Great frauds in history: Andrew Cochrane-Johnstone

How Andrew Cochrane-Johnstone's "Omnium" scam grew into the Great Stock Exchange Fraud of 1814.

Andrew Cochrane was born in Edinburgh in 1767. After a spell serving in the British Army, he became the MP for Stirling Boroughs in 1791, marrying the heiress Georgina Hope-Johnstone in 1793 (he added Johnstone to his name at that time). By 1797 he was promoted to colonel and was then made governor of Dominica, quickly acquiring a reputation for corruption and mismanagement. Although a mutiny prompted him to be recalled to face a court martial, he was acquitted and made his way into Parliament for a “rotten borough”. Although subsequently disqualified, he returned to Parliament for a third time in 1812.

What was the scam?

On the advice of his broker, Richard Butt, Cochrane-Johnstone began speculating in  “Omnium”, a form of government debt, on margin,  acquiring around  £1m  (£68.7m in  today’s money) worth of bonds. Facing losses of £150,000 (£10.3m) and a looming settlement date, Cochrane-Johnstone persuaded a friend, Charles Random De Berenger, to pose as a senior staff officer delivering news of Napoleon’s death during a battle. When this news, which was repeated at pubs along the way, hit London, the price of Omnium surged, allowing Cochrane-Johnstone and his associates to cover their positions at a small profit.

What happened next?

The fraud was quickly discovered and the subsequent stock exchange investigation uncovered Cochrane-Johnstone’s transactions. De Berenger was arrested after  trying to flee the country. After a trial, Cochrane-Johnstone, Butt and Cochrane-Jonhstone’s nephew Thomas Cochrane (who is now believed to have been unaware of the scheme) were convicted, and given short prison sentences. Both Cochrane-Johnstone and Cochrane were stripped of their titles and expelled from Parliament, though the latter decision caused public outrage as Cochrane was a naval hero.

Lessons for investors

The scandal, which is now known as the Great Stock Exchange Fraud of 1814, is another illustration of why you should be very sceptical when you hear rumours. The fate of those involved also demonstrates why it is a bad idea to get involved in speculation, especially using borrowed money, without understanding exactly what you’re doing. After all, had Cochrane-Johnstone and his associates avoided the temptation to trade bonds on credit, they would never have fallen into a position where such a desperate (and illegal) scheme looked like the only plausible solution to their financial problems.

Recommended

Commercial property: a bet on going back to normal
Property

Commercial property: a bet on going back to normal

Markets are saying that where we work has changed – and that makes an attractive contrarian investment. Cris Heaton picks the best bets in the commerc…
22 Sep 2020
Why the FCA should sit back and do nothing for now
Funds

Why the FCA should sit back and do nothing for now

The Financial Conduct Authority has asked for ideas on how to improve the consumer investment market. But perhaps the best thing to do right now would…
21 Sep 2020
Why investors should take cycle theories with a massive pinch of salt
Sponsored

Why investors should take cycle theories with a massive pinch of salt

Things move in cycles, and they can be useful for timing trades. But it's easy to become wedded to a particular cycle and make the wrong decisions. Do…
21 Sep 2020
Great frauds in history: Martin Grass’s debt binge
Investment strategy

Great frauds in history: Martin Grass’s debt binge

AS CEO of pharmacy chain Rite Aid. Martin Grass borrowed heavily to fund a string of acquisitions, then cooked the books to manage the debt, inflating…
16 Sep 2020

Most Popular

Oil producers are back at their Covid-19 lows – is it time to buy?
Oil

Oil producers are back at their Covid-19 lows – is it time to buy?

With demand for oil hammered by Covid-19 and talk of “peak oil demand”, there are lots of good reasons to be bearish on oil producers. So, asks John S…
22 Sep 2020
IAG's share price is ready for take-off - here's how to play it
Trading

IAG's share price is ready for take-off - here's how to play it

The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
8 Sep 2020
Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020