Great frauds in history… George Graham Rice's "adventures with your money"

George Graham Rice, AKA Jacob Simon Herzig, made millions from his dodgy share-tipping sheets, pumping up worthless mining stocks.

Jacob Simon Herzig was born in Manhattan in 1870. In 1890, he was convicted and spent the first of several spells in prison for stealing from his father’s firm in order to cover gambling debts. While inside he changed his name to George Graham Rice, who had been one of his fellow inmates. Upon release Rice worked as a journalist and betting tipster. When the authorities shut down his racing tips business, he switched to promoting mining companies, as well as writing a popular newsletter about the industry. He was convicted of mail fraud in 1911 and wrote a memoir, My Adventures With Your Money, which was serialised and then published as a book in 1913 . 

What was the scam?

Rice’s most notorious scam was his involvement with the Idaho Copper Corporation. In return for being given effective control of the company, he helped promote it by making outdated and exaggerated claims about its potential, as well as heavily tipping it in his supposedly impartial newsletters. He invented phoney sales to give the impression that the company’s fortunes were rising. As a result of his efforts, the Idaho Copper Corporation’s share price rose 15-fold, giving it a market capitalisation of more than $10m ($143m in today’s money) by September 1925. He made a profit of $1.7m ($24.4m) when he eventually sold his shares.

What happened next?

Complaints from the authorities and local businessmen led to the Boston Curb Exchange suspending Idaho Copper Corporation’s shares. Rice’s response was to sue Idaho’s state mine inspector for libel, while merging the Idaho Copper Corporation with another company and then re-listing it as the Idaho Copper Company, allowing trading in the shares to resume. Rice’s libel lawsuit was unsuccessful and by November 1927 the company had run out of money, forcing it to shut down. A few months later Rice was indicted for mail fraud and would eventually be sentenced to four years in prison.

Lessons for investors

Some investment newsletters can offer worthwhile advice, but you should check out the background and record of those writing them, as well as doing your own independent research, before acting on any of their suggestions. This is especially important in the mining and small-cap sectors, which are particularly prone to fraud and deception. The mines that the Idaho Copper Company controlled, for example, were either completely flooded or uneconomic and shareholders were in the end left with nothing. It’s also a good idea to stay away from mining companies that are being investigated by the authorities.

Recommended

Richard Marwood: dividends are back on the menu as earnings recover
Income investing

Richard Marwood: dividends are back on the menu as earnings recover

Merryn talks to Richard Marwood of Royal London Asset Management about which companies are recovering from the pandemic as people start spending again…
14 May 2021
Why investors should start to think more short-term
Investment strategy

Why investors should start to think more short-term

For years, investors have poured money into growth stocks that promise future profits but no actual cash now. But as inflation threatens, now might be…
13 May 2021
Should we adjust our all-weather ETF portfolio for inflation?
ETFs

Should we adjust our all-weather ETF portfolio for inflation?

It’s too early to batten down the hatches for our ETF model portfolio, but price pressures are increasing.
12 May 2021
Why ESG investing is becoming the norm
ESG investing

Why ESG investing is becoming the norm

A lot of investors say they want to put their money into “ESG” funds. But unless you actively opt for a “sin” fund jammed full of companies behaving b…
10 May 2021

Most Popular

How will Joe Biden’s capital gains tax rise affect crypto prices?
Bitcoin & crypto

How will Joe Biden’s capital gains tax rise affect crypto prices?

The US president wants to increase capital gains tax – and that’s going to hit a lot of American cryptocurrency speculators. Saloni Sardana looks at h…
14 May 2021
Are we nearing the end of the negative bond yield era?
Government bonds

Are we nearing the end of the negative bond yield era?

As inflation gets going, the era of the negative bond yield – that investors have to pay governments for the privilege of lending them money – might b…
14 May 2021
Inheritance tax planning: the rules around gifting
Inheritance tax

Inheritance tax planning: the rules around gifting

There are plenty of legal ways to minimise an inheritance tax bill. Perhaps the simplest is to give away assets to reduce the size of your estate. Dav…
11 May 2021