Great frauds in history: John Sadleir

John Sadleir’s multiple deceptions destroyed the Tipperary Joint Stock Bank, ruining its shareholders and forcing many into bankruptcy.

John Sadleir, the son of a wealthy Irish farmer, was born in 1813, followed by his brother James two years later. John initially pursued a legal career, but the brothers went on to set up the Tipperary Joint Stock Bank in 1846, which was run by James. The brothers were also politically active John entered parliament in 1847; James in 1852. John was a leading figure in the Independent Irish Party, which pledged not to serve in office. He was elected and accepted a place in a coalition government from 1852 through 1854. His decision to hold office despite being elected on a pledge not to caused outrage.

What was the scam?

The Tipperary Joint Stock Bank was successful in the beginning, but John's greed started to get the better of him and he began stealing from customers to fund private speculation in land, railway shares and later in the commodity markets. To fund his losses, which eventually totalled £1.5m (£137m in today's money), he mortgaged his property to multiple creditors, including a £247,000 (£22.7m) overdraft with the Tipperary Joint Stock Bank, which also guaranteed many of his other loans. He also began selling forged shares in the Royal Swedish Railway Company, which he was a director of, as well as arranging for the Tipperary Joint Stock Bank to issue additional shares to English investors using a fraudulent balance sheet.

What happened next?

By the start of 1856, the credibility of both Sadleir's empire and the Tipperary Joint Stock Bank were crumbling. With creditors demanding repayment, and newspapers publishing allegations of forgery, John committed suicide on Hampstead Heath on 17 February 1856. Although he left a letter absolving his brother of any blame, it quickly became obvious that James had been fully aware of what had been going on, and he decided to flee the country, spending the rest of his life in exile in Switzerland. He died in 1881.

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Lessons for investors

John Sadleir's multiple deceptions eventually destroyed the Tipperary Joint Stock Bank, which quickly folded with liabilities of more than £380,000 (£32.8m) in excess of its assets. Because limited liability had not then been widely introduced, the bank's shareholders, including the 70 English shareholders who had bought shares based on the fraudulent accounts, not only lost their money, but were also liable for the bank's debt. Many were either ruined or forced into bankruptcy. Generally, the lesson to take home is that it's not a good idea to buy into a bank when the largest creditor is the brother of the managing director.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri