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.

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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.

Dr Matthew Partridge

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