Financial crimes in the early (17th century) stock market

by kublahkoala

What kinds of dirty tricks, scams, malfeasance and misfeasance could one find in the early stock market? How common was it? Was insider trading illegal? How were financial crimes policed? Could an owner of a company sell short and then sabotage production? Did financial crimes tie into the Dutch revolt, thirty years war, the slave trade and the colonization of the new world? Were there any funny Dutch words to describe such filmflammery? (Answering any one of these would be appreciated!)

ParkSungJun

Amusingly enough, your best source for this is Joseph de la Vega's "Confusion de Confusiones" which is a fictional account of his own personal experience trading on the Amsterdam stock exchange. There were plenty of scams and cons on the marketplace that he detailed, although primarily only one company was traded on the exchange at the time: that of the Dutch East Indies company.

Since the stock exchange was essentially an experiment, it was only natural to have one's fair share of schemes and cabals to profit from it. One Isaac le Maire was infamous for these, having created, among some examples:

A cabal to artificially drive down share prices after short selling:
Short selling and spreading false negative rumors:
Attempting to devalue the VOC by finding another route to the Indies (hilariously, they succeeded in finding the Drake Passage):
Generally antagonizing the legal authorities such that he was forced to liquidate his financial positions, such by the time he died he had lost over 1.5 million guilders.

De la Vega, for his worth, noted an interesting phenomenon: as the market matured, the main players in the market attempted to force legitimacy in the market for their own protection. Were the market to be discredited by fraudsters or other unsavory fellows, their own financial positions would be disrupted. This led to some interesting incidents such as when several would-be speculators claimed that the Jews of Amsterdam were manipulating the market (sound familiar?) this was heavily refuted not only by the Jewish community but also by Gentiles who accused the authors of attempting to turn a profit at the expense of the market players.

These markets saw a wide variety of financial instruments created, including some of the first derivatives. The title of his text is derived from the year of Confusions where so-called ducaton shares of the VOC (essentially imaginary shares that purported to be equivalent to a tenth of a real VOC share) were speculated on and later crashed, causing widespread panic in the markets.

Still, for the most part investors in the markets tended to favor stability and discouraged chaos. There was a certain prestige in being creditworthy, while speculators were considered no better than gamblers. This also applied to transactions outside of the straight stock market-for instance loans (whether individual or syndicated) to countries. Dutch bankers often made many loans to many countries, although they specifically did shun the Spanish in response to the Dutch Revolt and its aftermath. They were patriots, after all.