Why no regulation can rid us of fraudsters

Reading about today’s financial crisis isn’t yet entertaining. The human suffering it has created – the hungry people in Athens, the bankrupt victims of buy-to-let scams, the lost generation of unemployed graduates across Europe, the implosion of the peripheral economies via the cruelty of internal devaluation, etc – is still too present and too painful.

However, give it 90 years or so and I dare say someone will find a way to make the complexities of subprime and the personalities of our modern day fraudsters into a damn good read, just as Martin Vander Weyer has done with his just published account of the life of the Edwardian financial criminal Gerald Lee Bevan. 

Bevan was well-bred and well-connected, having been born into one of the founding families of Barclays. He used both those things to make himself into a stockbroker and to the top 1% of the day.

In the process, he made himself as “rich as Croesus” and acquired all the bits and bobs that went with such status: think limitless arrogance, stately home, string of showgirl mistresses, smart wife and complex financial empire. It all probably sounds familiar. 

So it will be no surprise to readers to learn that it didn’t last. It turned out that “the prospect of easy money draws risk takers in every era into a spiral of greed and deceit” and Bevan, aided by his magnetic charm, was one of those risk takers.

He had started out just fine, making money for his clients at Ellis & Co, marrying well, buying a smart house, writing bits of average poetry, gambling and grandiosely giving away his winnings, and of course, collecting Chinese porcelain.

Then, as is so often the case, appearances began to diverge from reality. Within a few short years, Bevan was a wanted criminal escaping across Europe in disguise (a black beard according to the New York Times).


He was brought to justice after five months on the run: the Glasgow Herald reported him as having fought with police when they traced him to a hotel in Vienna and then having “swallowed the contents of a phial”. He ended up having his stomach pumped before being brought home, tried, sentenced to seven-year penal servitude (here is the New York Times report), and eventually ending his days in threadbare disgrace in Havana.

So what went wrong for Bevan? The usual. The shares he had his clients in didn’t do as well as he would have liked. So instead of admitting a degree of failure, he started to artificially support them with the able assistance of wide boy stock promoter Clarence Hatry.

He also became the chairman and major shareholder in reinsurance firm City Equitable, so found himself with access to almost endless amounts of money for the propping up of lousy investments and pyramid fleecing of shareholders when the post-war slump turned his investments bad.

And so it went on – a round of ill-judged investments, followed by fraud, followed by more ill-judged investments – until finally one director figured out there was a problem and asked a question. The house of cards came down, leaving Lee Bevan on the run and Hatry taking up a new position as a prison librarian in Maidstone. 

Fortune’s Spear is a treasure trove for anyone with an interest in financial history, but as does most financial history, it is also a reminder that the cycle of greed and fraud is timeless.

We have the same cultured, intellectual bankers to the rich knocking around now as we did then. We have the same flamboyant and rumbustious brokers, and we still have the same kind of fabulously colourful financial promoters and fraudsters that were so active during the Edwardian era. These men perfected the art of pump and dump schemes for ragbag emerging-market companies (sound familiar?) still in use today. 

The final lesson? Add ambition and talent (both of which Bevan had in spades) to a failure to understand risk (another of his characteristics) and you get disaster. That should sound familiar. As Vander Weyer says, “In good times, when markets are soaring, the incorrigibly unscrupulous never miss the opportunity to take advantage of the gullible. In bad times … the previously straight often resort to deception to try to save themselves from ruin. It is a pattern of behaviour that no regulatory regime or surveillance system has ever succeeded in eradicating.” Quite.