Adelheid Luise Spitzeder was born in Berlin in 1832 and won minor fame as an actress, debuting to great acclaim in 1856. In subsequent years, however, she was unable to achieve a level of success sufficient to sustain her lifestyle. In 1869, desperate for money, she borrowed 100 gulden (roughly £400 today) from a woman she met in Munich, promising that she knew someone who was willing to take the sum and pay 10% a month for it. Spotting her opportunity, Spitzeder advertised similar services via a newspaper and the number of people who were willing to lend to her increased exponentially. She set up the Spitzedersche Privatbank in 1869. By 1872 the bank was so successful that she was considered to be the wealthiest woman in Bavaria.
What was the scam?
The Spitzedersche Privatbank operated as a classic Ponzi scheme, using new deposits to pay interest to the original depositors. Spitzeder's public philanthropy boosted the profile of the bank, as well as improving its reputation as a financial institution. She also bribed newspaper editors to defend her from accusations of fraud, and took advantage of prevailing anti-Semitic attitudes, attacking her critics for being part of a (fictitious) "Jewish cabal".
What happened next?
As early as 1871 newspapers and government officials were asking questions. But since Spitzeder wasn't breaking any laws at the time, they could do nothing and the attacks only succeeded in attracting customers. By 1872, however, the authorities insisted she start following proper accounting procedures. Shortly afterwards, 60 customers (at the prompting of her rivals) arrived at her house and demanded their money back, causing her to flee. She was quickly arrested and the bank closed down. In 1873 Spitzeder was sentenced to nearly four years in prison. Overall, 32,000 people lost a total of 38 million gulden (£152m).
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Lessons for investors
Investors had ample warning from the authorities and the press that her scheme was a fraud, but chose to believe her claims of a conspiracy against her a classic case of confirmation bias (ignoring evidence that doesn't fit with your preconceived notions). Understanding this tendency can help you to overcome it by seeking out contrary views.
-
M&S and Tesco among those warning of a £7bn Budget hitSeventy-nine UK retailers have written to Chancellor Rachel Reeves about possible price rises and job cuts - here is what it means
-
How much does it cost to move home under the Labour government?Home-moving costs are rising and could get more expensive once stamp duty thresholds drop in April 2025
-
Christopher Columbus Wilson: the spiv who cashed in on new-fangled radiosProfiles Christopher Columbus Wilson gave radios away to drum up business in his United Wireless Telegraph Company. The company went bankrupt and Wilson was convicted of fraud.
-
Great frauds in history: Philip Arnold’s big diamond hoaxProfiles Philip Arnold and his cousin John Slack lured investors into their mining company by claiming to have discovered large deposit of diamonds. There were no diamonds.
-
Great frauds in history: John MacGregor’s dodgy loans
Profiles When the Royal British Bank fell on hard times, founder John MacGregor started falsifying the accounts and paying dividends out of capital. The bank finally collapsed with liabilities of £539,131
-
Great frauds in history: the Independent West Middlesex Fire and Life Assurance Company's early Ponzi scheme
Profiles The Independent West Middlesex Fire and Life Assurance Company (IWM) offered annuities and life insurance policies at rates that proved too good to be true – thousands of policyholders who had handed over large sums were left with nothing.
-
Great frauds in history: Alan Bond’s debt-fuelled empireProfiles Alan Bond built an empire that encompassed brewing, mining, television on unsustainable amounts of debt, which led to his downfall and imprisonment.
-
Great frauds in history: Martin Grass’s debt bingeProfiles AS CEO of pharmacy chain Rite Aid. Martin Grass borrowed heavily to fund a string of acquisitions, then cooked the books to manage the debt, inflating profits by $1.6bn.
-
Great frauds in history: Tino De Angelis’ salad-oil scamProfiles Anthony “Tino” De Angelis decided to corner the market in soybean oil and borrowed large amounts of money secured against the salad oil in his company’s storage tanks. Salad oil that turned out to be water.
-
Great frauds in history: Gerard Lee Bevan’s dangerous debtsProfiles Gerard Lee Bevan bankrupted a stockbroker and an insurer, wiping out shareholders and partners alike.
