The views expressed in any article published in this blog are the author's own and do not necessarily reflect the views of Joseph Foster or Bob Lupoli.

Tuesday, March 8, 2011

Top Financial Frauds c/o G. James

Joe: I just read the complete article below. I posted seven of the ones I thought most interesting. -Bob

Top 14 Financial Frauds of All Time (follow link to see original article)

With the documentary  Inside Job winning an Oscar, you'd think that massive financial fraud is a modern invention.  Well, think again. History is full of scams and frauds that removed billions of dollars from the pockets of investors and destroyed entire economies.  This post contains some of the most memorable. There is one huge difference, though, between the Great Wall Street Ripoff and the all the rest of these history-making scams.  See if you can figure it out, before you get to the end of the gallery.

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

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.
Fun fact: The first offical act of the real emperor who "deposed" Julianus was executing the guards who ran the scam.

The Diamond Necklace Hoax (1785)

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.
Fun fact: The resulting scandal triggered the French Revolution.

The Original Ponzi Scheme (1920)

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.
Fun fact: After fleeing the U.S., Ponzi became financial advisor to Benito Mussiolini, where his bungling hastened Il Duce's decline.

ZZZZ Best Cleaners (1986)

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.
Fun fact: In his heyday, Barry Minkow was a featured guest on Oprah Winfrey's TV show!

The Great Insider Trading Scam (1986)

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.
Fun fact: Boesky is the prototype of Gordon Gecko from the movie Wall Street.

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.
Fun fact: Five senators were implicated for providing political cover to Keating and his cronies. One of them was John McCain.

The Great Wall Street Rip-Off (Ongoing)

By far the biggest fraud of all time, the great Wall Street ripoff involved more far money (in real dollars) than all the financial frauds of the past put together. The fraud, perpetrated by several large financial firms, consisted of selling fraudulent mortgage-backed securities, thereby creating a financial bubble. When the bubble burst, the resulting crash destroyed trillions of dollars of real investment, threw most of the world into a crippling recession, and created massive unemployment. The fraud -- and all the disasters that followed -- stemmed from the almost complete deregulation of the financial industry, spearheaded by Alan Greenspan (pictured), and abetted by both political parties.
Fun fact: Unlike ALL the other previous frauds in this post, The Great Wall Street Ripoff is going entirely unpunished.  Despite the fact that the CEOs of the financial institutions repeatedly lied to investors and profitted mightily from the fraud, it appears as if nobody will serve a single day in jail.  This is apparently because the ill-gotten gain is so spectacularly enormous that it has not only allowed the perpetrators to buy control of the government, but also to run a well-orchestrated and highly effective campaign to direct the anger of the public upon other victims of the fraud, rather than upon the perpetrators themselves.   As such, the Great Wall Street Ripoff represents the final and complete victory of the fraudsters over attempts to restrain them by law.   What's fun about that fact?  Nothing, unless you're one of the criminals who pulled it off.  In which case, it's freakin' hil-ar-i-ous!!!
READERS: Do you think at least somebody from Wall Street ought to be in prison?  If so, click the LIKE button on the top of this post.  Maybe if enough people read this article, they'll get angry enough to demand action.

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