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.
-
5 of the best luxury cruise lines to see the world with five-star serviceFrom onboard butlers who will unpack for you to visiting more unique destinations, there are plenty of reasons to indulge in a luxury cruise
-
Car finance mis-selling judgment: a big blow for the banksOpinion The car finance mis-selling judgment could still be disastrous for big finance even though banks dodged the worst possible outcome
-
Investment trust boards are rushing to sell at a discountPersistent discounts seem to be making investment trust boards too hasty about backing opportunistic offers
-
Is Donald Trump putting the US dollar in danger?Donald Trump's administration sees one of its greatest advantages – the US dollar – as a burden. Gold is the obvious beneficiary, says Cris Sholto Heaton.
-
AGMs: a unique selling point for investment trusts that investors should capitalise onOpinion Shareholder meetings aren’t just a regulatory requirement – they are a way to communicate with investors
-
A cyclical case for UK stocksOpinion Depressed margins and relatively low valuations mean the UK market could rally strongly as conditions improve, says Cris Sholto Heaton.
-
Out of America's shadow: Why Trump's tariff chaos may be good for non-US stocksOpinion Upending global investment and trade could benefit other countries at the expense of the US market, says Cris Sholto Heaton
-
Will Trump force the Fed to lower interest rates?Opinion Markets are ignoring the risk that Donald Trump forces the central bank into reckless interest rate cuts
-
Large cap stocks start to struggle – is it time for investors to reassess their focus?Buying quality large caps worked very well last decade. A more volatile world will be a bigger challenge for these star stocks, says Cris Sholto Heaton
-
How to find the best investment ideas that others will missFind the best investment ideas by observing trends and listening to anecdotes, says Max King
