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THE BARLOW CLOWES SCANDAL

Lecturer: Mr. Jun Group name: WATERMELONS Group members: 1- Nguyen Thi Bich Ly Tiny 2- Vu Huyen Trang Luna 3- Dao Kim Tuyen Sally 4- Pham Ngoc Minh Chau Candy

F04A

AUDITING AND FINANCIAL SYSTEMS

Barlow Clowes History

Barlow Clowes Ltd was established in 1973 by Peter Clowes (The "Barlow" was his early partner Elizabeth Barlow, who played no part in what was to follow). The business had been managing investments in gilts for 15 years In 1983 1984, The Department of Trade and Industry (DTI) concerned about Barlow dealing in securities without a license In May 1984, Warnings from Stock Exchange that Barlow would have difficulty in paying the high minimum rate of return offered without eating into capital and feared it might be pooling clients funds.

In May 1988, Barlow Clowes declared insolvent

How Peter Clowes stole investors funds


Offered a fund: low-risk government giltedge stock higher yield (almost too good to be true)

Transformed highly-taxed income into lowly-taxed capitals gains


Claimed to produce a high income from low risk investment attract more investors Stole investors funds more than 100 million to fund a lavish lifestyle

The Effects of Barlow Clowes Scandal

Lack of supervision of the Department of Trade and Industry => investors thought it was a safe investment

It plunged 14,000 pensioners into poverty due to the fraudulent practice of Barlow Clowes It cost the government 150m in compensation to thousands of mainly elderly investors on the basis of ex-gratia payments

scheme

Barlow Clowes was the first major financial scandal to hit Britains recently-formed regulatory system, set up to protect

investors through the Financial Services Act 1986

Lessons from the Barlow Clowes scandal


When something looks too good to be true, it usually isnt true Do not assume that because the regulators have approved a business, it is a safe investment Do not invest into something you dont understand Beware offshore investments which are not covered by a statutory compensation scheme

WATERMELONS GROUP
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