an enthusiastic backer of Vesco for quite a while, and indeed it was Karlweis, at a moment when Vesco was searching for offshore capital in 1968, who introduced him to Henry Buhl, the senior investment officer for IOS.

Now equipped with a mini-conglomerate, Vesco set out to create income for his outfit by a bout of fresh acquisitions. In 1968 more than 4,000 corporate mergers took place in the United States. Vesco accounted for eight of them. By the end of the year the Fortune directory of the 1,000 largest US corporations ranked ICC as 688th in sales. Of course the strength of the Vesco conglomerate was largely illusory, held together by an enormous debt and with earnings per share constantly inflated by “creative accounting.” To keep his momentum going Vesco had constantly to service his debt by making new acquisitions to inflate his corporate balloon even further. So even though ICC was able, at the end of 1969, to post sales of just over $100 million, with a net worth of $41.7 million, the combine still had to report a net loss for 1968 of just over $3 million. Vesco desperately needed to acquire more assets to keep the conglomerate from collapsing under its own weight of debt.

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