Clarence Hatry started out as an insurance clerk before moving into business in World War I. His first success came with a reinsurance firm, the City Equitable Fire Insurance Company, which he eventually sold for more than four times his initial investment. During the 1920s he was involved in a string of companies, many of which went bankrupt. Chief among these failures was the 1923 collapse of the Commercial Corporation of London. However, Hatry's ambitions could not be contained, and by 1929 he owned a string of financial businesses, including a successful brokerage that issued bonds for local towns, undercutting established firms, and several investment trusts.
What was the scam?
Having financed consolidation within the jute-manufacturing industry and helping Debenhams to acquire a large number of independent drapery shops, Hatry tried to pull off a merger between British steel and iron concerns. Just as the deal was about to go through in the summer of 1929, one of the main backers pulled out. With his other investment trusts in severe trouble, due to a bad investment in a photo-booth company, which he tried to prop up, Hatry succumbed to the temptation to forge municipal bonds that his brokerage was underwriting, and used them to raise additional cash.
What happened next?
Despite the fraud, Hatry realised he would need even more money if the deal was to go through. After making a last desperate plea to the Bank of England for a bridging loan, Hatry was forced to declare bankruptcy. Hatry and his associates then confessed to the Director of Public Prosecutions and were immediately jailed, although one of the directors was able to escape to Italy. Hatry was sentenced to 14 years in jail at the subsequent trial.
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Lessons for investors
The collapse of Hatry's empire was a major scandal that was later seen by many people as the trigger for the Wall Street Crash, which took place about a month later, though this seems unlikely. Hatry's demise provides a powerful lesson in the importance of cutting your losses. Had he not continued to invest in the photo-booth company he might have been able to complete the steel deal. At the very least, had he not resorted to fraud to save his business empire, he would have remained a free man.
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