Great frauds in history: the Pigeon King’s Ponzi scheme

published 23 September 2020

Arlan Galbraith was born in 1947 in Stouffville, Ontario, in Canada. After dropping out of school he bought a farm with his brother Norman, raising pigs and cattle. By 1980 the brothers declared bankruptcy, forcing Galbraith to turn to farm work to support himself and his family. During this time he acquired a reputation in local pigeon-racing circles, a hobby that he had pursued since he was introduced to the sport as a child. In 2001 he claimed that he had created a new breed of elite pigeon and formed Pigeon King International to exploit it.

What was the scam?

Pigeon King International sold breeding pigeons to investors, particularly Mennonite farmers (because of their reluctance to go to the authorities), in return for promising to buy any offspring at a fixed price for ten years. Since a pigeon typically produces several offspring a year, they would supposedly make their money back in a very short period of time. However, although Galbraith initially claimed the pigeons would be sold on to professional breeders, and later sold as meat, they were instead re-sold to other investors, with the money used to repay the original buyers – turning it into a Ponzi scheme.

The scheme seemed to go well initially, but in 2007 a Mennonite farmer, worried about the impact on the wider farming community, tipped off an online vigilante, who started warning people about the scam. The authorities and many investors initially dismissed the allegations, but when the magazine Better Farming published a detailed exposé in December 2007, the negative publicity drastically reduced the flow of investors. With nowhere to store the tens of thousands of unsold pigeons, and no money to repay investors, Pigeon King declared bankruptcy in 2008. Galbraith was later convicted of fraud in 2012.

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By the time Pigeon King International collapsed, it had obligations of more than C$356m (£205m at current exchange rates) to buy back baby birds, with most investors receiving little or nothing in return. Even if you just count the money paid in, investors suffered net losses amounting to around C$20m (£11.5m). When investing in exotic assets, it’s a good idea to check whether there is enough demand to sustain prices. It’s also a good idea to be sceptical of anyone who insists on unconditional trust, as Galbraith reportedly did, as that usually means that they have something to hide.

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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