Those I.O.S. Loans

The long-delayed annual report of Bernard Cornfeld's Investors Overseas Services, Ltd., was finally made public last week. As expected, it was an explosive document that disclosed several reasons why the $2 billion mutual-fund complex tumbled into trouble.

First, the 1969 consolidated net earnings were a dismal disappointment. They came to only $10.3 million--down from $14.4 million in 1968, and far from Cornfeld's predictions that I.O.S. would "double its income every year." Had it not been for a controversial revaluation of some of the company's Arctic oil lands, I.O.S. would have earned less than $600,000. More important, the 1969 earnings were reduced by a $4,000,000 reserve set up to cover "potential losses" from "certain transactions," notably company loans to its own and affiliated officers, directors and employees. Some of them used the money to buy I.O.S. stock. Partly because of these loans, which I.O.S. now officially describes as "unwise," the company's liquid-cash position badly deteriorated, and the stock plunged.

The company's auditors, Arthur Andersen & Co., hedged their approval of the 1969 report because I.O.S. did not give enough information on the borrowers and the amount of the loans. The report reveals, however, that at year's end the loans amounted to $30.8 million. A $4,700,000 loan was made to Denver Millionaire John King, who dropped his bid to take over the company last month. An unspecified company officer borrowed $2,800,000. A total of $8,300,000 was extended to company executives for oil and gas ventures. It has been reported that the loans were cleared by I.O.S.'s former president, Edward Cowett, and that some of them went to his family trust.

Seeking a Comeback. I.O.S. now needs two things: cash and the confidence of investors. Other groups, including rival foreign-based funds, have been dickering to gain control of I.O.S. and provide just that. Last week, in the Paris headquarters of the French Rothschilds, Guy de Rothschild chaired a secret meeting of European and U.S. bankers to hammer out a proposal for taking over I.O.S. Rothschild's interest was more than the noblesse oblige of a patrician banker. His Banque Rothschild was an underwriter of I.O.S.'s $54 million stock issue last fall, and the Rothschild reputation for astuteness has not been helped by the stock's decline from $10 at the offering to $2.50 last week.

A takeover of I.O.S. by a Rothschild-headed bankers' group is not the only possibility. Some company officers have been talking about splitting off parts of the company in which they have influence and, in alliance with bankers, setting up separate enterprises. Complaining of internal dissension, Cornfeld pointed to "those maniacal guys on the board." Cornfeld still has about 15% of the company's stock, and, like Napoleon trying to come back from Elba, he has been jetting from country to country, seeking to gather proxies from his sales managers for a triumphal return to power.

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