Albert Oustric was a clever and less-than-honest speculator in the volatile financial climate of 1920’s France who declared bankruptcy on his phantom companies, then quickly formed others. His stock manipulations and fraudulent bankruptcy had significant repercussions in the French political world, as several government ministers had business dealings with him and were criminally implicated as well.
Before the outbreak of World War I, Albert Oustric worked as a messenger, a waiter, and a café singer in Toulouse, France, then as a wine salesman. Because of certain connections he had made, he obtained a job in a munitions factory during the war. Thus, he was able to avoid the harsh life of a French soldier in the trenches of World
In 1919, Oustric opened an office on Rue Auber in Paris. This site became the Banque Oustric et Cie, a limited partnership bank with a supposed capital of one million francs. In reality, its capital amounted to only 250,000 francs. From the time he opened his bank to 1925, Oustric carefully acquired useful relationships with important politicians. Among the politicians with whom he established friendships were Raoul Adolphe Péret, the minister of finance, and René Bernard, French ambassador to Rome. Using his connections in the ministry of finance and in the ministry of foreign affairs, Oustric succeeded in listing the Italian artificial-silk manufacturer Snia Viscosa on the Paris bourse, or stock market. This successful venture netted him a substantial fee from the Italian banker and a favorable reputation in the business world.
Oustric moved forward and became heavily involved in speculation on the Paris bourse. As the owner of a bank, he began lending significant sums of money to companies with financial problems in exchange for stock in the companies. He preferred to purchase stock, which gave him a plurality of votes to gain control of the companies. He then used these stocks as security to borrow money at a discounted rate from the Banque de France.
Using this money, Oustric began buying up companies in one particular trade area and consolidating them. His first such venture was in the purchase of a number of shoe companies. After he had combined the companies, he sold stock in the merged companies at four or five times its actual value. Oustric also bought the controlling interest in the Banque Adam. He then began creating phantom companies to finance other companies. His schemes attracted a large number of investors both large and small. In October, 1929, the Paris bourse posted a warning about Oustric, and by October 30, the institution suspended his companies’ listings. In November, Oustric’s banks—Oustric and Adam—and all of his satellite companies declared bankruptcy. The losses amounted to the equivalent of $56 million. Oustric was arrested, found guilty of fraudulent bankruptcy, and sentenced to eighteen months in prison in November, 1930. He also was required to pay a fine for irregularities in his stock dealings, particularly in regard to the shoe companies.
The failure of Banque Oustric and Banque Adam and the bankruptcies declared by Oustric made for sensational news in the French press. Le Canard enchaîné, the satirical French weekly founded in 1915, reported the affair in great detail. The publication not only made known the facts of the scandal but also added fabricated interviews,
Oustric’s relationship with a number of French politicians brought about a French senate investigation in April of 1931. In the parliamentary inquiry, former minister of justice Péret, Senator René Besnard, and Gaston Vidal and Albert Favre, two other politicians with whom Oustric had established connections, were brought to trial before the senate on charges of corruption for their dealings with Oustric. Péret had given legal advice to Oustric and was the minister of finance when Oustric received approval to place the stocks of Snia Viscosa on the Paris bourse. Péret was minister of justice when Oustric was charged with irregularities in his business ventures and delayed bringing Oustric to trial. (At the time, Premier André Tardieu supported Péret.) Even though Péret had denied any wrongdoing, he resigned as minister of justice on November 17, 1930. The Oustric scandal also brought an end to Tardieu’s cabinet. It also was alleged that Péret had received considerable sums of money from Banque Oustric.
Much of the trial centered on the listing of the Snia Viscosa stock on the Paris bourse. An official in the ministry of finance under Péret in 1926 testified that he had issued a favorable report on the Italian firm’s stock on the direct order of Péret. Also, Bernard was accused of having received a large amount of money from Oustric after the listing. The trial lasted from April 3 to July 21, 1931, when all the Oustric affair defendants were acquitted by the senate.
Oustric’s stock manipulation and speculation were actually not uncommon occurrences in the period after World War I and during the Great Depression. In 1928, Marthe Hanau had bought an economic newspaper in which she gave tips on which stocks to buy. These stocks were almost always in companies that existed only on paper, which she set up with a number of unscrupulous business partners. When she began issuing short-term bonds at 8 percent interest, the government began investigating her practices. She and her business partners were arrested, tried, and imprisoned.
In 1934, another financial scandal, the Stavisky affair, rocked France. Alexandre Stavisky had established a credit union that sold worthless bonds to the French working class. When his duplicity was discovered, he fled to Chamonix and either committed suicide or was murdered by the police. In each instance, government officials were involved, and there was evidence of bribery and the exchange of considerable amounts of money.
All three scandals contributed to distrust of the government and the strengthening of the antiparliamentary movement and the popularity of left-wing politicians. The Oustric affair, however, involved politicians at a higher level of government. During the period of his involvement with Oustric, Péret was the head of a government ministry. As minister of finance, he helped Oustric start his scandalous banking and speculating career by approving the listing of the Snia Viscosa stock on the Paris bourse; then, as justice minister, he delayed Oustric’s trial. Péret’s involvement with and favoring of Oustric had far-reaching impacts, as it ruined his political career and caused the demise of Tardieu’s government. Oustric also defrauded a broad segment of French society.
The failure of the Banque Oustric and the resulting scandal serve as examples of the opportunities for unscrupulous speculation and defrauding of the investing public. The scandal shows that governments must maintain stringent controls on financial institutions and the government officials with whom they deal.
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Kindleberger, Charles P., and Robert Aliber. Manias, Panics, and Crashes: A History of Financial Crises. Hoboken, N.J.: John Wiley & Sons, 2005. Discusses the Oustric scandal. Analyzes in general how such scandals and resulting crashes happen. -
Oliver, Michael J., and Derek H. Aldcroft. Economic Disasters of the Twentieth Century. Northampton, Mass.: Edward Elgar, 2007. Chapter 2, “The Great Depression, 1929-1933,” is especially relevant. Discusses the failure of Banque Adam and Banque Oustric in the light of the economic climate that brought about the Depression. -
Weber, Eugen Joseph. The Hollow Years: France in the 1930’s. New York: W. W. Norton, 1996. Although focused on France in the 1930’s, this work does discuss the culture, attitudes, and politics of the period during which Oustric speculated.
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