Great frauds in history: Harry Marks and his dodgy tips

Harry Marks was born in London in 1855 and left school at 16 to seek his fortune in America. After a brief stint as a salesman, he became a journalist in Texas, and then New York, eventually becoming editor of the Daily Mining News. After moving back to London in 1883 he set up the Financial and Mining News (later shortened to the Financial News), remaining editor until 1909. The magazine focused on giving financial advice and exposing financial and public corruption.

What was the scam?

Marks' most flagrant abuse of his position was with the Rae-Transvaal Gold Mining Company, a firm that he tipped heavily in his newspaper. Unknown to his readers, it was created when he acquired a farm in the Transvaal (South Africa) for £10,300, and then sold it to a shell company he had created for £50,000, half of it in shares. The company, which claimed to have discovered gold in the area, was then floated on the stockmarket in 1887 to great acclaim. After the company's shares soared in value, Marks discreetly sold his shares for a huge profit.

What happened next?

Despite the hype, the company made little effort to even pretend to live up to its expectations, spending a grand total of £138 on drilling equipment. As a result, the share price quickly crashed and the company was wound up in 1888, having failed to mine a single ounce of gold. Despite losing a libel action in 1890 against George Butterfield, a rival promoter, who published an expos of the fraud (along with other evidence of Marks' past misconduct), he escaped prosecution, and was even elected to parliament in 1895.

Lessons for investors

While the exact amount of money that Marks made from his scam is unknown, shareholders ended up losing their entire investment in the venture and even creditors only received a fraction of their money back. Even today, investing in single-mine companies remains a very high-risk proposition and you should always do your own research, and be sceptical. As Marks himself wrote, "the [stock] promoter is a species of animal in financial zoology whose position has not clearly been defined. And the City does not quite know what to do with him. It fears him, distrusts him, looks down on him, and runs after him, all in a breath."