The 13 Biggest Financial Fraud from the Classic Age to the Moderns Times

The 13 Biggest Financial Fraud from the Classic Age to the Moderns Times

The Sale of the Roman Empire (193 A.D.)

Fraud Amount: $1 billion in todays money

During unrest in the Roman Empire, the Praetorian Guard (a special army supposedly loyal to the emperor), killed the current emperor and offered the empire to the highest bidder.  The "winner" was Julianus, who came up with a truly astronomical price: 250 gold pieces for every member of the army, which comes out to somewhere around $1 billion in today's money.  Unfortunately, the guards had sold something that didn't belong to them, a classic, if simple, financial fraud.  The new "emperor" was never recognized as such and was quickly deposed.

Julianus was killed in the palace by a soldier in the third month of his reign (june 193 AD)

The Mississippi Scheme (1719)

When Scottish financial genius John Law started a company to develop the then-wilderness Louisiana, he saw nothing wrong with hyping the possibilties rather than the reality.  He convinced investors (including the French government) to back his development scheme.  Shares in his company skyrocketed and French currency increased in value, since it was widely believed France would gain a mountain of gold and silver from what was then only a swampy backwater.  When investors actually received what Louisiana was like, shared plummeted.

By mid-1719, the Mississippi Company had issued more than 600,000 shares and the par value of the company stood at 300 million livres. That summer, the share price skyrocketed from 1,000 to 5,000 livres and it continued to rise through year-end, ultimately reaching dizzying heights of 15,000 livres per share.

But  By May 1720, prices fell to 4,000 livres per share, a 73% decrease within a year. The rush to convert paper money to coins led to sporadic bank hours and riots.

Law narrowly avoided being lynched, escaping only by disguising himself as a beggar.  He died in poverty nine years later in 1729.

The Diamond Necklace Hoax (1785)

Fraud Amount:  (approximately $14 million in 2015 USD)

It's been said that few creatures on this earth are more gullible than a horny priest.  That was certainly the case with Cardinal Prince de Rohan, who was so convinced that he was having an affair with Queen Marie Antoinette (pictured), that he arranged for her to purchase, on her line of credit, a diamond necklace worth six million livres.  Unfortunately, Rohan was, unbeknownst to him, actually having an affair with a prostitute dressed up as the Queen, a ruse conducted by his (former) mistress, courtesan/countess Jeanne de la Motte, who hoped to make away with the necklace herself.  

When caught, de la Motte was sentenced to be stripped naked in public and branded with a hot iron.

The Wright Panic (1900)

Never underestimate the power of social pressure.  Financier Whitaker Wright put pretigious figurehead names -- lords and ladies, mostly -- on the boards of directors of his companies.  As a result, investing his firms became quite the social norm among the well-heeled.  Unfortunately, while his companies looked solvent on paper, they were really only lending money to one another in order to balance the books.  When the scheme became public, shares collapsed, leaving many of his posh pals penniless.

The Original Ponzi Scheme (1920)

Fraud Amount: $10 Million

Charles Ponzi discovered that he could purchase postal coupons at a discount, ship them abroad ,and sell them for full price.  His only lie was exaggerating the financial benefits.  Rather than a modest 5% profit, he claimed the coupons would produce a 50% profit in only 45 days.  Thousands of people practically threw their money at him, as he paid early investors from the proceeds of subsequent ones.  When the epynomous scheme finally blew up, investors lost nearly $10 million.  Ponzi fled the country and eventually died in abject poverty.

The Eiffel Tower Sale (1925)

Why buy the Brooklyn Bridge, when there's something even cooler on the market? When "Count" Victor Lustig discovered that the famous Eiffel Tower was in need of repairs, he faked some government papers showing that he was authorized to sell the tower for scrap metal.  He managed to get not one, but two scrap metal dealers to come up with a total of over $200,000 in bribes to throw the multi-million dollar contract their way.  Then, he skipped town and returned to the United States, where he continued a lustrous career as America's most successful swindler.

The Match King Hoax (1929)

Few moguls of the roaring twenties roared louder than Ivar Krueger, who owned banks, film companies, newspapers, mines, telephone companies and railways.  When he tried to form a monopoly to control manufacturing and distribution of all the world's safety matches, few questioned he'd succeed.  International banks begged him to let them invest, not knowing that his many companies existed only on paper, profitable only because they were invested in each other.  The scam began to fall apart in the great crash of 1929 when investors wanted to cash out, but he managed to hold on until 1932.  At that point, he saw it was pointless to continue and shot himself in the chest. The financial world mourned, until it became publicly known that Kreuger spent all his investor's money -- half a billion dollars -- on his luxurious lifestyle.

The Baker Estate Swindle (1936)

Fraud Amount: $25 million

In 1839, one Colonel Jacob Baker died, leaving an estate that comprised most of the land where the city of Philadelpia is located, a tract worth up to $3 billion.  Under the leadership of William Cameron Morrow Smith (pictured?), Baker's heirs formed a legal association, open for a small fee to anybody with the last name "Baker", to pool their resources for the legal battle to recover their share of their rightful inheritance.  There was only one problem; Colonel Baker was a fictional creation and there was no inheritance.  Smith and his cronies collected nearly $25 million before the swindle was shut down in 1936. 

ZZZZ Best Cleaners (1986)

Fraud Amount: $200 million company sold @ $64,000

Barry Minkow was the wunderkind of Wall Street when he brought his company public.  Shares in ZZZZ Best, an industrial rug cleaning firm, exploded in value, creating a company with a stock valuation of $200 million.   Unfortunately, ZZZZ Best didn't really exist, didn't have any contracts, and had originally been funded through a series of credit-card thefts. Finally exposed in 1987, the stock dropped to zero, and Minkow landed 25 years in prison.  The actual assets of the erstwhile $200 million firm -- a few trucks and some cleaning equipment -- were sold for $64,000.

The Great Insider Trading Scam (1986)

Fraud Amount: $200 million

Ivan Boesky amassed a fortune of more than $200 million by betting on corporate takeovers, many of which occurred only a few days before the announcement of the acquisition. When charged with insider trading, Boesky cooperated with the SEC, and recieved a negotiated sentence of only 3.5 years (and only 2 of which were served.)  He was also  fined $100 million, a fraction of his ill-gotten gains and was permanently barred from working in the securities industry.  Ironically, fellow-fraudster Michael Milken, who was also convicted, managed to retrieve his reputation after a sort, and is now a philanthropist, respected by those who have short memories.

The Savings & Loan Scandal (1989)

Few fraudsters have been as brazen as Charles Keating, the most visible of a cadre of corporate officers running a number of huge Savings and Loan institutions. These companies operated like banks, but without the regulations, and therefore made a series of bad investments, the main purpose of which was to enrich the corporate officers. Keating and crew never told their investors that they were investing in worthless junk, and Keating was eventually arrested and convicted of securities fraud.  As a result, government regulation was promptly tightened, and then promptly untightened, since the financial industry essentially owns the U.S. government.

The Enron Bankruptcy (2001)

Fraud Amount: $101 Billion

Ken Lay was the hapless CEO of Enron, a company that employed approximately 22,000 people and claimed revenues of nearly $101 billion in the year 2000. In 2001, however, it came out that Enron's finances were a cooked up fiction, involving all sorts of "creative" accounting.  The scandal brought down Enron and it's laughably incompetent "auditors" the Arthur Andersen accounting firm, and resulted in the Sarbanes-Oxley act, whose main purpose is to make it financially difficult for small companies to issue stock. 

The Madoff Pyramid (2008)

Fraud Amount: $18 Billion

The only advantage of financial meltdowns is that they smoke out fraud. Compared to the havoc wreaked by Greenspan's course of deregulation, Madoff's ponzi scheme was chickenfeed, involving a measly $18 billion.  However, the fact that Madoff was able to keep the scheme going for so long is ample testament to the fact that the U.S. government -- despite repeated scandals, frauds, ripoff, hoaxes, and general fancy mischief -- isn't really serious about regulating the financial sector.  The SEC even investigated his operations and failed to find anything wrong, even though the impossibility of his business model was staring them in the face.