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Top 10 Financial Scams

Written by Top 100 Arena on 2012-07-29
Scams and frauds are part of daily news. The plots and schemes vary, and we always wonder how people fall for that. Psychologist Stephen Greenspan stated that even intelligent and smart people can be victims, especially of financial scams. According to him, such scams are just one of human gullibility. Financial scams have destroyed lives and left people penniless. There are examples all around us, and this list intends to compile the top 10 financial scams in the world.

10 Enron

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The name of Enron is now synonymous with many things - financial fraud, scam, and one of the biggest business failure in the recent history. Once the 7th largest company in the U.S and valued at $90 billion, Enron went bankrupt in 2001. It was a major player in energy sector, but then they attempted to diversify into eCommerce and exotic investment areas such as weather futures. The company's management was also guilty of many frauds such as "creative accounting", forming partnerships with their own shell companies, massive inside trading and whatnot. When they went under, it's not just jobs and investments they took away but also retiree futures and some lives. In fact, Enron makes the letter E look crooked and now the brand is synonymous with business failure because of greed. More info on Wikipedia

9 Parmalat

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Parmalat used to be the biggest food company in Italy, and it is dubbed as "Europe's Enron". Another classic example of "creative accounting", it was one messy and massive financial scandal in Europe. About $10 billion in declared assets disappeared without a trace, and the company collapsed in December 2003 after 4-billion euro hole in its accounts was uncovered. When Parmalat collapsed, it was under 14 billion ($27 billion) euros of debt, and financial experts estimate that at least $17 billion of Parmalat funds have totally disappeared without any means to trace them. This scandal highlighted the fact that corporate fraud was not just an Uncle Sam's problem. More info on Wikipedia

8 Barings Bank

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When you put a marketer, trader and supervisor roles in one man, what you get is a massive fraud case that brought one of the oldest British merchant bank to its knees. Nicholas Leeson, a trader working in Barings Bank was assigned to Singapore office to oversees risk-free daily tradings. However, he was actually betting on very unstable indexes and doing all sort of high risk tradings which were resulting in losses. Being an inexperienced trader with no mentor to guide him, Nicholas Leeson kept on trading rather than cutting his losses. He even created a fake account which he used to hide his losses and reported fake earnings. Due to his "crafted" reports of highly profitable arbitrage operation, he was titled as a star trader within the company and enjoying a high-roller life. But by the end of 1993, the total losses because of Leeson were at GBP23 million, and the amount rose up to more than GBP208 million by the nd of 1994. By the end of February, 1995, the losses totalled to £827 million, or $1.4 billion. When Barings Bank went bankrupt, ING, a Dutch bank, purchased Barings Bank for the nominal sum of £1. More info on Wikipedia

7 Bre-X

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Bre-X is more than a financial scam as it was a full-scale con. It was a small group of companies in Canada, and major part of the group was Bre-X Minerals Ltd. The company reported that it was sitting on a massive gold deposit at Busang, Indonesia, in March 1993. The report made its stock prices sky-rocket, from a penny stock to CAD $286.50 at its peak. Bre-X announced that the gold resource was estimated to be of around 70,000,000 troy ounces (2,200 ton), with the potential of having up to 200,000,000 troy ounces. To illustrate, one troy ounce is equal to 31.1034768 grams. So you can imagine how big this gold deposit could be. Suharto, the then President of Indonesia even attempted to make a deal with Bre-X for a share in the company and the newly found gold resource.Unfortunately for all investors and every stakeholders, it turned out that the crushed core samples that Bre-X supposedly examined were salted with gold powder. It was in fact one of the most elaborated and biggest fraud in the history of mining. In 1997, Br-X collapsed and its shares became worthless. More info on Wikipedia

6 Jerome Kerviel

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Another case of reckless trader like Leeson from Barings, Jerome Kerviel is a French trader who blew billions in disastrous gambles on the stock market. Kerviel is a trader of the bank Société Générale and although the bank claimed that Kerviel was a rogue trader and he was trading alone without authorization from his superiors, some of Kerviel's former colleagues and acquaintances as well as some members of media were pretty skeptical about that. Kerviel told investigators that his "reckless" trading behaviors are in fact widespread at the company and as long as huge profits are earned, the bank will turn a blind eye. Kerviel even published a book in May 2010, L'engrenage: Mémoires d’un Trader (Downward spiral: Memoirs of a Trader), in which he claimed that his superiors knew of his trading activities and those are common practices. The department Kerviel was in normally engaged in low-risk trades in high volume. The bank claimed that Kerviel was conducting fake trades using several instruments to avoid detection. But as a junior trader, and due to his unassuming background, analysts and media are skeptical about the bank's claim that Kerviel was working alone. His lawyers stated that the bank's managers brought the loss on themselves and in fact they were just "raising a smokescreen to divert public attention from far more substantial losses in the last few months". More info on Wikipedia

5 Marc Dreier

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Marc Dreier was a prominent Manhattan lawyer with high-rolling clients like former News Corp excutive Judith Regan, retired NFL star Michael Strahan and other celebrities. What he did was selling fictitious securities to hedge funds and other investors, and in order to do that, he created fake financial and accounting documents. He even paid people to impersonate as hedge fund executives so that investors will believe that their securities were genuine. Dreier even transferred his clients' escrow into his own account. The fraud scheme was $400-million worth and after the whistle was blown, he was arrested in Canada in December 2008 and was sentenced to 20 years in prison. More info on Wikipedia

4 Mary Wong

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Atlanta Falcons superstar Michael Vick hired Mary Wong as his business manager on advice of a personal friend Demorrio Williams, and it was one of the biggest mistake he made in his entire life. In 2009, Michael Vick had to sue Wong for more than $2 million. Not only that, Wong was indicted for allegedly stealing $3 million from her other clients in a Ponzi scheme (more on this later). Wong told her clients that their money was being invested. In August 2009, she was charged with securities, mail and wire fraud. After over a year of trial, Wong was sentenced in December 2010 to over 5 years in prison, and also ordered to pay more than $3 million and serve three years supervised released. More info

3 Sam Israel - Bayou Hedge Fund Group

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If you were one of the unlucky people who invested your hard earned savings in the Bayou Hedge Fund Group, you definitely know Sam Israel and probably want to find where he is now prisoned. He lied to investors in this hedge fund about potential returns, by giving extravagant promises that $300 million they invested in 1996 would grow to $7.1 billion in just ten years. But in 1998, the financial returns were pretty poor. However, Sam Israel sent the investors fake accounting reports to convince them that their money was performing well. All in all, over $450 million dollars were stolen. When Israel was caught, he even tried to fake suicide to avoid prison but that attempt put him on America's Most Wanted. Afterwards, he was convicted of fraud and sentenced to 22 years in prison as well as $200 million fine. More info on Wikipedia

2 Madoff Fraud

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Madoff Fraud was one of the largest Ponzi scheme in history. New York hedge fund manager and Wall Street legend Bernard Madoff was charged with a huge pyramid scheme which attracted top-flight investors around the world but collapsed with losses of $40 billion, at least. When his 90-93% annual returns and investment prowess turned out to be one of biggest ever frauds, the investments from victims that span from super rich high-rollers, powerful financial institutions, to pensioners and local charities were gone. For the victims, it was not because of the greed. Madoff was indeed a genius in both financial world and as a con artist. The world's largest banking institutions such as HSBC Holdings Plc, Royal Bank of Scotland Group PLC, Spain's Grupo Santander SA, France's BNP Paribas and Japan's Nomura Holdings were among the victims. More info on Wikipedia

1 Ponzi's Security Exchange Company

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If you have ever wondered how Ponzi scheme got its name, it could be traced back to a guy named Charles Ponzi in 1920. In fact, it is quite an achievement to have a new breed of financial scam named after him! Charles Ponzi was an Italian immigrant and ran a 6-month pyramid scheme which gained over $15 million investments from a growing pool of more than 40,000 investors. What he did was distributing "interests" to old investors by using "profits" from new ones. Ponzi used a trade system of international reply coupons for postage stamps, and also leveraged exchange rates. His "Securities Exchange Company" was in fact making a lot of people money. His offer was very tempting too, with 50% returns in 45 days, or 100% in 90 days. However, in the end, Charles Ponzi was indicted on 86 counts of mail fraud, and sentenced to fiver years in prison. Ponzi managed to jump a few bails, but he had to do prison time from 1926 to 1934. He died years later in a Brazil charity hospital, with no penny in pocket, partially paralyzed and half-blind. From $15 million investments, only a third of that was returned to investors. More info on Wikipedia

Some of you might remember these financial scams and was even a victim. If anything we can learn from all these scams, one thing we can take note of is that regardless of how genuine an investment scheme seems like, it is best not to put all eggs in one basket.

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