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 In return for being given effective control of the company, he helped promote it by making outdated and exaggerated claims about its potential, as well as heavily tipping it in his supposedly impartial newsletters.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.

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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.

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