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.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

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.

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