At the beginning of the 20th century, Ottawa was experiencing rapid growth. New businesses, enterprises, and various manufacturing industries were emerging. In the 1920s, brokerage firms also started appearing in Ottawa. However, some entrepreneurs were far from being conscientious and engaged in stock market fraud, making their way into Ottawa’s criminal history. More details on ottawaski.com.
How Did the Fraud Begin?
Two Ottawa residents, Robert Mowat and his friend Duncan MacGillivray, decided to open their own brokerage firm in 1924. Their firm had a narrow focus, dealing exclusively with mining company stocks. Besides stocks, Mowat and MacGillivray’s company provided clients with statistical services, published information on industrial company successes in their journal, and distributed it to clients.
At first glance, this seemed like a completely legitimate business. During the 1920s, investing in the stock market was a common practice and did not attract much regulatory attention.
Founders of the Brokerage Community
The brokerage company was founded by two men. One of them, Robert Mowat, was born in New Brunswick. He earned a university education and served as an officer in the 26th Battalion of his hometown. Before founding the brokerage firm, he gained extensive experience in finance, working in financial markets. His partner, Duncan MacGillivray, was a native of New York. Like Mowat, he was educated at the University of Toronto and served in the 2nd Canadian Mounted Rifles Regiment in France.
Rapid Growth of the Company
In the 1920s, Canada’s economy was booming, and stock prices were skyrocketing. Stock markets started attracting not only wealthy businessmen but also the middle class, eager to invest their savings for easy profits. Mowat and MacGillivray’s brokerage firm thrived in this economic environment.
With stock prices soaring, Ottawa residents saw an opportunity for quick earnings. The company’s advertising was highly persuasive, encouraging investments in mining companies that promised unparalleled returns. For example, an investor who put in $5,000 in a newly opened mine could potentially earn $20,000. It was hard for Ottawa’s residents to resist such an easy money-making opportunity. At the beginning of the 20th century, it was difficult for ordinary residents to distinguish between a truly profitable deal and a scam.
The firm focused on selling stocks of several small mining and oil companies in the Ottawa region.
By 1927, thanks to its great success in the financial market, the company moved to Ottawa’s prestigious Sparks Street district. By 1929, the brokerage firm had offices spread throughout the valley.
The company quickly became part of Ottawa’s elite business community.
Besides stock trading and market analytics, the brokerage firm engaged in charitable activities, supporting various local organizations and events.
The Great Depression
After the economic boom of the 1920s, Canada’s economy plunged into the dark times of the Great Depression. During the depression, almost no one wanted to buy stocks. Even shares of well-established companies were being purchased less frequently, while new companies’ stocks were avoided entirely. The loss of clients was the first sign of the collapse of many brokerage firms.
During the Great Depression, brokers tried to sell stocks to clients. Many clients were overly trusting and careless, allowing brokerage firms to profit by selling stocks at inflated prices.
Collapse and Arrest
In 1930, an Ottawa newspaper published a sensational headline announcing that all offices of Mowat and MacGillivray’s company had gone bankrupt and closed, and the funds held in the company’s accounts had been transferred into the hands of the two managing partners.
A fraud case was opened against the firm after a client attempted to cash a check but was unable to do so due to a lack of funds. The absence of client funds confirmed the company’s fraudulent activities, shocking Ottawa’s residents and business elite. However, the company’s leaders reassured clients that the payment delays were temporary and that they needed to wait for better market conditions.
A week after the company’s bankruptcy, Ottawa’s attorney general issued arrest warrants for the firm’s executives. They were accused of conspiracy to defraud clients for financial gain. However, shortly after, both were released on bail of $50,000. They fled to the United States, trying to salvage their firm. Meanwhile, Ottawa police officers meticulously examined all of the company’s financial records.
Later in 1930, the two brokerage firm executives faced three additional charges related to fraud and stock market theft. Both were taken into custody and imprisoned.
The day before their trial, Mowat and MacGillivray confessed to defrauding their clients and artificially inflating stock prices. Since they voluntarily admitted to committing financial crimes, the court did not disclose case details. Additionally, the extent of financial losses suffered by the firm’s clients was never officially revealed.
Auditors investigating the firm found that nearly 65% of transactions conducted with clients were never processed through the stock exchange. They also discovered that almost 3 million shares from various mining companies had mysteriously disappeared. These funds should have been paid to the company’s clients.
The court sentenced the two fraudsters to three years in prison. However, their lawyer hoped their sentence would be reduced to two years for good behavior and their efforts to compensate defrauded clients. Yet, after serving two years, the firm’s founders received an additional two-year prison sentence for similar fraudulent activities involving another company.