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.
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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.
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