Think you’re too smart to fall victim to a financial scam? Think twice – the financial world is full of rogues who seem to be particularly good at coming up with clever schemes of making people think that investing in their stocks is actually the best decision in their lives.
This list explores the most outrageous financial scams of the 21st century. Who knows, it might save you some bucks one day so read carefully.
Before the incredible Enron story became famous, most Americans were convinced that the existing system of control over the top management of large corporations is nearly perfect. They were blissfully unaware of the dark schemes roaming the minds of top executives. After all, several levels of accounting reporting, audits, internal financial monitoring gave everyone confidence that the reported revenue figures were true.
So when it became clear that Enron’s top management have been falsifying accounting documentation and reporting non-existent profits with the approval of their auditors for a decade, it came as a real shock. Even now, the US Enron hits the Top 10 high-profile financial scandals.
The reason the scam actually took place was the company’s ambition to receive dividends despite its rather mediocre results. The largest gas producer in North America and England had been operating at a loss for a long time, yet its financial statements, presented to the shareholders and analysts, showed the growth revenue of 7,5 times. As a result, the value of its shares soared to $90 and its market capitalization exceeded $65 billion. But investors lost all their money eventually.
In order to hide the losses, Enron had been involving insane amounts of offshore companies. The same address could be using up to 700 dummy firms!
The scam was revealed only after a special investigation conducted by a journalist Bethany McLean. It’s unbelievable but financial monitoring bodies have never noticed anything suspicious.
Other losers in this scam were Arthur Andersen’s accountants. These guys not only concealed the questionable transactions but also physically destroyed documents that could expose the scam. Not the best business decision, as it turned out.
2. Christophe Rocancourt
If you’ve ever thought how great it’d be to be an heir to a rich overseas relative, history shows sometimes the best way is to make things up and hope it’d work, as was the case with Christophe Rocancourt.
A French-born Christophe pretended to be a member of the Rockefeller family (in fact, his father was an alcoholic and his mother was a prostitute) and a close friend of Bill Clinton. The guy has implemented a number of scams which, as confessed by the fraudster himself during his trial, earned him $40 million.
Basically, what he did was incredibly simple, yet effective. He misled the American nouveau riches by introducing himself to them as an influential financier or the film producer and luring huge amounts of money from them. He married the former Playboy model Maria Pia Reyes who was charged with fraud and a deliberate deception of the Vancouver businessman for selfish purposes during her stay at a prestigious ski resort in Europe after her husband’s arrest.
In August 2000, Christophe was arrested but managed to escape to Canada. However, in March 2002, the Canadian government transported the fugitive to the US. During his trial, he pleaded guilty to 3 charges (out of 11). The story’s not over yet!
3. Bernard Madoff
The name of Bernard Madoff is associated with one of the largest financial scandals in the world. ‘Forbes’ eloquently calls him a robber of the century. Indeed, Bernard Madoff was none other but the former chairman of the board of directors at Nasdaq.
His company, Madoff Securities, was founded about 40 years ago. Over the years, it has brought a stable profit of 12-13% per annum to its customers. Eventually, Madoff Securities which was essentially a financial pyramid has lost $50 billion.
Most interestingly, the regular audits of the company’s financial activities by the Security and Exchange Commission revealed only minor violations. According to the unofficial sources, the company was actively using insider information to promote its interests. Ironically, Medoff Securities hasn’t closed a single deal on the stock exchange during all its years of operation.
So how could the company stay afloat for such a long time? Long story short, thanks to the contributions of the members of the fund. It’s no surprise then that when the poor financial state of the company was revealed, many customers went bankrupt.
Madoff’s victims included a lot of American and international funds and banks, including BNP Paribas, HSBC, Nomura Holdings, as well as wealthy Americans such as Steven Spielberg. This fraud shook Wall Street to its core and caused real grief. A French businessman who invested half a billion dollars in Madoff’s company committed suicide in his New York office.
4. Jérôme Kerviel
The case of Jérôme Kerviel draws our attention due to the fact that an employee with an annual salary of 100,000 euros caused several billion euros losses to his employer.
A trader at Société Générale bank, Jérôme Kerviel began trading without his superiors’ approval in 2005. According to various estimates, the Frenchman single-handedly operated the sum of 50 billion euros.
During that time, the bank reported damage in the amount of approximately $8 billion due to Kerviel’s actions. Kerviel himself argued that he started the illegal trade in order to achieve good performance indicators, present them to his management and gain bonuses. According to the bank’s version, though, the guy simply wanted to get hold of the money. The trader was accused of four charges, including breach of trust and fraud.
Funnily enough, in legal terms Jérôme Kerviel wasn’t fired from Société Générale as the court forbade him to meet with representatives of the bank. Meanwhile, according to the French law, an employee can’t be fired without meeting the employer personally.
You’d think independent auditors and state authorities would start taking companies’ accountability more seriously. It appears, however, that many loopholes in national and international law would still lure fraudsters to earn their bit of easy money with some ingenious scams. Stay alerted.