Great frauds in history: the Independent West Middlesex Fire and Life Assurance Company's early Ponzi scheme

The Independent West Middlesex Fire and Life Assurance Company (IWM) offered annuities and life insurance policies at rates that proved too good to be true – thousands of policyholders who had handed over large sums were left with nothing.

By Dr Matthew Partridge

Published 21 October 2020 In Features

Thomas Knowles was born in 1782 in Hythe, Kent, and went on to work as a servant in London. He was declared insolvent in 1819 and 1825, before finally being admitted to debtors’ prison for several months in 1829. William Hole, who was also born in Hythe, in 1793, worked as an apprentice before moving to London to set up his own shop. Like Knowles, he also faced personal financial problems and was declared bankrupt in 1827. In 1836 the pair teamed up with two other bankrupts to form the Independent West Middlesex Fire and Life Assurance Company (IWM).

How did the scam work?

IWM offered annuities and life insurance at rates that were far more generous than the competition, supposedly backed up by £1m in capital. They claimed the Duke of Wellington was a policy-holder and rented plush offices in the West End of London to give the impression of wealth. In reality, it was run as an early Ponzi scheme. The money coming in that was left over from interest payments, and the operating expenses, were embezzled by the directors and spent on maintaining an extravagant lifestyle of servants and carriages.

By 1839 doubts were being raised in the press. An article in a Glasgow newspaper led many investors to demand their money back. A libel suit issued by the company enabled it to keep taking in money from investors for a while, but by the end of 1840 its offices were shut down and its staff and directors disappeared. Hole, who had left the company in 1839, was pursued by creditors and was eventually declared bankrupt and died in poverty. Knowles managed to escape to the continent and was later spotted gambling in the German resort town of Baden-Baden.

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One estimate puts losses from the scam at between £160,000 (£14.5m today) and £240,000 (£21.8m); another puts them at £300,000 (£27.3m). Either way, thousands of policyholders who had handed over large sums to purchase annuities were left with nothing. The investors in the scheme should perhaps have realised that the high spread between annuity and life insurance rates, allowing investors buying both sets of policies simultaneously to earn an effective rate of 6% a year, should have raised suspicions since rival companies’ spreads were just 1.5%.