The Crime Book

101

See also: Charles Ponzi 102–107 ■ Jérôme Kerviel 124–25

I

n late 19th-century America,

the financial markets were

unregulated, and some people

known as “robber barons” engaged

in shady practices to build huge

fortunes. In 1869, financiers

James Fisk and Jay Gould secretly

stockpiled vast amounts of gold

in a bid to corner the market. They

planned to drive up the price, then

sell for enormous profits. But they

faced an obstacle. During the

Civil War (1861–65), the Union

government issued huge quantities

of banknotes without the gold

reserves to back them up. In 1869,

Ulysses S. Grant’s government

provided the gold to effectively buy

back the money. In so doing, the

Treasury set the value of gold:

when it sold its reserves, the price

dropped; when it held on to them,

the price rose. If speculators tried

to manipulate the gold market, the

government could do the same.

Fisk and Gould had to ensure

government gold was kept off the

market, which they did through

political influence and bribery.

They bought up gold, and the price

soared. But Grant became aware of

the plan, and so released $4 million

(£60 million today) of Treasury gold.

On 24 September 1869 (later called

Black Friday), the inflated gold price

dropped, and the market crashed.

Meanwhile, Gould had secretly sold

his gold, before the price fell. ■

WHITE COLLAR CRIMES

IN CONTEXT

LOCATION

New York City, US

THEME

Stock market manipulation

BEFORE

1821–37 Scottish fraudster

Gregor MacGregor invents a

“developed colony” in Central

America and finds investors to

buy stock in it. Settlers relocate

there, but on arrival they find a

strip of undeveloped jungle.

AFTER

1986 Wall Street trader Ivan

Boesky confesses to a US

court that he acquired his

$200 million personal fortune

through illegal market

manipulation and insider

trading deals.

1992 Harshad Mehta uses

forged bank receipts as a

guarantee for loans of $740

million on the Bombay Stock

Exchange. In an attempt to

avoid prosecution, he then

bribes politicians.

NOTHING IS

LOST SAVE

HONOUR

THE BLACK FRIDAY GOLD SCANDAL, 1869

James Fisk, unlike Jay Gould, did

not sell his gold before the prices fell

on Black Friday, and lost a significant

portion of his investment.

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