Financial scams happen every day. However, there have been several notable cases in history that deserve particular attention. This is an article focusing on the 10 worst financial frauds.
Enron Financial Scandal
Enron went bankrupt in 2001. It was once the 7th biggest company in the US and was estimated to have been worth as much as $90 Billion! Traditionally Enron operated in the energy sector, but it tried to diversify, unsuccessfully into eCommerce and other exotic investments. When the company folded, it was found to have been fiddling accounts, been involved with fictitious company partnerships and had also been meddling with insider trading.
Parmalat Financial Scandal
Parmalat collapsed in 2003, after a 4 Billion EUR hole was discovered in its accounts. At the time it went under, Parlamat was approximately 14 Billion EUR in debt. Apparently under further scrutiny, it was found that about 8 Billion EUR had been lost and was completely untraceable. This is one of the worst financial scandals Europe has ever seen.
Barings Bank Financial Scandal
This was one of the most memorable financial meltdowns of the 20th Century. A rogue trader, Nicholas Leeson was assigned to the Singapore Office to oversee risk free trading. He was however placing large bets and trading in a very risky fashion. He was not experienced and was actually losing a tremendous amount of money on his positions. He created fake accounts to cover his losses and actually published great gains to his bank. By 1995, when the bank collapsed, losses totalled £827 Million, or $1.4 Billion. These crippling losses brought Barings Bank to its demise. Mr Leeson was arrested and charged with Fraud. Ing bank then bought Barings Bank for a £1 fee!
Bre-X Minerals Scandal
Bre-X Minerals LTD was involved in one of the most elaborate financial mining scams to date. The company was listed on the stock exchange and actually reported to the market that they had found a very large Gold deposit in Indonesia. Their stock rose from a penny stock to a stock worth over $280 Canadian. Even the Indonesian government tried to negotiate a large % of the company. However, what the company actually did was base their “findings” on a soil deposit which had been artificially filled with Gold powder! The company went bust in 1997 and shares become worthless.
Jerome Kerviel Financial Scandal
The case of Jerome Kerviel is a very interesting one. This trader, working for a French bank called Societe Generale, accrued losses of 4.9 Billion EUR. This is the highest loss in financial history. Jerome was said to have worked alone, placing very risky positions and gambling with over 50 Billion EUR. In court, he claimed that his superiors were aware of his bets and were using him as a scapegoat to cover their losses during the sub prime crisis in 2008. In 2012, Kerviel was ordered to serve 3 years in prison and also ordered to pay back 4.9 Billion EUR to his former employer.
Marc Dreier Scandal
Marc Dreier was a high profile lawyer who decided to sell fictitious securities to hedge funds and high net worth individuals. He would create fake documents to make the shares he was selling seem real and would embezzle the money himself. he was caught in 2008 and reportedly his fraudulent empire was worth about $400 million. He was sentenced to 20 years in prison for his crimes.
Libor Financial Scandal
The Libor scandal is said to be the biggest financial fraud ever committed. It is a special case, as this fraud was construed by the major banks themselves. The former CEO of Barclays said that banks across the world were fixing interest rates in the run up to the financial crisis. The scandal is said to effect an $800 Trillion market, thus making this the largest fraud the world has ever seen. During the 2007-2009 financial crisis the banks are said to have communicated with each other and submitted a lower rate of interest, in order to keep their balance books looking healthy. Banks were lending money and not getting back as much interest as they should have been, and the investors thus were not seeing the returns on the profits of these transactions.
Sam Israel – Bayou Hedge Fund Scandal
Sam Israel led the Bayou hedge fund, that stole about $300 Million from its investors. He convinced his clients that the fund was doing well by producing fake accounts, while they were under performing. When he was caught, he even tried to fake his own suicide, which made him one of the most wanted men in the country. When he was finally arrested he was sentenced to 22 years in prison and ordered to pay back $200 Million.
Bernie Madoff Scandal
Bernanrd Madoff was at the head of one of the worlds largest investment scams. His losses totalled about $40 Billion. He was a hedge fund manager from New York, that convinced both large institutions and individuals alike that his 90%+ investment returns were coming through, when in fact this was simply a Ponzi (Pyramid) scheme and everyone who invested lost their money. He was branded a monster by the press as he destroyed so many lives.
Have you ever wondered where the term “Ponzi Scheme” comes from? Well, Charles Ponzi was the original financial scam artist and this fraud from the the 1920′s is among the most prolific in history. Charles Ponzi was claiming to investors that they could get huge returns from international reply coupons, which could be purchased in one country and exchanged for stamps in another. The exchange rate would be the margin of profit. However, what he was actually doing was using investor’s new money to pay off the old investor’s profits. He took about $20 Million in total (equivalent to about $200 Million plus in the 21st century) and lost about 2/3 of it by the time he was caught. His antics brought down banks and ruined individual’s lives.