There have been many complex frauds perpetrated by fiendishly clever scammers over the years. But Barlow Clowes was a simple case of theft.
In the heady days of 80s consumerist excess, rational investors might have been applauded for putting some of their money into sensible longer-term investments, like gilts. They're low risk, guaranteed by government, and pretty much as safe as cash. And those who did invest in such instruments will have had a reasonable (if unexciting) ride, providing they didn't do it using the services of Barlow Clowes.
Peter Clowes (The "Barlow" was his early partner Elizabeth Barlow, who played no part in what was to follow) had been managing investments in gilts for 15 years when, in 1988, investigators moved in and, finding a staggering £110m missing, closed down the operation.
A simple plan
The scale and nature of Clowes' operation beggars belief today. Rather than running a Ponzi scheme hidden behind a multitude of carefully-crafted but fake accounts, as Bernard Madoff later did, or pre-empt the bully-boy tactics of Robert Maxwell in taking effective single-handed control of a public company and hiding the evidence among a variety of different companies, Clowes' strategy was as simple as it was audacious -- he just took his clients' money and spent it. He didn't even spend it discretely. It went on all the usual classic tokens of wealth -- fast cars, jet planes, and high-profile living. Oh, and a French chateau and vineyard.
Tax loophole
It's also something of a mystery that clients saw the need for his services for so long anyway. In the 1970s, a tax loophole allowed the proceeds of some investments in gilts to be treated as capital gains, and as gilts paid a steady and guaranteed return, this allowed investors to take a steady income that did not count against their income tax position and which could be taxed more lightly. Clowes also set up his office for managing the service in Jersey, enabling cash that was not brought back into the Inland Revenue's jurisdiction to escape being taxed altogether.
This "bondwashing" practice was brought to an end in the mid eighties when the relevant taxation laws were tightened, and in theory there was nothing left for Clowes to offer his clients. But like many schmoozers before and after him, he managed to baffle his clients into believing he could carry in providing them with superior returns.
Regulatory failure
Perhaps a bigger mystery than the gullibility of Clowes' clients (which is no mystery at all really) is the failure of the regulatory authorities to act. Clowes has started his investment career at the mutual funds agency, Investors Overseas Services (IOS), founded and run by Bernie Cornfeld. With offices in Geneva, IOS was actually a Panamanian company, and eventually collapsed quite spectacularly with the arrest and eventual conviction of Cornfeld on fraud charges. That didn't necessarily mean Clowes was dishonest, of course, but should have prompted someone to at least take a sneaky peak.
Regulation of the investment industry back then (before the Financial Services Act of 1986) was in the hands of the Department of Trade and Industry, and much as we might be able to pick fault with today's regulatory services, the thought of such a responsibility being borne directly by a government department is still a scary one, even more than 20 years on.
Needless to say, being understaffed and not sufficiently competent, the DTI team responsible for licensing and keeping an eye on investment companies proved no obstacle to Clowes' fraud, despite the near-certainty that memos were exchanged and eyebrows raised in characteristic Civil Service fashion.
Conviction
Clowes was eventually convicted on counts of theft and of making misleading statements, and was banged up for a 10-year term. The audacity and transparency of his crimes was nicely summed up by the QC's opening statement:
"The basic dishonest scheme was simple and as old as the hills. You persuade people to entrust their savings to you by telling them that they will be kept safe in a particular rock-solid investment. You don't put the money in a rock-solid investment but use it to live the life of Riley. You make good the deficiencies that come up with fresh money from new investors, and you lie and cheat to cover your tracks."
Released early, in 1999 Clowes was back behind bars again after being convicted of benefits fraud, working under the guise of a company set up by his stepdaughter while at the same time claiming unemployment benefits.
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