Childhood friends Mordecai Weissman and Myron Goodman founded O.P.M. Leasing Services in 1970 above a sweet shop in New York. O.P.M – whose initials officially stood for Other People’s Machines, but seems to have been a cynical play on Other People’s Money – borrowed to buy mainframe computers from IBM, which it leased to large companies. By offering substantially lower rates than its competitors and by allowing companies to return the equipment if it became obsolete, O.P.M. quickly took a large share of the market. By 1978 it was one of the five largest leasing companies in the United States, employing 250 people over 11 offices.
What was the scam?
O.P.M. lost money from the start because of low rental fees and poor management, and quickly became insolvent. However, the duo persuaded banks to keep lending them money by pledging the same machines as collateral for multiple loans. They also inflated the value of the computers the firm owned and exaggerated the amount of money they were getting from each lease. As well as using the infusion of cash to pay O.P.M.’s expenses, Weissman and Goodman siphoned off large amounts of money from their company for their own personal spending on mansions, a private jet and a chauffeured limousine.
What happened next?
In 1977, IBM announced a new generation of computers, prompting customers to take advantage of the clause allowing them to cancel their leases if their equipment became obsolete. With business imploding, Weissman and Goodman decided to borrow even more money, altering and forging contracts with defence contractor Rockwell to give the impression that business was still booming. However, after the resignation of O.P.M.’s law firm in late 1980, the fraud became impossible to hide. By early 1981 it declared bankruptcy. Weissman and Goodman eventually received long jail sentences.
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
Overall, O.P.M. fraudulently borrowed $200m (equivalent to $621m in 2019) from banks. It was only able to repay less than a third of that amount. The banks were heavily criticised for not bothering to check either the leases or the ownership of the underlying machines properly. Instead, they relied on the blue-chip reputation of the firms with whom O.P.M. was supposedly doing profitable business. This is a reminder that you can’t take anything on trust. The fact that the fraud was rapidly exposed by the arrival of improved computer systems also shows how new technology can rapidly upend a firm’s business model.
-
8 of the best houses for sale with outdoor swimming poolsThe best houses for sale with outdoor swimming pools – from a family house in Wimbledon Village, London, to a 1640s mansion in Derbyshire with a heated swimming pool in the grounds
-
Trouble brews in B&M as bargain shops take a hitOpinion Once a stock market darling, B&M's share price has slumped. What has gone wrong for bargain shops?
-
Trapped in a time of zombie governmentIt’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
-
America is in deep denial over debtThe downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
-
Bank of England raises interest rates to 5.25%The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
-
UK inflation remains at 8.7% ‒ what it means for your moneyInflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
-
VICE bankruptcy: how did it happen?Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
-
Would a food price cap actually work?Analysis The government is discussing plans to cap the prices of essentials. But could this intervention do more harm than good?
-
UK inflation slides to 8.7% - what does it mean for your money?News Inflation has dropped below 10% for the first time in months, but with food prices at a 45-year high, is this good news and what does it mean for your money?
-
Why the UK equity market is shrinkingAnalysis The crisis has been building for 25 years, says Max King, and it will take decades to reverse the trend.
