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.
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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.
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