financial-scams

The Biggest Financial Scams in History

6 April 2015 is fast approaching, and as some of the biggest reforms in UK pension history loom ever closer, the fear of retirees being conned out of their pension funds is becoming a major concern.

“As most people are clueless about pensions and investments, never have so many lambs been so ripe for fleecing.” – Polly Toynbee, The Guardian, 03/03/2015

With new rules being introduced around income drawdown, the chance to withdraw as much or as little of a pension fund as you like, as well as the confusion and uncertainty surrounding annuities and the reforms creates a perfect recipe for con artists to scam those most vulnerable. Insurance provider The Phoenix Group has said that 45% of pension savers have already been contacted by outfits encouraging them to release their savings, with spurious promises of ‘one-off investment opportunities’, ‘free pension reviews’ and ‘early unlocking of your cash’. We recommend that you read up on the best ways to ensure that you don’t get stung by a pension scam.

Financial scams have always been prevalent, some bigger and more infamous than others. Here we take a look at some of the biggest financial scams in history:

The Original Ponzi Scheme

Charles Ponzi was an Italian who moved to the USA in 1903. As part of a get-rich-quick scheme he discovered he could exchange international postage reply coupons purchased from his native Italy, before selling them at a profit in the States.

While the system was legal, Ponzi started to get greedy. Despite the scheme only yielding a 5% profit at best, Ponzi recruited investors on the premise of 50% returns: he provided the evidence of these returns to his investors, but by using the money brought in by later investors; Ponzi was paying off the returns to his old investors with the cash from the new ones.

At his peak, Ponzi was bringing in around $250,000 a day! When he was finally rumbled, investors lost nearly $10 million, with Ponzi eventually fleeing the country and dying in poverty in Rio De Janerio.

The Sale of the Roman Empire

Quite possibly the oldest financial scam ever, during unrest in the Roman Empire back in 193 AD, a loyal army to the emperor known as the Praetorian Guard went against their leader and killed him, before offering the empire up to the highest bidder.

Enter: Julianus, who offered the Guard 250 pieces of gold each. In today’s money that comes to around a whopping $1 Billion. Unfortunately for Julianus, as in many financial scams the empire wasn’t actually the Guard’s to sell, and as such Julianus wasn’t recognised as the emperor.

To make matters worse, Julianus was sentenced to death by the next, rightful emperor along with all the army members too.

The Enron Bankruptcy

American energy company Enron was claiming revenues of nearly $101 Billion back in the year 2000. By 2001, the company was involved in one of the biggest financial fraud cases in history.

Through a combination of accounting loopholes and poor financial reporting, the company was able to hide billions of dollars in debt from failed deals. Also involved, and subsequently brought down along with Enron were Arthur Anderson, one of the five largest audit and accountancy firms in the world.

The company’s stock price fell from $90 per share to less than $1 in less than 18 months by the end of November 2001, before declaring bankruptcy in December the same year. Shareholders and employees lost billions in stocks and pensions.

The Eiffel Tower Sale

Back in 1925, Czechoslovakian Victor Lustig travelled to Paris for a con that would live in infamy: the sale of the Eiffel Tower… twice!

The Eiffel TowerWhen the Eiffel Tower was reportedly in need of repair, the government made a brief comment about how the repairs would be so expensive that it would probably be more cost effective to actually rip it down.  Lustig used this to his advantage, fraudulently appointing himself as ‘Deputy Director General of the Ministère de Postes et Télégraphes’. He entertained scrap dealers to find who his biggest mark would be, insisting that all talk of the tower being torn down must be kept under wraps for fear of public outcry. The mark Lustig chose was André Poisson, who bribed him for the fake sale before Lustig fled to Austria and lived the life of luxury at Poisson’s expense.

When news of the scam never broke (probably due to Poisson’s embarrassment), Lustig returned to Paris and pulled the exact same con again! Unfortunately for him, his second mark went straight to the police and Lustig was forced to leave Europe for the United States. Lustig continued the life of a conman, before being sentenced to the infamous Alcatraz prison up until his death in 1947; the occupation listed on his death certificate? Salesman.

The Wolf of Wall Street

As made infamous by Leonardo Di Caprio and Martin Scorsese in the 2013 movie, Jordan Belfort’s crooked brokerage firm Stratton Oakmont was one of the hottest firms in the 1990s. By selling worthless, low-cost stocks to gullible investors, hundreds of employees at the firm drove up the price, cashing out at the highest price before it plummeted down, leaving their investors penniless.

The FBI began investigating in 1992, Belfort was banned from the industry by 1994, before finally being arrested in 1998, placed in rehab for an escalating drug habit, then given a four-year sentence for securities fraud and money laundering. He served 22 months and has only paid back around $11.6 million of the government’s $110 million fine…

Oh, and Stratton Oakmont wasn’t even located on Wall Street. It was located over an hour away, in Long Island, New York.

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2 Responses to The Biggest Financial Scams in History

  1. I recently watched Wolf of Wall Street and had no idea about the story to begin with. I was sort of shocked he only went to prison for 4 years for the amount of damage he had done…and to only return back about 10 million of the 110 million he took, that’s insane!

  2. I love reading stories like these. The Eiffel Tower scam is a great one.

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