Whether it is because I have spent my career in the financial services sector or not, I have always been fascinated by scams, promising investors astonishing returns. My rule of thumb has always been, if it is too good to be true, it generally is. In order to dispel the theory that the perpetrators of egregious get-rich-quick scammery are exclusively male, I want to bring to your attention the curious case of Sarah Howe.
Born in New England around 1826, Sarah moved to Nashville where she married and found herself a widow at the tender age of 24. Moving back to the Boston area she held a number of jobs, none of which she was ostensibly qualified for, including working as a clairvoyant, a skill, if possessed, which would be enormously helpful for regulating someone’s financial affairs. Her light bulb moment came in April 1879 when she devised the Ladies’ Deposit, a bank deposit masquerading as a charitable organisation, offering a safe home for funds belonging to women and to be exclusive to the female sex.
Investors were promised the astonishing return of 8% interest a month, allowing an investor to double their money in just nine months, and not unsurprisingly she was inundated by deposits from single and wealthy females. At its height the Deposit held funds of over half a million dollars, deposited by over 1,200 Bostonian women. Members had to be referred to the scheme by other members – a case of the sisterhood standing together – their initial deposit was a small one and under the rules of the scheme they were only able to withdraw their interest earnings. What this meant was Howe was able to use the principal deposited to fund the monthly interest payments, inuring her from the possibility of a run of large capital withdrawals, although, according to her, the reason was to prevent them wasting their money on fripperies. A telling commentary on her attitude to her investors.
This Ponzi scheme before Ponzi soon attracted the attention of the press. After all, it wasn’t done for women folk to have access to a money-making scheme which sensible chaps were precluded from. Sarah did nothing to hide her new found wealth – she bought a $50,000 mansion at no 2 East Brookline Street with a $20,000 down payment in cash. Miss Old Eight Percent as she was known was investigated by the Boston Daily Advertiser in September 1880. The paper claimed that Howe had no way in which it could pay the returns advertised – in effect, declaring the scheme a scam – which prompted a demand from investors for their money back.
Howe decided to meet all demands, paying out $150,000 in interest and $90,000 in principal. But, inevitably, she could not hold the scheme together and when the monthly interest payments could not be made, the Ladies’ Deposit became insolvent with some 800 investors losing upwards of $300,000.
The Boston authorities arrested Howe and so depleted were her finances that she couldn’t raise the $500 bail. Charged with four counts of fraud she spent three years in jail. But the enterprising Howe wasn’t done yet. On her release she set up an identical scheme, although this one offered a more modest 7% per month interest payment. Surprisingly, she raised $50,000 from the gullible, before scarpering, never to be heard of again.