South Sea Bubble

AAA

DEFINITION of 'South Sea Bubble'

One of the largest stock scams of all time. The U.K.-based South Sea Company's shares saw a huge appreciation based on rumor, speculation and false claims before plummeting and eventually becoming worthless. Thousands of people lost their life savings.

INVESTOPEDIA EXPLAINS 'South Sea Bubble'

The scam occurred in 1720, when South Sea's stock soared in the wake of speculation and greed surrounding the monopoly the South Sea Company was perceived to have in the shipping and trade industries, particularly in Mexico and parts of South America.

With nothing to prevent it from doing otherwise, South Sea Company's management continued to issue shares in response to seemingly insatiable demand. As a result, the stock's price soared, defying all fundamental sense. Eventually, the truth was exposed: the company was making virtually no profit, and the share price plummeted when investors fled. In the post-Enron investing world, some have dubbed this scam the "Enron of England".

RELATED TERMS
  1. Voodoo Accounting

    Creative rather than conservative accounting practices. Voodoo ...
  2. Cookie Jar Accounting

    A disingenuous accounting practice in which periods of good financial ...
  3. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
  4. Chapter 11

    Named after the U.S. bankruptcy code 11, Chapter 11 is a form ...
  5. Contraction

    A phase of the business cycle in which the economy as a whole ...
  6. Cook The Books

    A buzzword describing fraudulent activities performed by corporations ...
Related Articles
  1. Online Investment Scams Tutorial
    Economics

    Online Investment Scams Tutorial

  2. The Biggest Stock Scams Of All Time
    Investing

    The Biggest Stock Scams Of All Time

  3. What was the South Seas bubble?
    Investing

    What was the South Seas bubble?

  4. What burst the Mississippi bubble?
    Investing

    What burst the Mississippi bubble?

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center