Advertisement

Great frauds in history: Asil Nadir and Polly Peck

Asil Nadir systematically falsified the books of his company, Polly Peck, exaggerating profits and sales and making off with millions of pounds of investors' money.

938_MW_P31_Profile_Bottom
Asil Nadir

Born in Cyprus in 1941, Asil Nadir and his family moved to London in the 1950s. After graduating, Nadir was invited by the Turkish government to take over a factory in Northern Cyprus that was abandoned as the result of the 1974 Turkish invasion. This venture was successful enough for him to be able to buy a struggling British textile firm, Polly Peck. During the 1980s Polly Peck launched an aggressive expansion programme, turning the firm into a major global conglomerate that owned everything from fruit growers to Japanese electronics firm Vestel. By 1989 it was listed on the FTSE 100 index, with a market capitalisation of £1.7bn.

What was the scam?

In order to fund this expansion Polly Peck took on a huge amount of debt. Meanwhile, in attempt to bolster investor and creditor confidence, Nadir systematically falsified the books, exaggerating profits and sales. From 1988 onwards up to £378m disappeared from the company in the form of loans, dubious transactions and the re-registration of Polly Peck's assets under Nadir's name. While Nadir insisted that these were legitimate loans and were repaid, the evidence suggests they were mainly used either to prop up Polly Peck's share price, or were simply stolen by Nadir.

What happened next?

When they learned about the extent of the transactions, the board of directors demanded that the loans be immediately returned. Nadir refused. With rumours circulating around the City of London, the company was raided by the Serious Fraud Office, causing its share price to collapse. Soon afterwards it filed for bankruptcy, with debts of £1.3bn. In 1993, Nadir was put on trial for fraud, but fled to Northern Cyprus (which has no extradition treaty with the UK), where he lived for 17 years.

Lessons for investors

Nadir returned to the UK in August 2010, was convicted two years later on seven counts of theft and was sentenced to ten years in jail. While investors who bought the company in 1980 and sold at the peak made a return of more than 1,300 times their initial investment, those who held on lost everything. It's good to let your winning bets run, but there comes a time when it make sense to take some money off the table, especially if it looks like the company's good fortune is about to come to an end.

Advertisement
Advertisement

Recommended

Great frauds in history: Alexander Fordyce and shorting the East India Company
People

Great frauds in history: Alexander Fordyce and shorting the East India Company

Alexander Fordyce's disastrous shorting of the East India Company led to him bankrupting the private bank in which he was a partner.
12 Aug 2020
Too embarrassed to ask: what is a dividend yield?
Too embarrassed to ask

Too embarrassed to ask: what is a dividend yield?

Learn what a dividend yield is and what it can tell investors about a company in MoneyWeek's latest "too embarrassed to ask” video.
11 Aug 2020
James Montier: valuations are way too high
Investment gurus

James Montier: valuations are way too high

The market is completely discounting the risk to the economy and operating as if there is nothing to worry about, pricing in a V-shaped recovery, says…
10 Aug 2020
Don’t dump your dividends
Income investing

Don’t dump your dividends

This crisis certainly does not prove that taking regular capital gains is safer than relying on natural income from dividends.
10 Aug 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Gold and silver have taken a vicious beating – is the bull market over already?
Gold

Gold and silver have taken a vicious beating – is the bull market over already?

The gold price has tumbled recently, leaving traders nursing losses – just a nasty correction or has the gold bull market run out of steam? Dominic Fr…
12 Aug 2020
Should you take advantage of the UK’s new breed of domestic holidaymakers?
Buy to let

Should you take advantage of the UK’s new breed of domestic holidaymakers?

With Britons choosing to holiday in the UK this year, the owners of the country’s holiday cottages are cleaning up. Should you buy in, too? Merryn? So…
10 Aug 2020