5 Biggest Financial Scams

Humanity has the natural tendency to try to outwit the system. We try to get an advantage over others and get rich at their expense. Some, however, have taken this to the next level. Here are 5 of the biggest financial scams in history:

Roman Empire Mutiny

Way back 193 A.D. Roman soldiers, specifically the Praetorian, found a way to be scumbags before it was cool. Their scam was very simple.

Step 1: Kill the Emperor
Step 2: Sell the position to the highest bidder
Step 3: Profit

That was exactly what they did. They murdered Emperor Pertinax and sold the position of Emperor. The highest bidder ended up being Didius Julianus who bought the position for an estimated $1 BILLION in today’s currency. However, after just 9 weeks as emperor, the Praetorian guards voided the sale and had Julianus killed in his home. Classic. He was replaced by Septimiius Severus, who after seeing what had happened to his predecessors, did the most logical thing. Septimiius had the entire Praetorian army killed. Don’t worry the next scams won’t be as brutal as this one, but nonetheless destroyed exponentially greater lives.

Ponzi Scheme

This is most commonly known as a Pyramid Scam. Basically, the perpetrator pays returns to its investors on a regular basis. Seems legit right? The problem, however, is that these returns actually come from down lines or new investors invited by previous ones. These scams start out as legitimate until they run out of new investors and the entire pyramid collapses. It’s like playing Jingga, but instead of blocks, the scammer plays with your life savings.

This scam was named after Charles Ponzi who’s scam costed investors $20 MILLION in losses. Although he wasn’t the first to do it, his was the largest at the time. He lured investors by promising 50% return in 45 days or 100% in 90 days.

ENRON SCANDAL

Enron was born from the merger of Houston Natural Gas and InterNorth. It became the largest seller of natural gas in North America. It also owned a variety of assets such as gas pipelines, electricity plants, and broadband services.

In 2001 Enron achieved worldwide fame by achieving the largest bankruptcy at the time with $63.4 Billion in assets. This achievement was short lived though, as it was beaten by Worldcom just a year later.

The bankruptcy was caused by management abusing various accounting loopholes and window dressed their financial statements to show fraudulent income and financial performance. In other words, their entire income of $101 Billion in the year 2000 was as real as Santa(Sorry to any children reading.)

Enron’s downfall took down Arthur Andersen along with it, one of the top 5 audit firms at the time. They were found guilty of destroying evidence relevant to SEC’s investigation of Enron.

Madoff Scam

Bernie Madoff was a former chairman of NASDAQ, the world’s second largest stock exchange. In 1960 he established Bernard L. Madoff Investment Securities LLC. He later established Ascott Partners, a feeder fund for his main firm. This was to be the birthplace of one of the biggest financial scams in history. This was a Ponzi Scheme on steroids, with an estimated $50 billion of lost investor’s money.

The scam was only discovered during the 2008 financial crisis when investors redeemed $7 Billion due to market fears. What they found out, however, was that Madoff had already “made off”(sorry couldn’t help it) with their cash.
He was sentenced to 150 years in jail and was required to pay $170 Billion in restitution to the victims. You could say things couldn’t possibly get any worse for him. Sadly, his greed took the life of his son. Two years after his arrest, his son Mark committed suicide.

The Big Short

If you haven’t watched the Big Short yet, you SHOULD. It tells the story of the biggest financial scam in the history of mankind. Unlike most scams, it is still on going and all perpetrators are left unpunished.

The scam was so huge that it basically involved ratings agencies S&P, Moody’s, all major banks in the US, the SEC and former FED chairman Allan Greenspan. Yup, you were pretty much screwed no matter what. Even Batman would’ve given up against them.

The scam basically involved selling fraudulent mortgage-backed investments. In simple terms, they attached mortgages to “secure” a bond investment guaranteeing a return. They guaranteed that the bonds have an AAA credit rating. Like I said above, S & P and Moody’s was in on the scam. Which meant that these were worthless.

A mortgage-backed bond’s credit rating is determined by the quality of mortgage attached to it. The problem in this scam is that the real estate agents sold thousands of houses to people that had absolutely no ability to pay. They didn’t even care whether you had a single dime.

When the thousands and thousands of worthless mortgages got foreclosed, the bonds became worthless and the housing bubble burst, sending ripples across the world causing a global financial crisis. Yup, the 2008 financial crisis was caused by greedy banks, real estate agents, ratings agencies and pretty much everyone else in suits and ties in Wall-street.

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DISCLAIMER: This post was originally posted on my website onepesoaday.com