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 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.
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.