Gregor MacGregor (born 1786) served in the British Army, rising to the rank of major before being forced to resign in 1811 as the result of a fight with a superior officer. After the death of his wife later that year he joined the Venezuelan army in that country’s fight for independence from Spain. He later fell out with independence leader Simon Bolivar and so moved to London in 1820, announcing that he had been made the Cazique (tribal chief) of Poyais, a new country in Central America. He then proceeded to sell £200,000 (£17.9m) worth of bonds in the government of the new country.
What was the scam?
MacGregor had legitimately acquired land on the Mosquito Coast, in what is now Nicaragua. MacGregor claimed this was a thriving settlement with its own parliament and a population of 20,000 in the capital city. In truth, it was an uninhabited and uninhabitable stretch of land. To bolster the fraud, MacGregor wrote a book extolling the virtues of this “utopia” under a pseudonym, and paid people to write ballads extolling the opportunities to be had there. These were so persuasive that 250 people paid money to be part of an expedition to the new country.
What happened next?
Months after the Poyais bonds were floated, the market for foreign bonds in general was hit due to a dispute over debt issued by Colombia. By the end of 1823 the Poyais bonds were trading at a tenth of their face value. After hearing that the survivors of the failed expedition were about to return home, MacGregor fled for Paris. He was arrested for fraud in 1826, but he successfully defended himself and organised a second flotation of bonds, arguing that the failure of the original expedition was the fault of the people in charge.
Lessons for investors
By 1838, MacGregor was forced to emigrate to Venezuela, where he was granted a generous pension in recognition of his efforts during the War of Independence. Those who invested in Poyais, by buying bonds or land, ended up losing all their money. The spread of global communications makes such a spectacular fraud unlikely today, but echoes of the Poyais scandal can occasionally be found in the resources sector, with people making wild claims about a gold or oil discovery that are impossible to properly verify.