Great frauds in history: Alan Bond’s debt-fuelled empire

Alan Bond built an empire that encompassed brewing, mining, television on unsustainable amounts of debt, which led to his downfall and imprisonment.

Alan Bond © Patrick Riviere/Getty Images
(Image credit: © Patrick Riviere/Getty Images)

Alan Bond was born in 1938 in London, and spent his early childhood in Wales before moving to Western Australia with his family at the age of 12. He left school two years later and served part of an apprenticeship as a sign-writer before founding Progress Development Organisation (later Bond Corporation) in 1959, originally to pursue real-estate development. During the 1960s, 1970s and 1980s, his empire grew to encompass brewing, mining, television and even a private university. In 1983 his sponsorship of the winning Australian team in the America’s Cup later earned him the Order of Australia.

What was the scam?

From the start of his career, Bond based his entire empire on large amounts of debt, frequently buying properties before going to the bank for the money for a deposit. Initially this worked well, but in the 1980s his empire began to experience financial problems. Undeterred, Bond used a variety of accounting tricks to give the impression that his empire was more profitable than it actually was, such as understating the true amount of debt it had. As Bond Corporation’s situation grew more desperate, Bond transferred A$1.2bn from Bell Resources (a listed company that Bond Corporation had a 52% stake in).

What happened next?

In 1988 Bond Corporation attempted a hostile takeover of the resources conglomerate Lonrho, which released a 100-page financial analysis of the Bond group as part of its defence, pointing out the shaky foundations of its finances. The unwelcome publicity, along with pressure from banks worried about the company’s mounting debts, led to him being ousted as chairman in 1990, though this didn’t prevent Bond Corporation going under in 1991. Bond himself was declared bankrupt, owing A$1.8bn, a year later. In 1997 Bond was sentenced to up to four years in jail for the Bell Resources fraud.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues 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

Sign up

Lessons for investors

Shareholders in both the Bond Corporation and Bell Resources were wiped out, although those investing in the latter company received some compensation after a legal battle lasting over two decades. Bond’s creditors fared little better. Generally, it’s a good idea to avoid companies with high levels of debt – it is not only a sign of weakness and poor management, but raises the temptation for managers to fudge the books.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri