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

Pigeon-fancier Arlan Galbraith claimed to have created a new breed of elite racing pigeon, but his Ponzi scheme defrauded investors of over £200m.

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.

What happened next?

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.

Lessons for investors

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.

Recommended

Jeremy Grantham, we're in one of the greatest bubbles in financial history
Investment strategy

Jeremy Grantham, we're in one of the greatest bubbles in financial history

Merryn talks to Jeremy Grantham of GMO about the current state of the markets and where investors can "hide" from all the craziness, plus inequality, …
5 Aug 2021
The case for nickel – a crucial metal in the Green Energy Revolution
Industrial metals

The case for nickel – a crucial metal in the Green Energy Revolution

Nickel’s use in batteries for electric vehicles makes it a vital metal for the 21st century. Dominic Frisby investigates how to invest.
5 Aug 2021
What Joe Biden's bipartisan infrastructure deal means for cryptocurrency investors
Bitcoin & crypto

What Joe Biden's bipartisan infrastructure deal means for cryptocurrency investors

The US’s $1trn bipartisan infrastructure agreement contains provisions for raising taxes on cryptocurrency investments. Saloni Sardana looks into the …
4 Aug 2021
Bitcoin miners are cleaning up their act, using green energy to drive higher profits
Bitcoin & crypto

Bitcoin miners are cleaning up their act, using green energy to drive higher profits

Bitcoin has been criticised for its vast energy consumption in its pursuit of profit. But that same desire for profit is powering a green energy revol…
4 Aug 2021

Most Popular

Why the UK's 2.5% inflation is a big deal
Inflation

Why the UK's 2.5% inflation is a big deal

After years of inflation being a financial-assets problem, it is now an “ordinary things” problem too, says Merryn Somerset Webb. But central banks st…
16 Jul 2021
The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism
Economy

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism

Russell Napier talks to Merryn about financial repression – or "stealing money from old people slowly" – plus how Asian capitalism is taking over in t…
16 Jul 2021
Three companies that are reaping the rewards of investment
Share tips

Three companies that are reaping the rewards of investment

Professional investor Edward Wielechowski of the Odyssean Investment Trust highlights three stocks that have have invested well – and are able to deal…
19 Jul 2021