South Sea Company Bubble - Investment & Finance Definition
Estab-lished in 1711 by Harley, Earl of Oxford, the South Sea Company was formed to take on nearly £10 million of the British Government’s debt in exchange for a monopoly on trade to the South Seas and £600,000 from the British government each year. Permanent duties upon wines, vinegar, India goods, wrought silks, tobacco, whale-finds and other articles were approved. Rumors abounded about the immense riches of the lands in the South Seas, including the gold and silver mines of Peru and Mexico. Investors lined up to buy shares in the company, which they saw as a path to great wealth. However, the reality failed to live up to expectations, and the company turned to accounting and stock fraud. The company, which had turned into little more than a con game, collapsed as these frauds and other problems were revealed. The perpetrators were tossed into jail; some investors and perpetrators possibly committed suicide, and the bank accounts of directors were confiscated as the government attempted to restore order.