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.