Advertisement

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.

Advertisement
Advertisement

Recommended

Visit/investments/funds/601361/compound-interest-the-eighth-wonder-of-the-world
Funds

Compound interest: the eighth wonder of the world

Setting up a pharmaceuticals trust in the mid-1990s taught Max King the power of compounding
26 May 2020
Visit/economy/people/601377/top-four-financial-villains-of-the-last-20-years
People

Top four financial villains of the last 20 years

Despite MoneyWeek’s 1,000 issues, we struggled to find a page of material on people we considered particularly worthy of honour. We were spoilt for ch…
26 May 2020
Visit/investments/investment-strategy/601389/are-you-a-permabear-three-red-flags-to-watch-out-for
Investment strategy

Are you a permabear? Three red flags to watch out for

Contrarian investors are often seen as bearish because the market tends to go up over time. But if that bearishness goes too deep, you risk seriously …
26 May 2020
Visit/investments/funds/601385/in-support-of-active-fund-management
Funds

In support of active fund management

We’re fans of passive investing here at MoneyWeek. But active fund management has its place too, says Merryn Somerset Webb.
25 May 2020

Most Popular

Visit/investments/investment-strategy/601387/how-john-maynard-keynes-learned-the-folly-of-market-timing
Investment strategy

How John Maynard Keynes learned the folly of market timing

In an extract from his book The Sceptical Investor, John Stepek explains how the great economist John Maynard Keynes came a cropper when he first star…
25 May 2020
Visit/investments/stockmarkets/emerging-markets/601362/a-new-lease-of-life-for-the-brics
Emerging markets

A new lease of life for the Brics

Emerging markets are having a surprisingly good crisis. Their long-predicted rise will now continue.
24 May 2020
Visit/investments/investment-strategy/601379/battling-volatility-the-benefits-of-an-active-manager
Sponsored

Battling volatility: The benefits of an active manager

SPONSORED CONTENT – Alastair Wilson, managing director of Close Brothers, on the advantages of active investing in times of crisis.
21 May 2020