Great frauds in history: James Whitaker Wright
James Whitaker Wright's London and Globe Company acquired various mining companies, fiddled the accounts and defrauded investors out of millions.
How did it begin?
Born in 1846 in Stafford near Birmingham, Wright became a preacher before moving to Canada in 1870 and spending two decades promoting American mining companies. Facing multiple shareholder lawsuits, he returned home in 1889. In 1894 he set up the London and Globe Company, which focused on acquiring mines and shares in various mining companies. Touting the companies boosted their shares, allowing him to sell at a profit. He earned enough to be able to spend £250,000 (£28.4m in 2018) on buying Lea Park (now Witley Park) in Surrey in 1896, followed by an estimated £1.15m (£130.7m) on renovating it.
What was the scam?
Most of the companies that the London and Globe invested in were firms that Wright was promoting; the company also took punts on other mining companies, most of them worthless or overvalued. To maintain the illusion that it was making money, Wright falsified London and Globe's balance sheet, exaggerating the value of the mines that it owned and omitting liabilities. To enable it to keep paying dividends he also began to "juggle" cash between London and Globe and his other firms.
What happened next?
The failure of several mines that Wright had promoted, as well as revelations that he had been making payments to journalists, meant that by 1898 people were starting to ask questions about his business empire. As London and Globe's losses and debts mounted, its position became unsustainable and it collapsed in 1900, after Wright announced that it would no longer be paying dividends. Although the authorities refused to press charges, a private prosecution brought by investors caused Wright to be convicted of fraud in 1904. He committed suicide to avoid seven years in jail.
Lessons for investors
London and Globe's massive debts meant shareholders were wiped out, while creditors only got back a fraction of their money.Investors in the 13 companies that Wright had promoted lost around £8m (£846m). Whitaker was also notorious for his use of "guinea pig" directors and public figures (including a former viceroy of India) who lent his scheme credibility but lacked the financial knowledge or the inclination to scrutinise what he was doing. A board filled with celebrities or family friends is always a red flag.