Great frauds in history: Gerard Lee Bevan’s dangerous debts

Gerard Lee Bevan bankrupted a stockbroker and an insurer, wiping out shareholders and partners alike.

Gerard Lee Bevan was born in London in 1869 and, after studying at Eton and Cambridge, took a job as a clerk at Barclay, Bevan, Tritton, Ransom & Bouverie (which later become Barclays bank). He was later a junior partner with stockbroker Ellis & Co in 1894. By 1912, he was effectively running the brokerage as its senior partner. In 1916 he bought a large stake in the City Equitable Fire Insurance Company from the notorious company promoter Clarence Hatry, becoming its chairman. He was also appointed director of several companies.

What was the scam?

Bevan’s appointment as chairman gave him control of the money that City Equitable received in premiums. Instead of putting it in low-risk assets, such as gilts (government bonds), which can easily be liquidated in order to pay out claims, he lent large sums to Ellis & Co, which was investing in various dubious schemes, including several companies floated by Hatry. City Equitable also directly invested in the same companies. In order to conceal these dubious loans and investments, Bevan manipulated the accounts and engaged in outright fraud to give the false impression that most of City Equitable’s money was still invested in gilts.

What happened next?

In the stockmarket boom following World War I, it briefly seemed like Bevan’s strategy would pay off. However, when the market started to collapse in 1920, many of the shares that Ellis had invested in plunged in value and it became obvious that Ellis couldn’t repay its loans. Many of the investments were also illiquid. As a result, City Equitable was unable to meet its insurance claims and was forced to declare bankruptcy in early 1921. After running away to the continent, Bevan was arrested, extradited, convicted of fraud and sentenced to jail for seven years, later dying in poverty in Cuba.

Lessons for investors

The £910,000 in loans to Ellis & Co (£40.2m in today’s money), combined with around £400,000 in dubious investments (£17.8m), resulted in the bankruptcy of both institutions, wiping out shareholders and Bevan’s partners alike. Bevan failed to appreciate the dangers of taking on too much leverage and the need for an appropriate degree of liquidity. Modern insurance companies do invest in shares (and even private equity), but they still have around three-quarters of their assets on average in bonds and cash.

Recommended

Is it cheaper to leave the heating on low all day?
Personal finance

Is it cheaper to leave the heating on low all day?

The weather is getting colder and energy bills are rising, but is it really cheaper to leave the heating on low all day or should you only turn it on …
1 Dec 2022
The best offers for switching banks – get up to £200 free cash
Personal finance

The best offers for switching banks – get up to £200 free cash

Looking to move bank accounts? You can now bag as much as £200 for switching current accounts from two major banks
1 Dec 2022
UK stock market opening times: when will the stock market close for Christmas?
Stockmarkets

UK stock market opening times: when will the stock market close for Christmas?

Here is everything you need to know about UK stock market opening times during the Christmas period of 2022.
1 Dec 2022
December Premium Bond winners: NS&I reveals the jackpot winners
Savings

December Premium Bond winners: NS&I reveals the jackpot winners

NS&I Premium Bond winners announced – how to check if you are winner.
1 Dec 2022

Most Popular

Fan heater vs oil heater – which is cheaper?
Personal finance

Fan heater vs oil heater – which is cheaper?

Sales of portable heaters have soared, as households look to cut their energy costs. But which is better: a fan heater or an oil heater? We put them t…
21 Nov 2022
Best regular savings accounts – December 2022
Savings

Best regular savings accounts – December 2022

You can earn an attractive rate on the best regular savings accounts. We tell you the best on the market to take advantage of right now
1 Dec 2022
Wood-burning stove vs central heating ‒ which is cheapest?
Personal finance

Wood-burning stove vs central heating ‒ which is cheapest?

Demand for wood-burning stoves has surged as households try to reduce their heating costs this winter. But how does a wood burner compare with central…
29 Nov 2022