Wall Street Crime And Punishment: Robert Vesco Takes The Money And Runs

Does crime pay?

Wall Street Crime and Punishment is a weekly series by Benzinga's Phil Hall chronicling the bankers, brokers and financial ne’er-do-wells whose ambition and greed takes them in the wrong direction.

Robert Vesco had a Boeing Co BA 707 that he named the Silver Phyllis. No one knew why it carried that moniker, as it was not silver-colored and there was no Phyllis in Vesco’s life deserving of that type of tribute. The airplane also had its own disco and sauna, two features rarely found in aircraft.

In many ways, the Silver Phyllis was the perfect representation of Vesco: larger-than-life (only the U.S. president had a private 707), flashy, bizarre, audacious and capable of taking off to far-flung destinations.

Today, the whereabouts of the Silver Phyllis is unknown — which is appropriate, as there is reason to believe Vesco’s personal denouement continued long after he supposedly shucked the mortal coils.

The Detroit Dynamo: Robert Lee Vesco was born in Detroit on Dec. 4, 1935, the son of an Italian-American father who worked on the Chrysler assembly line.

He attended Detroit’s Cass Technical High School, but dropped out at 16, lied about his age to gain work on an automobile assembly line and married at 17 to Patricia Melzer, his neighborhood sweetheart.

On the surface, it seemed that Vesco drove himself into a dead-end life. But as he would later recall, he gave himself three goals: "To get the hell out of Detroit, be president of a corporation and become a millionaire."

His first goal took four years to achieve — he moved from Detroit to New Jersey when he was 21.

Vesco landed a job as a draftsman and then secured a better position as a junior engineer in an aluminum company.

Despite a lack of formal education, Vesco voraciously studied business and legal textbooks to gain an understanding of how the corporate world operated. By the time he was 29, Vesco had the skills to form International Controls Corporation (ICC) as a holding company for building his fortune, thus fulfilling the second of his three goals.

Using loans and IOUs, he acquired Cryogenics Inc., a financially failing manufacturer of cryogenic devices. Cryogenics Inc. was traded on the American Stock Exchange, and Vesco merged it with ICC, thus creating a new public corporation without the need to file forms with the U.S. Securities and Exchange Commission.

ICC began to snap up smaller and weaker companies, including the valve manufacturer Captive Seal and Fairfield Aviation, which owned a small public-use airport in New Jersey.

A more contentious acquisition involved the aeronautic components manufacturer Electronic Specialty Company, but after a flurry of lawsuits, it was successfully folded into the ICC operations.

As his company grew, Vesco’s third goal of achieving millionaire status was cinched by the end of the 1960s. But as a new decade dawned with 1970, Vesco went off in directions that no one could have possibly imagined.

Related Link: Wall Street Crime And Punishment: Cort Randell And The National Student Marketing Corp. Fraud

A Mutual Fund Turned Personal ATM: Vesco had become intrigued with Wall Street and quietly made his way into its ebb and flow as a limited partner in the brokerage Orvis Brothers & Co. and a silent partner in another brokerage, Blalock Wells.

But Vesco had no problems going front-and-center in the case of Investment Overseas Services (IOS), a Swiss mutual fund investment firm experiencing severe financial problems due to the erratic leadership of its founder, Bernard Cornfeld.

The IOS directors were eager to oust Cornfeld and Vesco decided IOS would be his next pick-up, arranging a $5 million loan in September 1970 to help the company stay afloat. And, unknown to Cornfeld, Vesco took out a loan to make that loan.

Vesco gained a seat on the board of directors and four months later he borrowed another $5.5 million to encourage Cornfeld’s departure from the company.

But Vesco was not interested in being a white knight, and once in charge of IOS he began channeling its funds into offshore shell companies and foreign bank accounts.

Financial regulators quickly became aware that something was amiss, and by the time the SEC filed litigation to halt Vesco’s shenanigans in November 1972 more than $224 million had been siphoned Vesco’s pockets. IOS was forced to declare bankruptcy in 1973.

Vesco, who was active in Republican Party politics in New Jersey, tried to use his wealth and influence to call off the SEC’s bloodhounds.

He made a $200,000 contribution to President Richard M. Nixon’s re-election campaign and sought Attorney General John Mitchell’s intercession. But these efforts failed to shield him.

In February 1973, Vesco boarded his Silver Phyllis 707 and took off for Costa Rica. José Figueres, Costa Rica’s president, welcomed Vesco, who arrived with a $2.1 million donation for Sociedad Agricola Industrial San Cristobal, a company owned by Figueres. To ensure Vesco would not be disturbed in his new Costa Rican residency, Figueres ramrodded a new law through his country’s legislature to ensure Vesco would not face extradition.

Caribbean Adventures: Figueres’ term ended in 1978 and the successor government asked Vesco to leave. He somehow obtained an Italian passport that enabled him to hopscotch among countries. He was briefly in the Bahamas and then Antigua, where he hatched a plan to set up a microstate on the neighboring island of Barbuda.

When his safety could not be secured, Vesco journeyed to Nicaragua in 1982, where he was welcomed by the Sandanista government hostile to the Reagan Administration.

But Vesco’s health had taken a turn for the worse and Nicaragua lacked the medical facilities needed to treat his urinary tract infections. He ventured to Cuba, which had the best medical facilities in the Caribbean and no extradition treaty with the U.S. Fidel Castro’s government gave Vesco sanctuary on the condition that he abstain from the financial transactions that forced him to leave his native country.

Back in the U.S., Vesco’s legal woes were compounded with a 1989 indictment on drug smuggling charges based on his dealings with Carlos Lehder, the Colombian drug cartel chieftain, during his Bahamas residency.

Vesco also haunted ICC, which exorcised his presence during the 1980s by paying him $12 million to sell his 26% ownership in the company.

An Unlikely Ending: With Vesco in a Cuban exile the U.S. could not penetrate, public attention on the fugitive financier began to wane.

In 1995, Vesco became news again for his involvement in a strange scheme involving Donald Nixon, the former president’s nephew, and the development of a pharmaceutical designed to strengthen the immune system.

The Cuban government provided funding and facilities for clinical tests, and Vesco was joined in this endeavor by Frank Terpil, a former CIA operative who also turned fugitive and wound up in Cuba.

What exactly happened next is not clear, except that Vesco was arrested "under suspicion of being a provocateur and an agent of foreign special services." He went to trial charged with "fraud and illicit economic activity" and "acts prejudicial to the economic plans and contracts of the state" and was sentenced to 13 years in prison.

Vesco’s final years were mysterious. Press accounts determined he received much better than average treatment in prison, occupying a large private cell that was luxurious by the standards of the Cuban penal system.

It is known that he was released from prison in 2005, supposedly for humanitarian reasons due to his health.

In May 2008, news seeped out of Cuba that Vesco died of complications from lung cancer in November 2007 and was buried in an unmarked grave in Havana’s Colon Cemetery. Cuban authorities said the delay in announcing his death was because Castro’s government viewed Vesco as a “non-issue.”

A New York Times reporter claimed to have seen photos and videos of someone in a casket that resembled the last known photos of Vesco, but U.S. officials have never been able to confirm Vesco’s passing.

However, Frank Tepril would later tell a reporter that Vesco faked his death and fled Cuba for Sierra Leone in West Africa. And Arthur Herzog, a Vesco biographer, gave credence to that claim, stating Vesco “has used disguises in the past” when physical evasion was necessary.

The end … or, to be continued?

(1974 photo of Robert Vesco courtesy of La nación / Wikimedia Creative Commons.)