Great Swindles of the 19th Century

Notorious Swindles and Frauds Marked the 1800s

The 19th century was marked by a number of notorious swindles, including one involving a fictitious county, one connected to the transcontinental railroad, and a number of bank and stock market frauds.

Poyais, The Bogus Nation

A Scottish adventurer, Gregor MacGregor, perpetrated an almost unbelievable swindle in the early 1800s.

The veteran of the British Navy, who could boast some legitimate battle exploits, turned up in London in 1817 claiming that he had been appointed the leader of a new Central American nation, Poyais.

MacGregor even published an entire book detailing Poyais. People clamored to invest and some even exchanged their money for Poyais dollars and planned to settle in the new nation.

There was just one problem: the country of Poyais did not exist.

Two ships of settlers left Britain for Poyais in the early 1820s and found nothing but jungle. Some eventually returned to London. MacGregor was never prosecuted and died in 1845.

The Sadleir Affair

The Sadleir scandal was a British banking fraud of the 1850s that destroyed several companies and the savings of thousands of people. The perpetrator, John Sadleir, killed himself by drinking poison in London on February 16, 1856.

Sadleir was a Member of Parliament, an investor in railroads, and the director of the Tipperary Bank, a bank with offices in Dublin and London. Sadleir managed to embezzle many thousands of pounds out of the bank and covered up his crime by creating fake balance sheets showing transactions which had never actually occurred.

Sadleir's fraud has been compared to the scheme of Bernard Madoff, which unraveled in late 2008. Charles Dickens based Mr. Merdle on Sadleir in his 1857 novel Little Dorrit.

The Crédit Mobilier Scandal

One of the great scandals in American political history involved financial fraud during the construction of the transcontinental railroad.

The directors of the Union Pacific came up with a scheme in the late 1860s to divert funds allocated by Congress into their own hands.

Union Pacific executives and directors formed a dummy construction company, to which they gave the exotic name Crédit Mobilier.

This essentially fake company would grossly overcharge Union Pacific for construction costs, which were in turn paid by the federal government. Railroad work that should have cost $44 million cost twice that. And when it was revealed in 1872, a number of congressmen and President Grant's vice president, Schuyler Colfax, were implicated.

The Tweed Ring

Cartoon of Boss Tweed with moneybag head by Thomas Nast
Boss Tweed depicted by Thomas Nast as a bag of money. Getty Images

The New York City political machine known as Tammany Hall controlled much of the spending by the city government in the late 1800s. And many city expenditures were diverted into various financial swindles.

One of the most notorious schemes involved the building of a new courthouse. The construction and decorating costs were wildly inflated, and the final cost for just one building was approximately $13 million, an outrageous sum in 1870.

The leader of Tammany at the time, William Marcy "Boss" Tweed, was eventually prosecuted and died in prison in 1878.

The courthouse which became a symbol of the era of "Boss" Tweed stands today in lower Manhattan.

The Black Friday Gold Corner

Illustration of the gold trading room on Wall Street circa 1860s
Frantic trading in the gold room. public domain

Black Friday, a financial crisis which came close to crashing the American economy, struck Wall Street on September 24, 1869. It was caused when the notorious speculators Jay Gould and Jim Fisk tried to corner the market on gold.

The audacious plan devised by Gould hinged on the fact that trading in gold had a great effect on the national economy in the years following the Civil War. And in the unregulated markets of the time, an unscrupulous character like Gould could conspire with other traders as well as government officials to subvert the market.

For Gould’s plan to work, he and his partner Fisk needed to drive up the price of gold. Doing so would wipe out many traders and allow those in on the scheme to make outrageous profits.

A potential obstacle stood in way: the federal government. If the United States Treasury were to sell gold, flooding the market at the time Gould and Fisk were manipulating the market to cause the price to rise, the conspirators would be thwarted.

To ensure no intervention from the government, Gould had bribed government officials, including even the new brother in law of President Ulysses S. Grant. But despite his crafty planning, Gould’s plan came apart when the government entered the gold market and drove the prices down.

In the mayhem that reached a pinnacle on the day that became notorious as “Black Friday,” September 24, 1869, the “gold ring,” as the newspapers called it, was broken. Yet Gould and Fisk still profited, making millions of dollars for their efforts.