Ernest Terah Hooley was born in Nottinghamshire in 1859, the only child of a lacemaker. Ernest started work in his father's business and by 1888 had earned enough to buy Risley Hall in Derbyshire for £5,000 (about £640,000 in today's money). He then moved into stockbroking, making headlines when he boughtthe Pneumatic Tyre Company for £3m and then floated it (now named Dunlop) for £5m.
Over the next decade hewould repeat this trickwith several other firms, including bicycle maker Raleigh and beefy drink brand Bovril. By 1895 he was wealthy enough to be able to afford to buy Papworth Hall in Cambridge for £70,000 (£9m).
What was the scam?
In order to get the public to buy shares in the firms he was floating at inflated prices, Hooley employed every trick in the book, from making fraudulent claims about how much money the firms were making to bribing journalists to write favourably about them.
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Indeed, he would later complain that many of his profits ended up in the pockets of newspaper and magazine editors. He also engaged in market manipulation by getting companies under his control to make large bids for other firms (whose shares he had covertly acquired), which they would later abandon (but not before he had sold his shares at a profit).
What happened next?
Hooley's extravagant lifestyle, and investor anger after the shares in the newly floated firms collapsed, eventually caught up with him, and he was declared bankrupt in 1898. He was able to ensure that his wife retained control of his properties, however, and he was acquitted on multiple charges of fraud. Over the next three decades he attempted to make several comebacks, with mixed results. He went bankrupt three more times and was imprisoned twice.
Lessons for investors
In 1898 the Pall Mall Gazette estimated that the 17 firms Hooley had been involved with had fallen in value by over half since flotation, with investors losing a total of £4.3m (£549m in today's money).
Part of this was down to Hooley's fraudulent behaviour, but the bubble in the bicycle sector (which many of Hooley's companies were involved in) made his task easier, as people were willing to invest without paying much attention. As Warren Buffett later said: "It's only when the tide goes out that you realise who's been swimming naked."
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