Balfour was at the centre of a scandal over the failure of a series of companies which he set up and controlled, starting with the London and General Bank and culminating in the Liberator Building Society, leaving thousands of investors penniless. Instead of advancing money to home buyers, the Liberator had advanced money to property companies to buy properties owned by Balfour, at a higher than value price.

After the swindle was discovered, Balfour fled the country. He was arrested in Argentina by Inspector Frank Froest of Scotland Yard in 1895. With extradition proceedings held up by legal wrangling, Froest simply bundled Balfour onto a train and then a boat sailing for England, The Tartar Prince. The captain of the ship, Thomas Hesketh, later received a letter from Balfour thanking him for the kindness and hospitality shown during the trip back to England.

Balfour was tried at the Old Bailey and sentenced to 14 years penal servitude, most of which was served in harsh conditions in Portland prison, and he was released in 1906.