Great frauds in history: John MacGregor’s dodgy loans
When the Royal British Bank fell on hard times, founder John MacGregor started falsifying the accounts and paying dividends out of capital. The bank finally collapsed with liabilities of £539,131
John MacGregor was born in Drynie in the Western Isles of Scotland in 1797 and emigrated to Canada with his family in 1803. After a brief involvement in local politics, he moved back to Liverpool in 1827, then briefly worked as a businessman before spending the next two decades in increasingly senior civil-service roles at the Board of Trade. He was elected to Parliament as a Liberal for Glasgow in 1847. He also helped found the Royal British Bank, with businessmen John Menzies and Edward Mullins, and would become its chairman after it was granted a royal charter in 1849.
What was the scam?
From the moment it was set up, the bank was brought low by a combination of bad business loans, including to a Welsh ironworks, and large personal loans to the directors and their friends. These included a £70,000 (£6.59m today) loan to Humphrey Brown, the MP for Tewkesbury, £30,000 (£2.82m) to the bank’s manager, £14,000 (£1.32m) to John Gwynne, £7,000 (£659,000) each to John MacGregor and Edward Mullins, and £2,000 (£188,300) to auditor Thomas Chandler. To hide the bank’s distressed state from its shareholders and depositors, the accounts were falsified and dividends were paid out of capital.
What happened next?
By 1856 rumours were flying around the City of London. The Joint Stock Companies Journal published a series of articles about the bank’s problems, although without mentioning it by name, leading to awkward questions at the half-yearly meeting in August. By early September the bank was forced to suspend business and the fraud was revealed a few weeks later. MacGregor died in France after fleeing the country. The eight surviving directors were convicted of fraud, though they served only nominal sentences.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
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
By the time it collapsed, the bank’s liabilities were £539,131 (£50.75m) with only £288,644 (£27.1m) in assets. In the legal battle between shareholders and depositors, the courts ruled that the fraud did not diminish shareholders’ liability, despite the fact that around 40% of them were widows, spinsters, tradesmen or servants. The depositors had to settle for around three-quarters of the money they were owed. Unlimited liability has all but disappeared today, but it’s still worth checking if those making guarantees are in a position to stand by them.
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
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
-
Revolut finally bags a UK banking licence – what's next for the fintech?
Revolut has finally been granted a UK banking licence following three years of negotiations with the regulator
By Kalpana Fitzpatrick Published
-
Could Labour impose a “double death tax” of more than 50%?
Speculation is mounting that capital gains tax will be reformed in the Budget - and one option is to charge bereaved families the tax on top of inheritance tax. We explain how it could work
By Ruth Emery Published
-
UK mid-caps: an improving outlook
UK mid-caps have perked up and the rally may run further, but long-term investors should remain selective
By Cris Sholto Heaton Published
-
The tobacco industry is going smoke-free - how to profit from it
Tobacco companies have realised their traditional products are on the wane. But new opportunities have opened up – and should prove lucrative
By Rupert Hargreaves Published
-
Is it time to invest in creative industries?
Any industrial strategy should not overlook the creative industries, one of our top national assets
By David C. Stevenson Published
-
Is Mercia Asset Management set for success?
Mercia Asset Management helps the government fund smaller companies in Britain’s regions. Should you invest?
By Rupert Hargreaves Published
-
British stocks set for a boost
British stocks are due for a bounce as the UK looks more stable compared to many economies
By Alex Rankine Published
-
Ocado shares jump by a fifth
Ocado takes a turn for the better after attractive profit forecasts were announced
By Dr Matthew Partridge Published
-
The AI boom is on borrowed time
The hype around the AI boom could be on its way out – but why?
By Alex Rankine Published
-
Diploma: a blue-chip set for strong growth
Diploma, whose niche products include seals and fasteners, serves an array of growth markets. Should you invest?
By Dr Mike Tubbs Published