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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely 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
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.
-
10 vinyl records worth up to £10,000 - is one in your collection?News Vinyl is experiencing a resurgence and collectors will pay up to £10,000 for some albums - is it time to dust off your old records?
-
FCA: Banks are still short-changing savers
The latest FCA review finds that while public shaming has encouraged providers into offering better deals on savings, many of those with closed accounts are still being shortchanged.
-
Crypto is “Monopoly money”
FTX won't be the last crypto scandal, because cryptocurrencies mirror the worst aspects of the finance industry.
-
OpenAI – corporate drama unleashed
OpenAI, the firm behind ChatGPT, was in uproar as its boss was booted out, briefly snapped up by Microsoft and then brought back again.
-
Can Lidiane Jones be Bumble's perfect match?
Dating app Bumble is taking on Lidiane Jones, a well-regarded leader in tech, as its new boss. Can she work her magic in a new arena?
-
Are corporate bonds a good bet?
Corporate bonds pay a slightly higher yield than governments, but spreads aren’t generous by past standards.
-
SoftBank’s shares slump on quarterly loss
Japanese investment group SoftBank’s technology funds have struggled, not least because of an investment in WeWork.
-
M&S shares shift from frumpy to fabulous as pre-tax profits are up by 56%
M&S is performing strongly and has announced it will pay a dividend for the first time since the pandemic.
-
The rise and fall of Sam Bankman-Fried – the “boy wonder of crypto”
Why the fate of Sam Bankman-Fried reminds us to be wary of digital tokens and unregulated financial intermediaries.
-
Three defence stocks set to flourish in an era of instability
A professional investor tells MoneyWeek where he’d put his money. Tom Bailey highlights three defence stocks that look promising.
