Great frauds in history... John Factor’s penny-stock scams

John Factor sold worthless penny stocks through a boiler room operation, ramping the price via his financial newsletters. But he was never held to account.

John Factor (born Iakov Faktorowicz) claimed to have been born in Hull in 1892 (although his family stated that he was born in Lodz in Poland four years earlier). In 1904, he emigrated to the United States with his family, and grew up in St Louis and then New York. Initially Factor worked as a barber before becoming involved with organised crime, meeting the mobster Arnold Rothstein. Although indicted multiple times for stock and land fraud for various schemes in the United States, he was never charged. By 1923 was living in a 14-room flat.

How did the scam work?

In 1924 Factor moved back to England and began selling worthless penny stocks, through a boiler room operation known as Westminster Finance Company. One of these stocks, the British Associated Oil Company, offered guaranteed dividends of 7% and 12% for an initial investment of as little as £2. After paying a few of the dividends in order to attract more investors, Factor fled to France with an estimated £500,000 (£28.7m in today’s money), correctly predicting that his victims would be too embarrassed to press charges.

What happened next?

Factor returned to England in 1926. Using Alexander Clarence Bowles, a down-on-his-luck former army captain as a front, Factor set up a racket that included financial newsletters, as well as a brokerage called Tyler Wilson. He used one newsletter, the Financial Recorder, to sell shares in a worthless unlisted company, Hecla Consolidated Goldmines. He later embarked on another fraud through a second paper, Finance, in which he tipped a listed stock and spent money to push up its share price. He then used the goodwill to sell two more worthless stocks, Vulcan Copper Mines and Rhodesia Border Mining. Factor pocketed an estimated £1.6m (£95.5m today) before he fled to the United States in 1930.

Lessons for investors

Factor was convicted of fraud in his absence, but managed to delay extradition long enough (including by arranging his own kidnapping) that the authorities were forced to let him go. He later served time for unrelated crimes, was involved with Mob-related activities for several decades and was given a presidential pardon by John F Kennedy in 1962 after donating to his campaign. However, Factor’s half brother, Max, did far better, selling his eponymous cosmetics firm in 1973 for $500m ($3bn today), showing that long-term investment can beat short-term speculation.

Recommended

Investment trusts for your ISA
Investment trusts

Investment trusts for your ISA

Depending on your investment aims, these are the investment trusts to consider for your ISA
7 Mar 2023
What is an investment trust?
Too embarrassed to ask

What is an investment trust?

“Active” investment funds come in two main varieties, one of which is investment trusts. But what exactly is an investment trust?
2 Mar 2023
What is a dividend yield?
Too embarrassed to ask

What is a dividend yield?

Learn what a dividend yield is and what it can tell investors about a company's plans to return profits to its investors.
21 Feb 2023
How to invest in ChatGPT and other AI tech changing the world
Tech stocks

How to invest in ChatGPT and other AI tech changing the world

Technology, like ChatGPT, is changing the way we live and work, and this new tool could have a huge impact on the tech industry says Dominic Frisby.
23 Jan 2023

Most Popular

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall below £2,000, based on average typical use, from July, for the first time since 2022. We have all the detai…
21 Mar 2023
Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
24 Mar 2023
Can I avoid IHT by stuffing all my money into a pension?
Personal finance

Can I avoid IHT by stuffing all my money into a pension?

The ditching of the lifetime allowance could enable millions of pension savers to avoid inheritance tax. We explain how.
20 Mar 2023