We’ve all heard of, and been inspired by, self-made billionaires who started out with nothing. But not many are aware of the tycoons who lost large swathes of their wealth
By Zoe Jacobson
Published: June 27, 2014
Billionaires declare bankruptcy for several different reasons. Many of them are self-made entrepreneurs who accumulate their wealth over a short period of time, and then make poor decisions when it comes to saving and investments. Some billionaires are convicted of money laundering and become subjects of fraud investigations. Many end up serving time in prison. Others let greed cloud their better judgment, and become addicted to wealth - which eventually results in their downfall.
We look at three such businessmen to examine how they accumulated and eventually lost their wealth, along with the important lessons that are to be learned from their examples.
Eike Batista
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Eike Batista is a Brazilian entrepreneur who rose to prominence after he established a gold trading firm, Autram Aurem, when he was 23-years-old. A year and a half later, the company had crossed the $6 million mark in earnings. Soon after, he founded the EBX Group and executed the first alluvial gold mining plant in the Amazon by the name of “Novo Planeta.” Batista became CEO and Chairman of TVX Gold, a company listed on the Toronto Stock Exchange. Thus began his association with global markets, and at the age of 29.
By 2000, he had set up eight gold mines in Brazil and Canada, and a silver mine in Chile - collectively valued at $20 million. In 2008, Batista landed $4.1 billion when he went public with his oil company, OGX, marking the largest IPO in Brazil’s history.
By 2012, Batista had offered six of his companies to the public: OGX, MPX, MMX, LLX, CCX, and OSX. He was then the richest person in South America, and was among the ten richest people in the world, with a net worth of $34 billion.
However, by 2013, his net worth had fallen to $500 million, after OGX failed to return profits to its investors. The oil company, which had once claimed to pump 750,000 barrels a day, was only able to pump 15,000 barrels. This was followed by several of his companies either filing for bankruptcy or being sold off. These included his energy company, MPX, which was taken over by German energy company E.ON, and his logistics company LLX, which lost control to American investor group EIG Global Energy Partners, forcing Batista to step down as chairman of the board. Between 2012 and 2014, Batista’s wealth had decreased 100%. Bloomberg reported that he had a negative net worth.
The former billionaire, who was once known for his extravagant lifestyle, is now known for being one of the fastest destroyers of wealth. Although Batista still has a plenty of money to his name, there is little doubt that the mogul has lost the trust of some of his major investors. Credibility, after all, is a very important asset especially when a company is built partly on debt, as was the case with Batista.
Sean Quinn
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Sean Quinn set up his first business in 1973, Sean Quinn Quarries Ltd, which supplied washed sand and gravel to construction workers. The Irish businessman then established the Quinn Group of companies, with which he diversified into several sectors such as glass and cement manufacturing, real estate and insurance, and hotel and property management. He built a large property portfolio, worth about $852 million, with over 70 companies in 14 different countries. The portfolio included the Kutuzoff tower in Moscow, which generated $22 million a year according to BBC.
In 2007, The Quinn Group purchased one of Ireland’s biggest health insurance providers, Bupa Ireland for $255.6 million. That same year, Quinn increased his family’s shareholdings in the Anglo Irish Bank to 15%. In February 2008, he was named the richest person in Ireland, with an estimated net worth of $6 billion by Forbes.
However, later the same year, the Anglo-Irish bank, along with other Irish institutions, witnessed a collapse in its share price, after which the Quinn family’s net worth decreased by nearly $4 billion. By 2012, Quinn was declared bankrupt by the courts in Ireland, and reportedly owed the bank $3.82 billion. He served nine weeks in prison for asset stripping, and was left with as little as $25,000 in his personal account.
Kieran Wallace was appointed share receiver of the Quinn Group by the Anglo-Irish Bank and the company was renamed “The Aventas Group.” The Quinn family no longer controls any aspect of the company’s operations or management.
One of Quinn’s biggest mistakes was investing all his finances into one bank. Another important lesson to take away from Quinn’s downfall is not to take risky business decision triggered by greed for wealth. Quinn himself has said that his decision was based more on greed than thorough research.
Allen Stanford
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Allen Stanford is the founder of the defunct global financial services company, “Stanford Financial Group,” which comprised of several affiliated businesses. These included Stanford Capital Management, Stanford Group Company, and the Stanford Trust Company, among others. It had 50 offices across several different countries, and managed to accumulate $8.5 billion worth of finances.
Stanford formed the company with his father, James Stanford, during the Texas oil burst in the early 1980s. They made a fortune by buying and selling properties as the markets recovered in Houston. After his father retired in 1993, Stanford took complete control of the company. In 2008, he appeared on the Forbes 400 list, and had a net worth of $2.2 billion.
In 2009, Stanford’s investment company was accused of running a $7 billion Ponzi scheme, and was convicted by the US Securities and Exchange Commission for criminal activities and fraud. He is currently serving a 110-year sentence in prison.
The major lesson to take away from the Allen Stanford’s example is that investors should conduct detailed background checks. Maybe if they had been that prudent, they would have saved themselves millions of dollars.
Conclusion
These examples remind us of a simple truth: having billions of dollars in your bank account doesn’t necessarily secure your wealth, or prevent you from going bankrupt. However, the corollary is that declaring bankruptcy doesn’t necessarily mean that a comeback from the pits of economic despair is impossible.
There are plenty of people out there who have turned their fortunes around, and have prevented others from repeating the same mistakes. Richelle Shaw is one such example. He had established a thriving telephone business by the name of Colorado River Communications before the devastating attack on American soil on 9/11, which shook the company’s customer base, and forced Shaw to file for bankruptcy. However, she did not let this deter her, and instead of breaking down, she took a loan and negotiated agreements with dealers to ask for shared stakes. Using this strategy, she was able to establish another million-dollar company called FreshStart Telephone. She shut down her business in 2008, and currently teaches entrepreneurs how to determine their marketing budgets and manage their money. She has also written a book on this subject, called “The Million Dollar Equation.”
Similarly, former attorney Michael Mack established an organization called bankfound.org, which aims to help people recover from bankruptcy and become financially aware in order to avoid being easy bait for conmen and other rip-offs.