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.
What happened next?
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.
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
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%.
-
8 of the best houses for sale for around £500,000Some of the best houses for sale for around £500,000 – from a 19th-century stone farm cottage in North Yorkshire and a two-bedroom apartment in Edinburgh’s New Town to a converted Methodist chapel in Norfolk
-
What will the unravelling of US-China trade mean for the economy?What will a US-China decoupling mean for the global economy?
-
Two ways to tap into monopoly profits from airportsMost investors can’t get their hands on airports. Here are two ways you can
-
Fat profits: should you invest in weight-loss drugs?The latest weight-loss treatments could transform public health and the world economy. Should you invest?
-
How investors could profit from Ramsden Holdings' four-part growth strategyRamsdens Holdings offers a diversified set of financial and retail services and a juicy yield, says Dr Michael Tubbs
-
How to invest in the booming insurance marketThe insurance sector is experiencing rapid growth after years of stagnation. Smart investors should buy in now, says Rupert Hargreaves
-
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
-
BP's 'long, painful decline' – and why next year could be even tougherOpinion Long-suffering shareholders in oil giant BP have been pushing for change. It won’t come soon enough, says Matthew Lynn
-
Investment trusts tap the profits in exotic and obscure global marketsOpinion Peter Walls, manager of the Unicorn Mastertrust fund, highlights three investment trusts as he shares where he'd put his money
-
Falling revenues and mounting debt spell trouble for Jumia TechnologiesStruggling African e-commerce platform Jumia Technologies looks headed for the exit, says Dr Matthew Partridge.
