At the height of his career, Jabez Spencer Balfour was considered a successful businessman with a promising political future ahead of him. But in 1892 one of his companies collapsed culminating in the fall of his financial empire and resulted in a national scandal, which left thousands of public investors penniless. The subsequent investigation uncovered a complex scheme of fraudulent transactions, orchestrated by Balfour and his associates to steal millions from their investors.
Balfour was born on 4 September 1843 to James and Clara Lucas Balfour and grew up in Maida Hill, London. His mother became a staunch temperance campaigner after his alcoholic father took a temperance pledge in October 1837, with both adopting total abstinence due to the awful ravages committed by drunkenness. In 1866 he married Ellen Mead and together they had a son, James in 1868. That same year he began his business ventures when he established the Liberator Permanent Building and Investment Society under the slogan, "No Speculator need Apply" and began focusing on new housing projects in the expanding suburb of Croydon.
However, instead of advancing money to home buyers, the Society had advanced money to property companies to buy properties owned by Balfour, at a high price. Over the next few years he set-up a succession of other companies, such as George Newman and Co., The Lands Allotment Company, The Real Estates Co. and the building firm J.W. Hobbs and Co. The purpose of these companies was to buy and sell land and properties through each other and borrow excessive funds from the banks, whilst the directors disguised the true financial balance sheets with crooked audits.
However, in most cases the company directors merely pretended to buy and sell properties to each other at imaginary prices during bogus transactions. This included significant profits for the company directors, specifically Balfour. As a result, his companies were often oversubscribed as unsuspecting public investors rushed to invest their savings. Every year they received 8% interest on their investment, however the dividends were not derived from any real company profits, but paid from new subscriptions to his other companies.
Most of these investors were non-conformist middle and lower-middle class families who were motivated to invest their hard earned money because of Balfour's founding commitment to extending home ownership to the underprivileged. He later moved away from this commitment and was involved in some impressive building ventures, such as the Hyde Park Hotel, the 1,000-room Hotel Cecil, and Whitehall Court on the Thames. However, Whitehall Court had been bought in 1886 by J.W. Hobbs and Co. from it's indebted developer for £57,500 and later sold to the House and Land Investment Trust for £77,500, the chairman of which was Balfour, whilst his solicitor Granville Wright ensured the transaction processed smoothly and they both pocketed the £20,000 difference.
Morrell and William Theobald were the chartered accountant brothers who were drawn into Balfour's complex business dealings and eventually rose to positions of directorship in many of the companies associated with and including the Liberator Society. Morrell had a peculiar interest in the supernatural, but was branded more or less a fraud and liar by fellow spiritualists. However both men knew enough about accounting and finance to know that the strategy adopted by Balfour could not be sustained and was doomed to failure.
Another employee was G.E. Brock who joined the Liberator as a clerk in 1868 and subsequently became a director. He also knew the practices were not fiscally viable, but he dared not disrupt the established policy already in place. George Dibley was considered innocent at a later trial, knowing nothing of what went on and who merely did as he was told by Balfour.
The solicitor, Granville Wright became involved in many of Balfour's companies, and can best be described as an out and out crook, whilst Balfour's tailor, an honest man from Wallingford was employed as a company auditor. These auditors were often poor non-conformist ex-ministers who, welcoming the extra income and not asking too many questions, signed off the accounts because of a combination of incomprehension at such complexity and ultimately trust in Balfour's business acumen.
Balfour undoubtedly possessed some genuine business talent but his fraudulent transactions made him and his associates millions. Whilst some of Balfour's colleagues and employees were honest and hard-working, others were corrupt con-men who knew the full extent of his mismanagement, but all were equally dominated and manipulated by Balfour who believed that a rising stock and property market would help cover the full extent of his fraud.
Jabez Spencer Balfour
He proceeded to cultivate the image of an honest businessman, devout non-conformist and pillar of the temperance movement and later joined the Liberal Party to exploit his political connections. By 1879 the Liberator was the largest building society in the country and Balfour's various companies continued to show vast sums of money in earnings as the directors recklessly issued false balance sheets. As a result large dividends were declared, which induced more and more people to become shareholders. He exploited his religious and political contacts to the fullest when he established the London and General Bank in 1882 with the primary purpose of processing the mass of fraudulent cheques which flowed from one of his companies to another.
His wife Ellen became a patient at the Priory Hospital, Roehampton in 1880, after her mental condition had deteriorated. That same year Balfour was appointed as chairman of the Northampton Street Tramways and was the Member of Parliament for Tamworth from 1880 to 1885. He was also interested in local politics in his home town of Croydon, Surrey and was active in the "drink versus temperance" campaign against the famous brewer Michael Bass. When the town achieved borough status in 1883 he was selected as charter mayor and was later re-elected for a second term. In 1885 he stood as the Liberal candidate in Croydon at the general election but lost to the Conservatives and also stood unsuccessfully for the Liberals at Walworth in 1886.
Whilst his political career waned somewhat, his businesses continued to prove successful and in December 1887 he founded the investment underwriting firm the Trustees, Executors and Securities Insurance Corporation Ltd, together with city financers Leopold Salomons and Sir John Pender. J. Spencer Balfour, as he now styled himself, was re-elected to the House of Commons as the Liberal member for Burnley in 1889 where he became identified with progressive causes like the extension of the suffrage, reform of the Factory Acts and Home Rule for Ireland. He was a generous contributor to party funds, primarily to advance his own political ambitions and was tipped for promotion to the cabinet.
By 1890 Balfour had no fewer than 14 directorships and two years later he was serving as the chairman of 17 companies, including the London and General Bank which held the accounts of the Liberator and his other companies. However the full ramifications of his grossly inflated assessment of company assets were not seen until the last dividend of 10% was declared and auditors discovered the reserve fund was exhausted. The subsequent protest was ignored by the directors and the beginning of the end came in early September 1892, when a notice was fixed to the doors of the London and General Bank which declared payments had been suspended.
Balfour, the Theobald brothers and the rest of the Liberators management remained silent on the issue and some of the societies creditor's decided to initiate a compulsory winding up order at the beginning of October. Then his building company J.W. Hobbs and Co. collapsed and went into liquidation. Upon closer inspection it was discovered the Liberator had advanced the firm over £2 million and criminal proceedings were initiated against James William Hobbs and the solicitor Granville Wright on a charge of forgery in connection with the affairs of the society. Then the London and General Bank collapsed which triggered the fall of his empire, and it was discovered his combined companies were in debt at a total of £7 million. Thousands of investors were left penniless and some chose suicide rather than face destitution.
However Balfour was prepared for such an eventuality and in December 1892 he decided be skip the country and boarded a steamer bound for Buenos Aires, just as the police were about to arrest him. His associates were less lucky and found themselves arrested and brought to trial over the scandal. The temperance champion Balfour settled in Salta where he negotiated the purchase of a local brewery from an unsuspecting community who believed he would provide a useful contribution. He resisted all attempts to extradite him back to London and was finally located and arrested in the province of Jujury, Argentina by Inspector Froest of Scotland Yard in 1895. Because the extradition proceedings were held up due legal complications, he was forcibly taken aboard the Tartar Prince, which then sailed to England.
Vanity Fair Caricature of Balfour
Balfour appeared before the Old Bailey in November 1895 and the prosecution focused on his conduct in regards to the mismanagement of two of his companies, the House and Land Investment Trust and the Lands Allotment Company, of which he was accused of falsifications of accounts with intent to deceive and malversation.
On 28 November he was found guilty in both instances, and was sentenced to seven years' penal servitude for each set of offences, one sentence to commence on the expiration of the other and most of which would be served in harsh conditions in Portland prison. As he left the dock the Judge told him, "you will never be able to shut from your ears the cries of widows and orphans you have ruined". Two of his alleged accomplices, Brock and Theobald, were also sentenced to nine months' and four months' imprisonment respectively, whilst George Dibley, was discharged, the jury disagreeing on his culpability.
He was universally condemned for his crimes and outside the court, a large crowd had gathered to hear the verdict which resulted in huge applause at his punishment which many considered sufficiently just. He served ten years and four months of his sentence, being released on 14 April 1906 and was subsequently hired by the Northcliffe Press to write an account of his prison experience. These memoirs were serialised by Lord Northcliffe's Weekly Despatch newspaper and was later published in book form as, "My Prison Life". He later worked as a mining consultant and died on 23 February 1916 whilst travelling on a train from London to Wales, where he was heading for a job as a mining consultant.
Written by Nucleus
Written by Nucleus