Stock markets have a long history of fraud and grift during bull markets. Grifters find it easier to entice would-be “suckers” when everyone seems to be making a fortune but them. One such example took place at the start of the 1900s that has played out in some form or another in every bull market since.
Stock promotion was legal at the turn of the century. Promoters pumped new companies in order to raise money in exchange for a cut of the total take. In some cases, their cut was upwards of 40%. A promoter could walk away with over $100,000, on a $1,000,000 stock offering, after paying promotional fees for advertising and articles pumping the stock.
The 1901 stock promotion boom was the byproduct of a speculative bull market. Two years early a merger mania began as Wall Street power players combined railroad and industrial companies into regional and national monopolies. Speculators saw an opportunity to get rich quickly in the millions of new shares created by the mergers.
The mania briefly sputtered with the North Pacific panic before going wild in a stock promotion boom in 1901. Over the course of two years, hundreds of new companies were created and promoted to unwitting investors. Continue Reading…