Great frauds in history: Jack Clark’s nursing homes

Jack Clark invented sales, inflated profits and produced fraudulent accounts at his chain of nursing homes to swindle investors out of hundreds of millions.

Jack Clark was born in Oklahoma City in the United States in 1927. He started out working in the nearby oilfields, before spending a brief time as a milkman. He then moved into the building trade, first selling building materials between the years 1954 and 1958, and then running his own development company, Fashion Built Homes. In 1964 his half-brother Thomas Clark, who operated a nursing home, persuaded Jack to found Four Seasons Nursing Centers of America Inc, which was designed to cash in on the boom in nursing homes by both building and financing them.

What was the scam?

Four Season’s annual reports indicated that its revenues were growing at a furious pace. In reality, most of this revenue was fictitious, based on sales that had never taken place. Profits were further inflated by Four Seasons selling off properties that were losing money at an inflated price to Four Seasons Equity Inc, which was secretly owned by the main company, so Four Seasons was effectively buying its own properties from itself. Knowing that the company was worthless, Clark and the other directors waited until the share price had reached a peak before secretly dumping their shares on the market.

What happened next?

Thanks to the fraudulent accounts and a lot of hype at the time surrounding the future demand for residential care, Four Seasons’ share price soared from $11 a share when it was first floated on the stockmarket in 1968, to the equivalent of $188 a share (after taking stock splits into account). This gave it a market capitalisation of around $200m (around $1.13bn in today’s money) by 1969. However, as the firm began to run into financial difficulties, investors started to sour on the company and it ended up filing for bankruptcy in 1970. Clark was eventually convicted of fraud and jailed.

Lessons for investors

Shareholders lost their entire investment when Four Seasons was declared bankrupt. This created major problems for one brokerage firm, Hayden, Stone & Company, which had invested a large amount of its capital in Four Seasons and found itself unable to sell the shares when they were suspended. As a result Hayden would eventually have to seek emergency financing and merge with another rival. One lesson here is that it is generally not a good idea to allow shares in one single company to dominate your portfolio, no matter how attractive that company may seem as an investment.

Recommended

Coinbase, America’s largest crypto exchange, is going public. Should you invest?
US stockmarkets

Coinbase, America’s largest crypto exchange, is going public. Should you invest?

Cryptocurrency exchange Coinbase is to list on the Nasdaq stock exchange, hoping to cash in on the current crypto-mania. Saloni Sardana looks at wheth…
13 Apr 2021
Will Shu: Deliveroo CEO and its first delivery rider
People

Will Shu: Deliveroo CEO and its first delivery rider

City analyst Will Shu was sick of working long hours at Canary Wharf and having to make do with what was left on the shelf in Tesco for dinner. So he …
10 Apr 2021
The MoneyWeek Podcast: picking stocks is fun, but you need to do your homework
Investment strategy

The MoneyWeek Podcast: picking stocks is fun, but you need to do your homework

John Stepek talks to Steve Clapham, investor, analyst and author of The Smart Money Method, about the dangers in picking individual stocks and why you…
8 Apr 2021
How to find companies that can thrive in the post-Covid world
Advertisement Feature

How to find companies that can thrive in the post-Covid world

Many sectors of the global economy will return to something resembling pre-pandemic status, but others will take far longer to recover.
8 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
Four investment trusts for income investors to buy now
Investment trusts

Four investment trusts for income investors to buy now

Some high-yielding listed lending funds have come through the crisis with flying colours. David Stevenson picks four of the best.
12 Apr 2021