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

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 for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

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
-
8 of the best lakeside properties for sale
The best lakeside properties – from a house on the southeastern shore of Loch Lomond, to a 15th-century hall overlooking a lake in King’s Lynn, Norfolk
-
Gold’s allure and why you should never 'pay a premium for graded coins'
It is easy to become distracted by the beauty of gold, but remember why you buy it, says Dominic Frisby
-
Investment opportunities in the world of Coca-Cola
There is far more to Coca-Cola than just one giant firm. The companies that bottle and distribute the ubiquitous soft drink are promising investments in their own right.
-
Streaming services are the new magic money tree for investors – but for how long?
Opinion Streaming services are in full bloom and laden with profits, but beware – winter is coming, warns Matthew Lynn
-
'Pension funds shouldn't be pushed into private equity sector'
Opinion The private-equity party is over, so don't push pension funds into the sector, says Merryn Somerset Webb.
-
Greg Abel: Warren Buffett’s heir takes the throne
Greg Abel is considered a safe pair of hands as he takes centre stage at Berkshire Hathaway. But he arrives after one of the hardest acts to follow in investment history, Warren Buffett. Can he thrive?
-
Who will be the next Warren Buffett?
Opinion There won’t be another Warren Buffett. Times have changed, and the opportunities are no longer there, says Matthew Lynn.
-
Will Comstock crash – or soar?
Opinion The upside for Comstock, a solar panel-recycling and biomass-refining group, dwarfs the downside, says Dominic Frisby.
-
'As AGMs go digital, firms must offer a new form of scrutiny for shareholders'
Opinion Technology has rendered big AGM meet-ups obsolete, but the board still needs to be held to account, says Matthew Lynn
-
Unilever braces for inflation amid tariff uncertainty – what does it mean for investors?
Consumer-goods giant Unilever has made steady progress simplifying its operations. Will tariffs now cause turbulence?