The stock market has always attracted those looking to make money on the quick, and fraudsters have often turned to illegal deals to gain an advantage and become rich. However, one of the greatest frauds was the Great Stock Exchange Fraud of 1814.
Here, there was no insider dealing, no hidden money markets and no forgery: this was down to simple misinformation, and put in plainest terms the Great Stock Exchange Fraud was a hoax. It revolved around the sharing of false information relating to the Napoleonic wars, thereby having a significant impact on the London Stock Exchange.
The du Bourg Hoax
It was 1814, and it seemed that after a decade of war Europe might finally be at peace. Napoleon, fighting a scrappy rearguard action as he lost control of his empire, was in France, surrounded by enemies.
On the 21st of February, 1814, a uniformed man arrived at the Ship Inn in Dover on the south coast of England, and claimed to be the Colonel de Bourg, aide to Lord Cathcart, the Scottish diplomat and soldier. The news he brought was nothing short of sensational: The French Bourbon dynasty were victorious in France, and Napoleon was dead.
He requested that this message be passed to the Admiralty in London through the semaphore telegraph. Then Colonel de Bourg himself went to London and stopped at every inn on the route to share the good news. Three French officers in Bourbon uniform confirmed his story, proclaimed the Bourbon monarchy restored and celebrated the event in London.
Rumors relating to the defeat of Napolean kept spreading throughout the month, and the events had a major impact on the London Stock Exchange. The worth of the government securities increased rapidly as news spread, creating a bubble as investors and traders looked to cash in on the British victory.
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However, the news did not have any official confirmation, and as no further news came in the prices of the securities started sliding just after the initial rush. French officers trading on the stock market further boosted the prices, as the exchange endured a turbulent day’s trading.
But soon, it was found out that the whole affair was an intentional hoax. During the afternoon, it was confirmed by the government that news of peace was a lie, and even worse, Napoleon was still alive. After the confirmation of the Government, the prices of the stocks immediately fell and returned to their previous values.
Ask Yourself Who Benefits and There is Your Criminal
After it was found out that the news was false, an investigation was carried out. The investigation was mainly started as the Committee of the Stock Exchange believed that it was an intentional manipulation of the stock prices.
It was quickly discovered that there had indeed been a sale of two government-based stocks on the 21st of February, totaling over £1.1 million. A majority of the stocks were purchased only a week earlier. This had all the hallmarks of a classic “pump and dump” scheme.
Eight people were charged with the conspiracy of the intended hoax. One of them was Lord Cochrane, who was a well-known naval hero and a Radical member of Parliament. Other suspects of the conspiracy included the uncle of Lord Cochrane, his financial advisor Richard Butt, and Captain Random de Berenger. De Berenger was found to be the true identity of “Colonel de Bourg” who had brought the fake news to Dover.
Six of the suspects, including the ones engaged in the stock purchase, were tried. They were sentenced to 12 months of imprisonment and fines of £1000 each were imposed on them. The most prominent among the suspects were even sentenced to public pillory, enduring the humiliation of being displayed in public with their heads and hands trapped in a wooden beam.
Cochrane was one of the stockholders who had benefitted from the hoax. He had invested £36,000 in order to buy £139,000 of the stock. He had also instructed his agents to sell the stocks if their value increased: clearly he seemed prepared for the unexpected and good news from the continent.
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Following the charges on Lord Cochrane of being involved in the conspiracy, he lost his naval rank. He was even expelled from the House of the Commons and the Order of the Bath. After hearing about the trial verdict, Andrew Cochrane-Johnstone, the uncle of Lord Cochrane, even fled the country.
Lord Cochrane’s Guilt
Even though Lord Cochrane was convicted of the fraud, he continued to insist he was innocent. In the year 1816, Lord Cochrane even brought forward an allegation of misrepresentation, partiality, oppression, and injustice against the presiding judge, Lord Ellenborough.
Cochrane was a war hero and popular with the public, winning re-election to the House of the Commons as an MP even after his fraud was known. His sentence was also reduced for fear of a hostile public response: he was no longer to be pilloried. Such barbaric customs were on the way out in any case, and in 1837, the use of pillory punishment was completely removed in Wales and England.
Lord Cochrane continued to petition the government for compensation and restoration of his lost titles and a pardon, protesting his innocence of the scheme. In 1832, he was finally granted his pardon, and was later restored to his rank of Rear Admiral.
Was Lord Cochrane guilty? On the one hand, those in his inner circle certainly were, including his close relatives and financial advisor, and he benefitted enormously from the fraud. On the other hand, the damage to his reputation and standing was huge and he did not seem to need the money.
The fraud was audacious but was quickly uncovered, as of course it had to be. Lord Cochrane’s reduced sentence and redress may well have been influenced by public support for a popular man: then as now a protection for the guilty from receiving their punishment.
Whether he was guilty or not may never be answered. However, when the law is swayed by public opinion, the popular win out no matter what their guilt.
Top Image: Lord Cochrane, convicted and later pardoned of the Great Stock Exchange Fraud. Source: James Ramsay / Public Domain.
By Bipin Dimri