Background and Context

Before proceeding onto the main, substantive sections of this paper it is first necessary to outline the boundaries of this particular piece of research and to make explicit what exactly this paper is able to contribute to the wider historiographic literature. In particular, it is worth emphasizing that though this paper is primarily interested in the behavior of interwar British investors, it by no means purports to provide an exhaustive explanation for every investment decision that was made in Britain during the interwar period. Rather, it is perhaps more helpful to think of this paper as providing something akin to a snapshot (rather than a complete picture) of how investors at this time understood and engaged with the securities market.

In a similar fashion, it is also worth noting at the outset that while this paper does (necessarily) devote a not insignificant amount of space to discussing the intricacies of various sharepushing schemes, it does not, and does not purport to, offer a comprehensive historical overview of sharepushing in Britain during the interwar era.^{Footnote 6} Instead, its primary focus is centered upon using the surviving evidence related to these crimes as a lens, or prism, through which to view and hopefully better understand the ways in which investors at this time went about their investment decisions. As a result, the broader historical question of how far, or to what extent, the various sharepushing scams featured in this paper differed or compared with those that took place in other historical eras is one that remains left open for other studies to investigate in more depth.^{Footnote 7}

Good Advice and Bad Advice

One consequence of the continued growth (and diversification) of the British shareholding population during the late 1800s and early 1900s was that a far larger share of the national press output began to be devoted to investment and finance-related matters.^{Footnote 28} For instance, in publications such as the Times and the Economist, more space began to be given to reporting the movement of share prices, as well as the proceedings of important annual general meetings and other important events in the City.^{Footnote 29} In addition to this expanded coverage from the mainstream newspapers, an increasing number of newspapers that were specifically finance and investment-orientated also emerged. Typically, these publications would feature extended reports of conditions in different industrial sectors, tables of share prices, “gossip columns” containing the latest rumors from the City of London, news of new share issues, extensive advertising, and advice columns with tips on how to invest one’s money.^{Footnote 30} Some indication of the scale of this growth can be seen by the fact that whereas in 1874 there were only 19 titles listed under the heading “Finance and Investment” in May’s British and Irish Press Guide, by 1914 this number had increased to 109.^{Footnote 31}

For the interwar British investor, this large amount of newspaper coverage devoted to financial matters was both a positive and a negative development. On the plus side, it provided ordinary investors with the means to directly obtain information about changes in stock prices or developments in the market—thereby increasing their capacity to make more informed investment decisions.^{Footnote 32} On the flip side, however, the fact that there were so many different publications to choose from did create problems in the sense that it made it far more difficult for investors to know which sources to trust and which ones to ignore. This was certainly the conclusion reached by one contemporary journalist, who noted that “the average investor, with but an elementary knowledge of finance, has been to an extent bewildered in his choice of available media.”^{Footnote 33}

This sense of confusion among investors over which newspapers to trust was certainly something that those involved in the sharepushing game sought to exploit to their own advantage. Perhaps the most skilled proponent in this respect was the shadowy figure of Jacob Factor (a.k.a. “Jake the Barber”—brother of the famous cosmetics magnate Max Factor and long-time associate of Arnold Rothstein and the New York Mafia), who is estimated to have swindled the British public out of well over £2 million during the 1920s through a series of well-orchestrated sharepushing scams.^{Footnote 34} Central to Factor’s illicit schemes was a small publishing firm called the Broad Street Press Company (owned by Factor), which published a series of weekly financial newspapers with grandiose-sounding titles such as the Stock Exchange Observer, City News, the Financial Observer, and Finance.^{Footnote 35} Unlike standard financial newspapers, these publications were generally not available for sale in the shops. Instead, free sample copies were distributed by post to specific regions/districts of the country that Factor and his associates felt would be particularly receptive to his message. Those recipients who wanted to receive more copies could then subscribe for three months for a cost of five shillings.^{Footnote 36}

In terms of style, Factor’s newspapers made no secret of the fact that they were explicitly targeted at the small-time investor who likely lacked a full understanding of the intricate workings of the British securities market.^{Footnote 37} Indeed, right from the start, Factor’s publications sought to differentiate themselves from their more distinguished competitors by emphasizing their accessibility and down-to-earth style, as this editorial from the first edition of City News illustrates:

Alongside this more accessible style, Factor’s publications also went to great lengths to contrast themselves with the mainstream financial press by playing up their apparent “independence” (and, by extension, their trustworthiness), with one editorial stating that: “The City News is different from any other financial paper. It is independent and therefore impartial.”^{Footnote 39} Buttressing these claims to independence and trustworthiness was the insinuation—reiterated time and again throughout the pages of Factor’s publications—that the financial elite (or “professional market operators”) were somehow out to dupe the small-time investor out of his or her hard-earned savings.^{Footnote 40} In particular, it was frequently intimated that brokers on the London Stock Exchange would have one set of recommendations for their most wealthy clients and one set for those of smaller means, with the result being that the smaller investor would inevitably always lose out to the wealthier investor.^{Footnote 41} Likewise, it was also often suggested (not entirely unreasonably) that those who worked within the heart of the City of London operated within a closed system that was impenetrable to the small-time investor who likely lacked the “financial and market connections from whom [they could] receive most valuable information as to what is going on.”^{Footnote 42}

To further support this David versus Goliath narrative, Factor and his associates went to great lengths to present their publications as being on the side of the little man, stating that they were “written and compiled for the service of Investors, as distinct from professional people interested in Stock and Share business.”^{Footnote 43} In addition, they also strove to emphasize the trustworthiness of the advice provided in their columns, stating that: “…there is never a line written in The City News which is not genuine and the subject of much thought and research.”^{Footnote 44} And, to some extent, Factor’s publications were indeed able to back up such promises. Up-to-date stock exchange quotations, for instance, were always featured in Factor’s publications, as were detailed reports from various annual general meetings (just as in a “legitimate” financial publication). Likewise, there would often also be relatively topical news about developments in different industries, as well as passages discussing the implications of various pieces of legislation for those who held stocks and shares.^{Footnote 45}

Tucked away amid this useful content, however, there would always be passages or sections written with the sole intention of persuading the reader to entrust his or her savings to Factor and his associates.^{Footnote 46} Most notably, there were the weekly full-page advertisements for the respective newspaper’s in-house “stock and share departments” (a novel service not offered by any of the mainstream financial publications at this time), imploring readers to take on their advice and services:

Not all of the appeals for readers’ savings that featured in Factor’s publications were as overt as these, however. Small passages on particular industries or shares, written in such a way so as to persuade readers that they would be wise to invest in a particular security (typically one that Factor had cornered the market in), were also often featured.^{Footnote 49} Typically, this sort of content would be produced by professional writers, as the commissioner of the Metropolitan Police noted: “There is a type of individual who is well able to write [and] for some reason or another, cannot get other employment and he is prepared to use what talents he has undoubtedly got for putting together any article.”^{Footnote 50}

In addition to these advice columns, each of Factor’s newspapers also featured a weekly correspondence section containing supposedly legitimate letters and telegrams from members of the public. Many of these letters were essentially just “success-stories” written by anonymous investors who had supposedly gotten rich quickly by following the advice offered in the pages of that newspaper, as the following extract from one correspondent illustrates:

Alongside these success stories, there were also a number of pieces of correspondence in which either dissatisfaction was expressed regarding the conduct of some other broker or in which “advice” was sought regarding how best to go about buying securities. In either instance, the standard response provided by Factor’s publications was generally the same: use their in-house stock and share departments.

By using tactics such as these, Factor was able to build up and gain the trust of a large pool of investors who not only relied upon the advice provided in his newspapers, but also conducted all of their investment activity through one of his various brokerage firms.^{Footnote 52} Moreover, because he got all his clients to sign up to one of his mailing lists, he also held a great deal of personal information on the individuals who subscribed to his newspaper, including details about their preexisting shareholdings (information that all subscribers were instructed to provide).^{Footnote 53} This, in turn, also meant that he could directly contact those who might have had doubts about his schemes and arrange for one of his “salesmen” to visit them in their homes and convince them of the “soundness” of his offerings.^{Footnote 54}

Similar tactics were also adopted by a number of other notable British sharepushers during this period.^{Footnote 55} Stanley Tanfield, for instance, dumped thousands of pounds of worthless shares on British investors during the early 1930s with the assistance of his own bucket-shop newspaper, the Financial Telegraph, which, like Factor’s publications, inundated readers with misleading advice about the securities in which they should invest.^{Footnote 56} Near-identical tactics were also adopted by Walter Cousins and Edgar Gordon, who used their own sham publications—the People’s Financial and Golden Hints—to offload thousands of worthless penny stocks in the years before World War II.^{Footnote 57}

Contributing no doubt to the success that these sharepushers were able to achieve with these bucket-shop newspapers was the fact that, during the interwar era, the “legitimate” mainstream financial press was often also a fairly unreliable source of investment information. Advertising space, for instance, was frequently sold with the tacit acknowledgment that the company that purchased the space would also receive positive comments in the columns of that newspaper.^{Footnote 58} Collusion with stockbrokers was also rife, while relationships between newspaper reporters and company promoters were often extremely opaque.^{Footnote 59} Moreover, as Dilwyn Porter and James Taylor have shown, it was also not uncommon for mainstream financial publications to accept bribes or favors in return for writing favorably about a particular company.^{Footnote 60}

Making matters harder for interwar investors (particularly those with limited experience of investing) was the fact that many other printed sources of information about the stock market were often also fairly unreliable during this period. Company prospectuses, for instance, were often awash with showy fonts and images and light on hard financial data about an organization’s performance.^{Footnote 61} Moreover, even when companies did publish their balance sheets, they were often produced in such a way that they told the prospective investor little about the underlying financial health of an enterprise.^{Footnote 62} For instance, in the British banking sector at this time, it was common practice for hidden (or “inner”) reserves to be aggregated with total deposits in published balance sheets so as to help “smooth over” losses during lean years.^{Footnote 63} Similarly, as the 1933 Royal Mail Case so starkly illustrates, the standard of auditing at this time was also often notoriously lax.^{Footnote 64}

The generally low standard of company prospectuses at this time meant that it was also easier for those looking to offload worthless shares to produce—and to pass off as legitimate—lavish pamphlets and prospectuses for the enterprises they were pushing. Typically, such documents would include not only promises of the returns that investors could expect, but also endorsements from apparent “experts” in the industry in which the company was operating.^{Footnote 65} An example of this kind of information manipulation can be seen in the pamphlets that James Wilson (a.k.a. Paul Simon) produced to help push shares in “Consolidated Gold Alluvials of British Columbia Ltd”—a speculative, and unlisted, gold-mining concern in Canada for which he had bought up shares. Alongside the inevitable promises about the potential profitability of the proposed mine (“… the results will be exceptionally remunerative”), Wilson’s pamphlets also contained a number of extracts from supposedly authentic cables that were related to the proposed mine, including the following lines from David Melvin (purportedly “a leading authority on the Australian System of deep lead mining”):

In reality, these cable messages were entirely fictitious, but they do appear to have fooled a number of investors (over 1,500 investors are estimated to have subscribed) into purchasing the shares being offered by Wilson—suggesting once more that at least some interwar British investors may not have had the investment experience or knowledge to distinguish a reliable source of investment advice from an unreliable one.^{Footnote 67}

Another factor that helped sharepushers such as Wilson pass off their worthless shares as potentially profitable investments was the fact that there were such a bewildering array of securities available to purchase. Most notably, whereas the majority of securities on the market before World War I had been in UK and foreign debt, by the interwar period there were far more commercial and industrial shares (particularly in new industries such as radio and gramophone) for the public to invest in.^{Footnote 68} Some indication of this increased diversity can be seen by the fact that whereas only 7.4 percent of securities listed on the London Stock Exchange in 1893 were classified as “other shares” (i.e., not government debt, railway shares, or securities in banking firms), by 1933 this percentage had increased to 20.2 percent.^{Footnote 69} In addition, the capital shortages confronting many British firms during the interwar period also meant that the number of new public share offerings greatly increased during these years (in 1928–1929 alone there were 287 new public offerings worth just over £96.7 million).^{Footnote 70} While this increase in investment options may have been good for British investors in the sense that it provided them with more choice, it also made the process of researching and cross-referencing all of the securities that they were presented with that much more difficult. Again, such uncertainty on the behalf of (some) British investors served to play into the hands of those looking to push worthless shares, as it meant that it became far easier to pass off these securities as legitimate investments.

Taken together, then, what the preceding paragraphs have shown is that, during the interwar period, the informational environment of the British securities was one that was not only extremely crowded, but also occasionally quite misleading. For the average interwar British investor, this meant that it could be difficult to know which sources to turn to for accurate and unbiased information about the underlying value of a particular financial security. Those who were involved in the sharepushing game sought to exploit and capitalize upon this confusion by flooding the market with their own deceptive financial newspapers and publicity material. As this section has shown, these outputs typically mimicked many of the core stylistic elements used in mainstream financial publications, while simultaneously also appealing to readers’ base instincts by presenting them with promises of spectacular wealth. In this way, sharepushers were able to successfully convince many investors to hand over their savings.

Navigating the Market

Alongside the decision about which information source (or sources) to rely upon for investment advice, another choice facing all interwar investors was selecting an institution to carry out their stock market transactions. For much of the nineteenth century, such decisions were relatively straightforward, as there were essentially just two options open for those individuals or organizations wanting to invest in the stock market: (1) they could hire a broker registered with the London Stock Exchange, who would be able to buy and sell securities listed on the London Stock Exchange on behalf of his clients through a “jobber” (an independent dealer in securities); or (2) they could approach a local broker, who would be able to negotiate the buying and selling of those securities that were listed on their nearest provincial exchange (predominantly railway and bank securities, along with some shares in small, local joint-stock companies).^{Footnote 71}

By the start of the interwar period, however, the shape and structure of the UK securities market had changed quite significantly, giving prospective investors a far wider variety of ways to invest in the stock market. In particular, the emergence of the telegraph and the telephone meant that it became possible to conduct far more trade (including intermarket trade and complex trades like arbitrage) remotely from outside London.^{Footnote 72} Similarly, it also provided the means for provincial jobbers—who, unlike their compatriots on the London Stock Exchange, were not prohibited from dealing with the public—to deal directly with the public and provide price quotations and buy/sell orders on request.^{Footnote 73}

Nevertheless, despite these changes, it still remained relatively difficult for small investors to find registered brokers who could invest in securities listed on the London Stock Exchange on their behalf. The main reason for this came down to the fact that, in order to actually gain access to a broker on the London Stock Exchange, one had to either obtain a personal invitation or be personally introduced to a broker through a half-commission man (who in turn received an agreed upon percentage of any commissions earned as a result of the new client).^{Footnote 74} While such a system may have worked well for those with wealth and connections, it was often not that convenient for the small investor (particularly the non–London based small investor), who likely lacked the contacts necessary to gain a personal introduction to a London stockbroker.^{Footnote 75} Further complicating matters for the average interwar investor in this respect was the fact that many of the more prestigious licensed London Stock Exchange brokers remained reluctant to deal in the sorts of small blocks of shares that the ordinary investor would typically be interested in (as evidenced most clearly by their refusal to lower the brokerage fees they charged to small investors).^{Footnote 76} The general sense of disaffection that this engendered in many small-time investors was something that was picked up upon by the Bodkin Committee—the body appointed by the government in 1936 to look into the sharepushing problem—which noted that: “… very often the small investor feels that his business, to which he probably attaches great importance, does not in that way get the more personal attention that he desires.”^{Footnote 77}

Ultimately, therefore, despite the advances in telephone communications occurring at this time, many of those with only small sums of money to invest continued to be reliant upon outside intermediaries (local brokers, banks, lawyers, provincial jobbers, etc.) to conduct their investments for them.^{Footnote 78} As mentioned previously, such intermediaries were not only unconstrained by the rules and regulations of the London Stock Exchange; they were also far less tightly supervised than the brokers licensed by the London Stock Exchange. This, in turn, meant that this sector of the stock market was far more liable to infiltration by a whole raft of sharepushers and other felonious non–London Stock Exchange brokers, all looking for ways to trick members of the investing public out of their savings.^{Footnote 79}

Making matters even harder for the average investor was the fact that such individuals inevitably did all that they could to publicly present themselves as legitimate and trustworthy business intermediaries. For instance, they would often choose monikers for their enterprises that they believed had a regal or “official” sound to them (the rationale being that this might mislead uninformed investors into thinking that they were legitimate and upright establishments).^{Footnote 80} A similar trick also used by a lot of sharepushers during this period was to assign names to their brokerage firms that sounded similar to those of legitimate business concerns in the City of London.^{Footnote 81} A typical example in this respect would be the misleadingly titled “Prudential Exchange” (an institution that, in reality, had no official links to the widely known Prudential Insurance Company), which was set up in 1909 by Robert Forbes, Charles Isaacs, and Charles Harrison and into which thousands of ill-informed investors sunk their savings.^{Footnote 82}

Another similar tactic that a lot of interwar sharepushers adopted was to make sure that one of the “Big Five” joint-stock banks acted as the receiving institution for the new share subscriptions of whatever venture that they were promoting. Again, this was largely a “window-dressing” exercise, as it meant that they could then subsequently have the name of that particular (respected) bank written out in bold across the front of their prospectuses and publicity material.^{Footnote 83} As the Bodkin Committee noted, this proved to be a particularly dangerous tactic, because it fooled many investors into thinking that that bank had in some way vouched for the legitimacy of the new issue (when, in actual fact, the bank in question had probably done little more than ensure that the format of the prospectus was basically in compliance with the law).^{Footnote 84}

In situations in which the shares being pushed were not yet listed on the markets, sharepushers would also often make (unfounded) promises about the imminent listing of that particular security on the London Stock Exchange or some equivalent market. For instance, in the letters that Louis B. Siegel and his gang (operating under the title of “A. White Limited”) sent out to prospective investors, advising them to invest in an speculative and unlisted Canadian gold-mining concern called Cryderman Gold, it was claimed that “… we [have] received from our solicitors in London word advising that preparations was under way at this time to list this issue on the London Exchange.”^{Footnote 85} Similarly, in the letters and pamphlets that James Wilson sent out touting the shares of Consolidated Gold Alluvials of British Columbia, it was repeatedly stated that “… the Company should be in full production by the end of the year, and it is confidently expected that the shares will then be introduced at a substantial premium on the London market.”^{Footnote 86} Again, the rationale behind making such promises was to try and convince prospective investors that the securities being offered were as reputable as those already listed on these markets.

Finally, to further protect themselves in case any doubtful prospective investor might try and do some background research on their credentials, a number of interwar sharepushers also rented out office space in prestigious buildings with “imposing addresses” near the London Stock Exchange.^{Footnote 87} Often, these offices would be lavishly furnished and decorated in the most expensive fashion, as the following passage from the director of the Metropolitan Police makes clear: “They are usually much better furnished and set out than many genuine businesses. There are plenty of telephones, every office equipment that is either necessary or unnecessary is usually there, and there is a general air of wealth and prosperity about the place.”^{Footnote 88} A typical example in this respect was the temporary headquarters set up in 1934 by James Wilson at Kent House, Regent Street, described by one police officer who visited them as “furnished in such a manner as to create an air of affluence.”^{Footnote 89} In most cases, rented offices such as these would be hired for a short period of time (often a matter of weeks) and then vacated as soon as the securities in question had been disposed of.

Taken together, then, what the preceding paragraphs suggest is that, for the average interwar British investor, deciding whom to employ to carry out their stock market transactions was far from a straightforward decision. On the one hand, there were the licensed London Stock Exchange brokers, regulated by the rules of the exchange, yet extremely difficult to contact directly; on the other hand, there existed a plethora of outside brokers and middlemen, largely unregulated but far more accessible for the small investor. Given such a choice, it is unsurprising that so many smaller investors appear to have preferred to conduct their stock market transactions through individuals and organizations operating outside the London Stock Exchange, rather than go through the effort of trying to get in contact with a licensed broker. For those implicated in the sharepushing game, however, this created an ideal opportunity to further deceive the investing public. Unconstrained by the regulations governing those brokers connected to the London Stock Exchange, sharepushers were able to set up brokerage firms that to all intents and purposes looked the same as the many legitimate and reputable brokerage firms that operated outside the stock exchange during this period. In this way, they were able to successfully convince many investors that they were trustworthy conduits through which to invest in the securities market.