Gregor MacGregor and the Republic of Poyais
How an audacious financial fraud in the 1820s ended with 230 British investors marooned in the Honduran jungle
Nestled deep in the jungles of Honduras’ sweaty northern coast is a small community of Palacios. For the casual visitor today, there’s not much to see. A few dozen houses cling to the banks of the Rio Negro. In the centre of town, the one community’s main dirt road turns into a make-shift airstrip.
Many residents say that Palacios feels forgotten: a single lane track links the town up to the rest of Honduras. During the covid-19 epidemic, oxygen tanks made it to these communities only after enterprising medical students from Tegucigalpa held a fundraiser and chartered boats to make their way into the jungle. Earlier this year, the Mayor’s house burned down. The remains lie in sad disrepair.
But behind the town’s dishevelled facade lies an unexpected history. 200 years ago, Palacios was the centre of a speculative financial boom in the city of London that turned into one of the world’s most audacious financial frauds: somehow, an eccentric Scottish scam artist managed stumble into this part of the coast, convince 230 investors representing some of the most powerful banks in the world that the swampy lands surrounding Palacios presented an unparalleled financial opportunity and make off with £1.3 m of their money (about £3.6 bn today).
Captain Gregor MacGregor
The Scotsman who pulled off the ruse was Gregor MacGregor. He was born in 1786 in a shoreside house on Loch Katrine. He claims to have studied at Edinburgh University, though no records of him being there exist. In his younger years he built a colourful career in the British military. In 1804 he got married to Maria Bowater, the daughter of a navy sea captain and in 1805, MacGregor became a captain himself, using £900 to rise through the ranks rather than any particular skill. Most of his cash came from his wife’s family.
‘Captain’ MacGregor seems to have been universally hated in the military. This was probably in part due to the un-meritocratic method by which he found his way to his captaincy but the bad sentiment was no doubt augmented by his argumentative attitude and a newfound petty obsession with medals and uniforms. He made officers serving beneath him walk around in full uniform at all times. MacGregor, or ‘Sir’ MacGregor as he sometimes (erroneously) referred to himself, frequently got into petty fights with his superiors and eventually requested retirement from military duties, which was promptly granted.
One year after settling into his retirement, aged just 24, MacGregor seems to have decided to take a gap year in Latin America. While seemingly out of the blue, this was actually a completely natural route for any eccentric outcast in the 1810s: The Spanish Empire was crumbling and a revolutionary cause was calling. The decision to up sticks and leave was probably made easier for MacGregor by the fact that his wife, who had been his sole source of retirement income, died. With his only experience being military, but with the British Military making it clear he would not be allowed back, joining the revolutionary wars of Latin America seemed like a logical move. That’s where the logic in MacGregor’s life ends.
The Latin American Adventurer
MacGregor’s early days of adventure were blessed with unseasonably good fortune. Somehow he managed to bump into Simon Bolivar, a budding young revolutionary who eventually would become the figurehead for Latin America’s revolution against the Spanish. Bolivar was left so impressed by MacGregor’s account of his experiences in the British Military that he promptly put him in charge of a unit of revolutionary troops so MacGregor could help liberate Nuevo Grenada (a formidable chunk of land which today is made up of Venezuela, Colombia and Ecuador). Bolivar even allowed MacGregor to marry his cousin, Josefa. Bolivar would grow to regret both decisions.
While MacGregor did start earnestly helping the revolution he seems to have quickly forgotten the mission and became more interested in gallivanting around Caribbean islands, creating flags and claiming lands as his own. Latin America was, by this point a, wild west: the Spanish Empire was falling apart. New countries were springing up, falling and tearing at each other’s throats. There was plenty of chaos for a mischief-maker to hide behind.
One of MacGregor’s conquests was Amelia Island, just off the coast of Florida. MacGregor declared the island a ‘Republic of the Floridas’ and under his tenure, the island seems to have been inhabited by an interesting soiree of lost Venezuelans and drunk pirates. At some point during the debauchery, MacGregor started building a state. The exact nature of the state didn’t seem to matter too much, so long as MacGregor was the top of it, and a small army, presumably of drunk pirates, was formed. MacGregor paid them in all Amelia dollars, a currency he invented and printed himself.
While the island’s inebriated inhabitants seem to have been largely ambivalent towards the complicated constitutional arrangements MacGregor was creating around them, the pirate island didn’t go unnoticed. British diplomats, who had been earnestly trying to present all forms of British rule as the orderly alternative to the Spanish empire, were deeply embarrassed. The Spanish were insulted and assembled an army to recapture the island. Just before the invasion, MacGregor announced to his rag-tag recruits that he had to leave mentioning something vague about being ‘deceived by a friend.’ He left his drunk pirate army unpaid, unfed and clutching handfuls of Amelia dollars on the island to deal with the ensuing mess. Somehow, MacGregor himself hopped on a schooner and ended up in the Bahamas.
Records of what happened to MacGregor after are patchy but occasional snippets exist. We know that a fledgling Venezuelan government gave MacGregor £1,000 to recruit British troops for Venezuela’s continuing wars against the Spanish, money which he quickly squandered on booze, gambling and weapons. MacGregor did make it to England where a friend lent him a further £1,000 for recruiting said troops, and he recruited them. But for unknown reasons and at the last minute, MacGregor insisted on chartering the boat to a tropical island and beached his troops in San Andres rather than Venezuela.
It’s said that MacGregor spent most of his time on this impromptu Caribbean holiday inventing a prestigious imagined military award, the order of the green cross, which he conferred immediately upon himself. Nobody seems to have been paid. The eventual whereabouts of the £1,000 remain a mystery. The reports of MacGregor’s subsequent whereabouts are erratic;
i. February 1819. Haiti. Brief spell in prison after being arrested for arms smuggling.
ii. April 1819. Panama. Found in paddling out to sea on log by Navy Captain after deserting his soldiers in wake of a Spanish attack.
iii. July 1819. Venezuelan Coast. Steals boat from Navy Captain (see point ii) and announces to remaining troops his intention to return to finally ‘liberate’ Nuevo Grenada.
By the time MacGregor finally made it to Nuevo Grenada, he had a small fleet of ships and a battalion of 900 loyal soldiers in tow. Young Brits and European adventure seekers were coming in droves to join the fray of Latin America’s revolutionary wars and a number seem all too happy to put themselves under the command of MacGregor: a general who appeared highly decorated (albeit in awards he made up himself), and married to a relative of Bolivar (though at this point that was very much against Bolivar’s will). All the troops were unified by the noble mission – to drive out the Spanish.
MacGregor parked the ships just off the coast of a Spanish outcrop called Riohacha and told the troops to prepare for a surprise attack. On the day of the attack itself, however, the main surprise was that MacGregor never turned up. As it happened, his troops did manage to capture the town of their own accord, but even after all the fighting was done, MacGregor was too scared to set foot on land himself. He continued to hide out on his boat for several days before a few of the soldiers rowed back to coax him out. Upon landing on the beach of Riohacha, MacGregor’s mood improved and he quickly declared himself as “His Majesty the Inca of Nuevo Granada,” a bold claim given his minimal role in the battle and the fact that this was the first town his battalion had visited. This was not lost on the troops. Many spat at him.
A Meeting with a Honduran King
Quickly getting bored of his self-declared royalty in Nuevo Grenada, MacGregor rattled down the east coast of Central America eventually landing in a remote area of Honduras called La Moskitia. There, he seems to have bumped into another ‘king’ who, for the modest price of a few bottles of rum, granted MacGregor land rights to 32,000 km of dense jungle. Or so MacGregor claims.
‘Kings’, by the way, were fairly common in Central America at this time. The British periodically sailed about the fraying Spanish empire generously bestowing titles in coastal communities simply to claim that the land was under British Royal Sovereignty. The position of the king conveyed very little power or authority. And the ones McGregor alleges he bumped into seem to have been notorious drunks.
While the ‘land rights’ for rum deal with the ‘king’ seems to have been quite vague, MacGregor was delighted. He immediately began working on a bizarre range of tasks including designing new military uniforms for a hypothetical army, new awards for hypothetical heroes, brainstorming ideas for a complicated tricameral parliamentary system and drawing coats of arms adorned with unicorns. He declared himself a Cacique and called the land ‘The Republic of Poyais.’
The Scam
Disaster might have been averted if MacGregor had decided to keep his unicorn-filled Cacique obsession to himself. But he didn’t. Instead, he moved back to the United Kingdom and hopped around London and Edinburgh which at this time were the world’s primary financial capitals.
By the time MacGregor got to the UK, the imaginings of Poyais had become even more fantastical. He released an investor’s prospectus, which had been printed at great expense, where the Malaria ridden jungle of Honduras’ northern coast was reimagined as an ‘endless fertile pasture’ capable of producing ‘multiple harvests a year. The murky Bay Area where Palacios sits today was described as ‘Saint Joseph,’ a thriving mercantile port and capital of about 20,000 – fully equipped with an ‘opera house and domed cathedral’. The Rio Negro had somehow become a vibrant stream where the waters contained ‘globules of pure gold.’
Investors loved it. And also loved that Poyais government bonds were offering a 6% return, twice the interest rate of UK bonds. They were also secured directly against ‘all Government revenues of the Republic of Poyais’ which sounded particularly safe. All in all, £1.3 m was raised in bond sales. Given hindsight, investors should have contained their ebullition – neither Poyais nor its government existed outside MacGregor’s imagination.
The Principle Agent Problem
The financiers who had handed over large chunks of cash to Cacique MacGregor quickly came across what economists call the principle-agent problem: the idea was that if the investors (the principle) stayed in the UK, it would be very difficult to verify whether their cash was being used wisely by Cacique MacGregor (the agent). Yes, the Cacique claimed he was using the investments to develop the country, but how could they guarantee these investments were being allocated to get the best possible returns?
The solution was simple. Investors would have to see the land for themselves. And MacGregor was delighted to oblige. He immediately set to work creating an elaborate new immigration system including issuing ‘Passports of Poyais’ to any new visitor keen enough to make the journey. He also chartered a ship he’d stolen earlier, The Honduran Packet, to deliver the first batch of expectant migrant investors.
The settlement program turned out to be a lucrative side hustle for MacGregor in itself. For 2 shillings 5 pence an acre, investors were offered the opportunity to buy tracts of land in Poyais. For an extra fee, MacGregor granted new titles and monopoly rights to enthusiastic investors keen to have an active role in the development of the republic and live on its fertile lands.
The titles available ranged from the prestigious Governor of the Bank of Poyais to the more obscure ‘Official Royal Shoemaker.’ And of course, various military commander positions and multiple orders of the green banner were sprinkled upon those who were particularly financially endowed. On the 10th of September 1822, the Honduras Packet set sail for the first time to Poyais and dumped 230 eager investors onto Honduras’ northern shore close to the banks of the Rio Negro.
There is some debate as to the extent to which MacGregor believed his lie. Maybe he had genuinely wanted Poyais to be a success and was just ‘faking it until he made it,’ in the same way some tech entrepreneurs do today. Or perhaps it was a premeditated financial scam from the start. What we do know is that MacGregor never returned to Poyais to check in on his colony and that the new inhabitants who did make the journey were left bemused, disappointed and malarial.
The first 230 who disembarked the Honduran Packet were genuinely baffled and started searching for Saint Joseph believing at first that the ship had dropped them off in the wrong location. The Poyais Government, they comforted themselves, would soon realise the error and send a rescue crew. While waiting for rescue, several died from yellow fever, dengue and malaria. The Royal Shoemaker shot himself. One settler decided to build a canoe to find help and drowned. A few weeks later, the marooned investors were spotted by a British military ship going to Belize which offered rescue.
It’s amazing that even at this point, some investors were reluctant to board the rescue ship and remained convinced that the whole thing had been a misunderstanding and that if they just waited a little longer, the mysterious Cacique MacGregor would finally arrive to save them and sort out the mess. However, in the end, even the reluctant stragglers were forced out after the ‘King’ who claimed to have originally met a man by the name of MacGregor heard of the debacle, rocked up and denied ever giving MacGregor land rights.
MacGregor’s land was unilaterally revoked and the confused settlers were moved on. It’s not clear if MacGregor ever got the message about the collapse of his imaginary country. Either way, within the year four more schooners were on their way, each packed with eager investors eagerly clutching Poyais Passports and Poyais dollars sold to them at great expense by the Cacique MacGregor himself. They were eventually intercepted by the British Navy. Some boats were turned back to England, and those further in their journey stopped and were rerouted to Belize.
The Ending
The fable of Poyais sometimes reads back like a crazy adventure story, but the human cost was grim. Of the first 230 settlers on the Honduran Packet, at least 150 died. 20 returned to the UK and the remaining 50 stayed in the Americas. It’s entirely possible that if you tramp around the coasts of Central America, you may eventually run into a descendent of duped British financier.
Gregor MacGregor never faced punishment for his fraud. He fled the UK days before the first cohort of dejected Poyais settlers returned on British Navy ships. He ended up in France where he repeated the scam. French authorities were much more adept than the British at intercepting ships bound for Poyais and turning them back, but they didn’t stop hundreds of investors from being fleeced.
In the last years of his life, Gregor MacGregor moved to Venezuela where he was welcomed as a hero. He demanded a full military pension and backpay: he claimed that he had always wanted to be part of the Venezuelan Army but had been blocked by various officials including Simon Bolivar who, in MacGregors’ telling, had been mysteriously vindictive for no clear reason. The Venezuelan government didn’t bother to pull apart MacGregor’s story, agreed to his demands and granted MacGregor a full military pension and Venezuelan citizenship. MacGregor died in 1825. He was buried with full military honours in Caracas Cathedral.