Ferdinand Ward was born in New York in 1851. He was dismissed from various clerical jobs in his early working life until finding a post as secretary to the superintendent of one of the New York commodity exchanges. A marriage to the daughter of a wealthy merchant allowed him to start speculating in commodities, and he had some initial success. By 1880 he had become established enough to set up his own brokerage, Grant & Ward, in partnership with Ulysses “Buck” Grant Jr, the son of former president Grant, and James Fish, who ran the Marine National Bank and was a friend of his late father-in-law.
What was the scam?
Ward quickly dominated the partnership, making all the decisions, and persuaded Grant Jr and his father to invest another $200,000 into the business. When this capital was squandered through bad investments, Ward simply altered the books to give the impression that the firm was making money. Greedy for cash to fuel an extravagant lifestyle, Ward then raised yet more money by launching a Ponzi-style scheme based on fictitious government contracts. Ward promised to pay investors interest rates of 10% a month, but no money was in fact invested, and investors were paid with funds raised from new depositors.
What happened next?
Fish’s Marine National Bank had heavily invested in Grant & Ward, financing this with a loan of $1.6m from New York City. By April 1884, the New York City comptroller decided to reduce the city’s deposits with the bank. Despite an emergency loan of $80,000 from the tycoon Cornelius Vanderbilt (underwritten by the former president), the bank collapsed, causing a minor financial panic and exposing Ward’s scam. Ward, who had briefly been known as the “Napoleon of finance”, quickly became the “best-hated man in the United States” and spent nearly seven years in jail.
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Lessons for investors
The creditors of the Marine National Bank were able to recover only half the $5.2m ($141m in today’s money) that the bank owed when it went bankrupt. Those who had invested with Grant & Ward recovered virtually nothing of the $14.5m ($393m) supposedly in their accounts when it collapsed (much of this sum represented fictitious profits that had been reinvested). The former president Grant was not involved with the scam, but his family connection was taken as a badge of respectability. Never invest just because a scheme has celebrity backing.
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