- Financial fraud is a major crime which often comes with heavy punishment and fines for those involved.
- Enron, Cendant, and WorldCom are examples of massive companies torn apart by financial fraud and scandal.
- Other cases include fraudsters trying to sell the Eiffel Tower and the Brooklyn Bridge.
Financial fraud is a serious white-collar crime that often comes with heavy punishment and fines, but the details of the misdeeds can be stranger than fiction.
Recently, numerous charges of fraud – and alleged fraud – have made headlines. In April, Wells Fargo was fined $US1 billion to resolve probes into lending abuses. Elizabeth Holmes founded Theranos at 19 but her success came to a sudden halt when she was charged with “massive fraud” in March.
Financial fraud isn’t new, and the extent of the crime can vary significantly. In some cases, billions of dollars are lost and companies end up bankrupt. Most cases have at least one person, but often a group of fraudsters, going to prison.
Some cases involve forged documents, while others focus on trying to sell an item somebody doesn’t own. Ponzi schemes are also common. Even bitcoin has been the source of fraud.
From corporate scandals, to major forgeries, to individual pyramid schemes, keep reading to see the most notable, and expensive, fraud cases of all time.
The book on this alleged fraud case is still being written. First, the large American bank got caught with millions of fake accounts in an instance of employees trying to meet quotas through cross-selling.
Now, Wells Fargo is under fire for improperly handling fraud cases because it closed many of the accounts in question instead of performing the legally mandated investigation.
The bank settled with regulators to pay a fine of $US1 billion to be split by the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.
Elizabeth Holmes promised to change the world of medicine with new technology and lured investors like Henry Kissinger and James Mattis and a partnership with Walgreen’s. Holmes performed demonstrations using other company’s technology while claiming it was the work of Theranos.
The SEC charged Holmes with lying to create more than $US700 million for Theranos in outside investments. Holmes reached a settlement and agreed to pay a $US500,000 fine, hand over 19 million shares of the company, and is not allowed to be an officer of a public company for 10 years.
Kirbyjon Caldwell and Greg Smith
The SEC recently charged Houston based pastor Kirbyjon Caldwell and self-described financial planner Greg Smith in a scheme that allegedly involved luring innocent people into investing in old Chinese bonds with no worth, with the promise of large returns. Twenty nine mostly elderly investors were swindled out of $US3.4 million.
A DOJ press release states that each defendant could face as many as 30 years in prison, a $US1 million fine, and five years of supervised release, among other penalties.
The Italian-born immigrant created such an uproar over his crimes that any investment fraud or pyramid scheme committed bears his name. From 1918 to 1920, Ponzi ran a large scale international trading scheme involving reply coupons on mail stamps.
At one point, Ponzi was making $US250,000 a day in post-WWI Boston but ended up owing $US7 million and was charged with 86 counts of mail fraud.
The Houston-based energy company had a mighty collapse in 2001 after a failed merger and, what was at the time, the largest US bankruptcy. Enron committed fraud by overstating earnings. Numerous executives were found guilty of various crimes from obstruction of justice, money laundering, and insider training.
Madoff is currently serving a sentence of 150-years in federal prison for securities fraud. He was a well-respected investor until it was learned that he was operating a Ponzi scheme that lost a record $US65 billion for his investors.
Madoff was turned into authorities by his two sons in 2008.
Accounting firm Arthur Andersen – which was later implicated in wrongdoing with Enron – found irregularities during an audit of Cendant.
The new company, which had formed through a 1998 merger between CUC International (CUC) and Hospitality Franchise Services (HFS), was doomed because CUC was overstating income by more than $US500 million for three years. After SEC charges, multiple executives were found guilty of fraud for submitting false reports.
Eventually, the company split its assets, dividing subsidiaries such as Avis, Century 21, Orbitz, and Ramada.
Frank Abergnale Jr.
Professional conman Abagnale’s story is so fascinating that it was told through film by Leonardo DiCaprio in 2002’s “Catch Me If You Can.” The infamous fraudster faked his way as a pilot, doctor, and professor despite having zero training for any of these fields.
Abagnale was also an expert forger who falsified checks, passports, licenses, and other IDs.
Eleven years after portraying Abagnale, DiCaprio took on another real life crook in “The Wolf of Wall Street.” The money hungry Jordan Belfort spent 22 months in prison for securities fraud and money laundering and is working on paying back defrauded investors.
The affair of the diamond necklace
In pre-revolution France, jewellers Boehmer and Bassenge tried to sell a diamond necklace to King Louis XVI for Marie Antoinette. While the king refused to buy it, the countess de La Motte bought it in 1785 under the pretense of gifting it to the queen.
A prestigious cardinal was supposed to pay for the necklace in installations on behalf of the countess, but no money ever came the jewellers’ way. By the time they brought the matter up with Marie Antoinette – who wasn’t aware of the purchase – the countess had sold the necklace in pieces in London.
This incident was an inciting factor of the French Revolution that helped bring down the monarchy. The countess escaped prison, but died from injuries sustained from falling out a window while avoiding debt collectors.
Arthur Andersen was again involved with a huge fraud case when they noticed irregularities and accounting practices that were not acceptable on WorldCom’s books. The telecommunications company used internal transfers and false operating expenses to hide decreasing earnings.
WorldCom filed for bankruptcy in 2002 and the CEO and CFO went to jail for lying about billions of dollars in yet another case of corporate accounting fraud.
The Hospital Corporation of America and Columbia Healthcare Corp merged in 1994 to form a company operating 192 hospitals. The FBI and IRS raided the Columbia/HCA offices in 1997, finding evidence of Medicare fraud. The company settled for $US1.74 billion and forced CEO Rick Scott, who is now governor of Florida, to resign.
Keating bought Lincoln Savings and Loan which took advantage of loose regulations on banking investments. By 1989, federal investigators dove deep into the financial company and caused the savings and loan scandals. Investors and taxpayers lost $US3 billion because Keating had bought high-risk bonds and inappropriately transferred money to himself.
Five US senators, including John McCain and John Glenn, intervened on behalf of Keating. The group of legislators known as the Keating Five were found to have been in the wrong, but faced no legal punishment.
The Hitler diaries
The German magazine Stern purchased 60 volumes of forged Adolf Hitler journals for 9.3 million Marks ($US3.7 million) in 1983.
It only took two weeks for the journals to be exposed as fakes.
The diaries were supposedly lost in a 1945 plane crash (which actually did occur) and journalist and Nazi memorabilia collector Gerd Heidemann claimed to have found the lost documents.
Heidemann had actually bought the diaries from Konrad Kujau, who, despite obvious mistakes in his forgeries, consistently had his work approved as authentic.
The forged diaries included a Hitler-penned opera and a third volume of “Mein Kampf.” Both men went to jail but some of the money is still unaccounted for.
ZZZZ Best scam
A 15-year-old Barry Minkow started a carpet cleaning company in 1980s Los Angeles. By 21, Minkow was found to have used ZZZZ Best to withdraw $US3 million for his personal account and diverted $US18 million to an associate’s firm.
After being sentenced to serve 25 years in prison for 57 counts of fraud and racketeering, Minkow converted to evangelical Christianity. He became a pastor and fraud investigator upon receiving parole in 1995.
He was sent back to jail for five years after committing a short-and-distort stock fraud. While imprisoned, Minkow was sentenced to five additional years for stealing $US3 million from defrauded church members where he served as pastor.
James Paul Lewis Jr.
Lewis cost victims at least $US50 million in a $US300 million Ponzi scheme that started when he collected money from fellow members of the Mormon Church and grew to include other denominations.
Lewis promised annual returns of 18 or 40% – depending on which of the fake funds they chose – but the invested money actually went to his own luxury homes and cars.
When Lewis was actually making trades, he lost $US22 million in currency exchanges over seven years until he got caught in 2003. The San Diego native – who was caught by Barry Minkow -was sentenced to 30 years in prison.
Count Victor Lustig was no count – the fake title was just one of his many lies. His aliases were so numerous that Lustig’s true identity and background is hard to know for certain.
In his most famous crime, Lustig moved to Paris in 1925, convinced people in the scrap metal industry that he was a part of the French government, and twice sold the Eiffel Tower, which he said had to be torn down.
Back in America, Lustig continued forging banknotes and personalities until he was caught and sent to Alcatraz in 1935.
Bitcoin Savings and Trust
Cryptocurrency crimes started before the market took off in late 2017. Trendon Shavers pleaded guilty to securities and wire fraud for operating the first known Bitcoin-based Ponzi scheme.
By 2012, Shavers had acquired 146,000 bitcoins through bitcoin savings and trust, costing defrauded investors $US1.2 million at the time.
Matthew Harriton and Joseph Meli
Tickets to the Broadway show “Hamilton” are tough to get, as you can ask the 138 investors, supposedly including billionaire Michael Dell, who were defrauded by Harriton and Meli.
The New York duo was charged by the SEC for collecting money in exchange for tickets to Broadway shows like “Hamilton” and concerts by star musicians like Adele, Metallica, and Paul McCartney.
They were planning on buying blocks of tickets and reselling them at higher prices, but when they couldn’t buy enough tickets, they instead enlisted more investors to appease the earlier investors, creating a Ponzi scheme.
George C. Parker
“I have a bridge to sell you” may sound like a snide idiom, but the phrase has historical roots to the tricks pulled by George C. Parker and several others who tried selling the Brooklyn Bridge.
No fraudster is as connected with selling the Brooklyn Bridge as Parker, who started his charades when the bridge was completed in 1883 and forged documents showing his ownership. Parker also “sold” other New York City landmarks like the Metropolitan Museum of Art, the Statue of Liberty, and Grant’s Tomb.
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