briefcase | invest smarter | Issue #144

Today, we are going to take a break from our regular topical reporting to give a history lesson on one of the biggest real estate scams ever. It's a wild ride, with lots of lessons for beginner and advanced investors alike.

Let's get started.

It was October 1822, when a Scot by the name of Gregor MacGregor first told the world of his discovery. MacGregor claimed he was the Cazique (prince) of a faraway land of unimaginable beauty and resources called Poyais.

How did MacGregor become the prince of such a mystical and seemingly exotic paradise? Let's start in Latin America.

MacGregor had been in the British Army and acted as a mercenary in the Venezuelan War of Independence. This war began in 1810 and pitted Latin American groups against the Spanish empire, the former emboldened by the Spanish troubles in the Napoleonic Wars.

Under Venezuelan revolutionary General Francisco de Miranda, MacGregor was given the command of a cavalry unit and the rank of Colonel. Shortly after, MacGregor married Doña Josefa Antonia Andrea Aristeguieta y Lovera, a member of a prominent Caracas family and a cousin of Simón Bolívar.

Following several successful military campaigns, MacGregor was sent to the U.S. in 1817 with orders to invade some of the Spanish colonies in Florida.

MacGregor accepted.

At the same time, Bolívar had promoted MacGregor to divisional general, awarding him the Orden de los Libertadores (Order of the Liberators).

In March of 1817, MacGregor found himself in Philadelphia, presuming that liberated Floridians would seek U.S. annexation, thus expecting some support from the American government.

It is here where we begin to see the makings of MacGregor's future misdeeds.

For the Florida campaign, MacGregor raised $160,000 through the sale of scripts to investors, promising them acreage in Florida following a successful liberation.

The first attack would be at Amelia Island, a community that included 40% of East Florida's population (3,729 in 1815).

MacGregor led the landing party of 80 men personally on June 29th, 1817. Before the campaign, MacGregor is quoted as saying:

The Spanish side, comprising some 50 men, surrendered immediately. MacGregor declared a "Republic of the Floridas" under a government headed by himself. Almost immediately, discipline disintegrated among the troops, whom MacGregor paid in "Amelia dollars" that he himself had created.

Yea, what could go wrong with printing a bunch of fiat currency?

Shortly after realizing the tenuousness of his position, MacGregor departed for the Bahamas with his wife, and the island was re-captured by the American forces.

In 1819, MacGregor set out with 200 men to invade Porto Bello (now in Panama). Being the true leader he was, MacGregor decided to stay on the ship while his men invaded.

Following the victory over the small Spanish settlement by his men, MacGregor disembarked to declare victory.

Awoken by gunfire one evening (due to a lack of patroling by his men), MacGregor tossed his bed and blankets from the window onto the beach below. MacGregor lept from the window and attempted to paddle out to his ship on a log.

He ended up passing out, but was saved by one of his officers.

Later that year, MacGregor and a force of 250 men invaded Rio de la Hacha (now in Colombia) through a night landing. Again, MacGregor stayed back and claimed that he would re-take personal command once the troops landed on the shores.

Lieutenant-Colonel William Norcott led MacGregor's men onto the beach and waited for two hours. MacGregor failed to appear. Now being attacked by a Spanish force, Norcott fought back and went on to capture the town.

MacGregor refused to leave the ship, believing that the victory flag raised by his men was a trick. Norcott even rowed out to tell MacGregor to come into port, but still, MacGregor would wait another full day.

Unsurprisingly, when he did come ashore, he was met with angry soldiers. Nevertheless, MacGregor declared victory and identified himself as His Majesty the Inca of New Granada.

Following the departure of two key generals, MacGregor exhorted his remaining troops to lead the defense against an impending Spanish attack. MacGregor and Colonel Thomas Eyre would lead the defense. But first, MacGregor would escort Eyre's family to safety on the ship.

MacGregor promptly boarded his own ship and headed to sea as the Spanish attacked his men ashore. General Eyre and the remaining MacGregor troops were all killed.

Enraged by MacGregor's behavior, Bolívar accused the Scotsman of treason and ordered his death. MacGregor was in a pickle.

Upon his return to London, one of MacGregor's generals wrote that although not physically dead, MacGregor was politically dead, and that...

MacGregor wasn’t done though, and in 1820, King George Frederic Augustus of the Mosquito Coast in the Gulf of Honduras exchanged with him 8 million acres for rum and jewelry.

Quiz: Want to guess why they call it the Mosquito Coast?

Now, these weren't really kings, just Britain's way of extending claim to far-away areas. The Mosquito Coast King had very little power.

Located along the Black River in Honduras, MacGregor claimed Poyais (his 8 million acres) was ...

This land was, in fact, unfit for habitation or cultivation. Nevertheless, MacGregor declared himself Cazique of Poyais and returned to the U.K. with an investment opportunity.

With colonization rampant and investment in Central America at record highs, MacGregor's Poyais checked all the right boxes. Compared to London's dank weather, we can only assume this exotic paradise sounded pretty good.

MacGregor feverishly began spreading the word about Poyais. Specifically, he:

Finally, and perhaps most ironically, MacGregor created a coat of arms featuring two unicorns.

Poyais had to be real; there was a book written about it by an elusive author named Thomas Strangeways. How could that not be a pseudonym for MacGregor? Seems legit.

MacGregor's aggressive sales campaign for Poyais included newspaper interviews, the commissioning of songs, advertisements, leaflets, and hand sketches of Poyais itself to entice potential investors.

Poyaisian land certificates started selling at two shillings threepence per acre, which was about the equivalent of a working man's daily wage at the time. There was so much demand that MacGregor raised the price to two shillings sixpence per acre, and then to four shillings.

MacGregor was hugely successful in his scam. He raised £1.3 million during the ploy, which is the modern equivalent of £3.6 billion, or $5 billion USD.

Most of the money raised was through Poyaisian government bonds, land certificates, and Poyais currency that MacGregor created in exchange for British pounds.

Settlers would require local currency MacGregor told them, and he was eager to provide it to them.

A total of seven ships with eager settlers sailed across the Atlantic between 1822-1823.

When they arrived? It was a wasteland. In the end, only a third of all settlers who arrived in Poyais survived. The remaining were saved by the British Navy, who also turned back the other settler boats en route for Poyais.

MacGregor fled to France.

In France, MacGregor became deeply religious and sought forgiveness from all victims. Wait. No. He did it all over again, this time selling the Poyais scam to French businessmen.

In only a matter of months, MacGregor had a new group of settlers and investors at the ready.

Not to give the advantage to a Scot, the French government investigated MacGregor after seeing a number of applications to a non-existent county.

MacGregor was, hard to believe, immediately thrown in jail. After fleeing back to the U.K., and then Central America, MacGregor lived the rest of his life peacefully, with records still showing him pushing the Poyais scam up until 1827.

So What? One of the biggest frauds in our history is a cautionary tale to sophisticated and beginner investors alike. As my fellow Ottawa resident Shane Parish eloquently noted recently: