Financial scandal, it would appear, has really taken off since the crisis took hold a half decade ago, with financial fraudsters racking up billions of dollars worth of illegitimate gains and so often sapping the livelihoods of countless individuals across the globe.
However, instances of financial fraud are far from a product of recent times, nor of developed markets, as many would have you believe, and can be dated back, most notably, to the unsavoury sale of the Roman Empire in 193AD.
What’s more, the increasingly complex regulatory environment, along with on going technological gains in developed and developing markets alike have transformed the very nature of financial fraud and given rise to a new breed of criminal.
With increasingly sophisticated criminal activities have come equally impressive preventative measures, which goes some way to illustrate the extent by which authorities have cracked down on instances of financial fraud these past few years.
Here we take a look at those we believe to be the most important financial fraudsters to date, and cast a brief glance over the exploits that have qualified them for consideration in the first place.
Charles Ponzi
Although the Italian-born businessman come con artist was far from the first to put the scheme to use, the financial rewards and media attention he brought with it ensured his name would forever be tied to it.
After working various odd jobs and spending a three year stint in prison for forgery, Boston-bound Charles Ponzi embarked upon a new scheme whereby he promised investors – for all intents and purposes victims – a highly attractive return on investment. Ponzi found that international reply coupons (IPC), which could be exchanged for airmail postage stamps abroad, varied in price from country-to-country and in certain instances could be exchanged at a profit of up to 400 percent.
Putting this information to profitable use, Ponzi in just a few short months made the equivalent of over $4.5m in today’s money and lived an incredibly lavish lifestyle for a short while afterwards, buying a mansion in Lexington for himself and first-class ocean liner accommodation for his mother.
However, once the authorities caught wind of the scheme, the fraudster’s earnings quickly unravelled, leaving six banks in disrepair and resulting in losses of some $20m on the part of his many investors.
Kazutsugi Nami
The chairman of the Tokyo-based bedding and linen company L&G was sentenced to 18 years in prison on March 18, 2010 for what many believe to be the biggest investment scam in Japan’s history. Whereas the vast majority of financial scams on this scale target investment funds and the wealthy, Nami’s preyed instead on the everyman, as he defrauded some 37,000 people of $1.4bn.
The fraudster wooed investors with promises of a financial safe haven in the form of a make-believe digital currency he dubbed Enten – meaning “divine yen”. The businessman assured interested parties that the currency would gain in value once the world’s economies collapsed, what’s more guaranteeing them a 36 percent annual return. Investors quickly grew frustrated, however, when Nami began to pay dividends in Enten, and in November 2007 the company declared bankruptcy.
A short time before his trial was due to begin, Nami appeared utterly unrepentant of his crimes, and provoked reporters with a series of tabloid-ready sound bites. “I have put my life at stake,” he told reporters. “Why do I have to apologise? I’m the poorest victim. Nobody lost more than I did. You should be aware that high returns come with a high risk.”
Javier Martin-Artajo and Julien Grout
JPMorgan traders Javier Martin-Artajo and Julien Grout “manipulated and inflated the value of position markings in the Synthetic Credit Portfolio in order to achieve specific daily and month-end profit and loss objectives,” according to a government ruling issued in September last year. “They artificially increased the marked value of securities in order to hide the true extent of significant losses in that trading portfolio.”
Put another way, the traders together engaged in numerous instances of securities fraud that served to keep trading losses of over $6.2bn off the books. The circumstances were better known at the time under the “London Whale” tag, so-called due to the huge sums of money involved.
The spoils of the London Whale team – led by trader Bruno Iksil – loaded JPMorgan with a fine of some $1bn, which was put towards resolving US and UK regulatory investigations. What’s more, the bank’s very own Jamie Dimon was forced to concede a pay cut, effectively putting an end to his unsullied reputation as the bank’s head and raising questions about wider misgivings at large within America’s big four lenders.
Kweku Adoboli
The Ghanian national and Nottingham University graduate Kweku Adoboli was once regarded as an integral part of UBS’ British investment arm. His short-lived success, however, came to an abrupt end in September 2011 shortly after he delivered an email to the bank’s accountant, reading: “I take full responsibility for my actions and the shit storm that will now ensue. I am deeply sorry to have left this mess for everyone and to have put my bank, and my colleagues at risk.”
A year on and Adoboli had been sentenced to seven years in jail, erased $4.5bn from the bank’s share price, and prompted the firm’s then Chief Executive Oswald Gruebel to resign with immediate effect. The 32-year up-and-comer, it was revealed, had engaged in various off-the-book activities throughout his time at UBS, which involved him gambling away $2.3bn in unauthorised trades – the largest illegitimate trading loss in British history.
Adoboli’s swift rise through the ranks saw his annual salary turn from £30,000 in 2003 to £200,000 plus bonuses by 2008, during which time he learnt how to manipulate financial records and hide his losses. The scandal served only to accentuate UBS’s lacklustre investment business, which had not long beforehand been made to write off $50bn in bad mortgage loans and endure the brunt of the Libor scandal investigation.
Bernie Madoff
“Like everyone else, I feel betrayed and confused. The man who committed this horrible fraud is not the man whom I have known for all these years,” wrote Ruth Madoff in the aftermath of her husband’s trial in 2009. The comment came shortly after the former Wall Street trader was sentenced to a 150-year prison sentence, having defrauded his clients of $65bn – amounting to the single biggest accounting fraud case in American history.
Madoff’s elaborate ponzi scheme “took a staggering human toll,” according to judge Denny Chin, who went on to stress that the 71-year olds’ actions were “extraordinarily evil”. The founder of Bernard L. Madoff Investment Securities and the experienced asset manager was incredibly well thought of by those in the industry and beyond until his illegitimate scheme came to light.
Quite unusually for schemes of this type, Madoff attracted investors not with overly impressive returns, but much rather with consistent, moderate repayments, coupled with an impressive reputation in the field of asset management. What’s more, Madoff’s firm became renowned for its punctuality in returning money to clients whenever they demanded it.
Regardless of the scheme’s size, the SEC remained entirely unaware of any financial misgivings throughout, and Madoff himself was later quoted as being “astonished” by the degree he was allowed to continue unchallenged.
Kim Woo Choong
Prosecutors at the time believed that the Daewoo Group accounting scandal was the single biggest instance of financial fraud Asia had ever seen. As a result of Daewoo’s over investment efforts, the company – which Kim had grown from a modest textile business to South Korea’s second largest industrial conglomerate – was landed with debts worth in excess of $70bn.
In the period through 1997 and 1998, insiders inflated Daewoo’s equity by some $30bn in an attempt to keep the extent of the company’s losses off the books and safe from the prying eyes of investors. As a result, 20 executives and accountants served a six-month stint in prison, while Kim fled the country in 1999.
In 2005 Kim was picked up by authorities on his arrival back home, and immediately made his regret clear in a written statement issued shortly after. “I lower my head deeply down and apologise for having caused troubles to people over the Daewoo Group problem,” he wrote. “I will take whatever responsibility I am supposed to take over the Daewoo Group incident. I feel deeply sorry.”
The once hailed businessman and philanthropist was sentenced to 10 years in prison on May 30, 2006 for his leading role in what remains the country’s biggest case of fraud.
Salvatore Cacciola
Salvatore Cacciola was sentenced by Brazilian authorities to a lengthy jail sentence after he worked together with the central bank to avoid collapse following the real’s devaluation in 1999, and as a consequence left the Treasury with $1.5bn in damages.
Shortly after the former banker’s arrest in 2000, Cacciola fled to Italy where he stayed until 2008, at which time he was picked up in Monaco and extradited to Brazil.
Judge Roberta Carvalho Souza, however, in April 2012, waived the penalty of the former Banco Marka head, after completing only a third of his 13-year sentence and meeting the requirements stipulated in the decree.
Barry Minkow
At the age of 21, boy wonder Barry Minkow was worth $110m after the value of his carpet cleaning and restoration company ZZZZ Best entered with a bang onto the stock market. “Think big – be big. End of story,” he gushed during his appearance on the Oprah Winfrey Show.
However, Minkow’s glowing public personality carried with it a criminal undertone, and one that would later come to define his dealings through the years. In actual fact, ZZZZ Best’s restoration business – which came to account for 86 percent of the company – was non-existent, and was rather an elaborate ponzi scheme dreamed up by Minkow and a select few others.
The con artist was eventually exposed by a dissatisfied client, who took steps, along with The Los Angeles Times, to uncover $70,000 worth of credit card fraud and went on to reveal the full extent of Minkow’s fraudulent dealings.
After ZZZZ Best’s imminent collapse in 1987, the California-born failed businessman was sentenced to 25 years in prison for defrauding investors of $100m, only to be released seven years on and become a pastor and anti-fraud agent. The story does not stop there, however, as the con man was later found guilty of stock market manipulation in 2011 and charged again in January of this year for cheating the San Diego Community Bible Church of $3m.
Dennis Kozlowski
The New jersey-born former CEO of Tyco International was, until January this year, serving a maximum sentence of 25 years in prison for stealing over $150m from the company he had spent 27 years at. “It was greed, pure and simple,” he told a New York State parole panel in a video conference hearing late on last year. “I feel horrible … I can’t say how sorry I am and how deeply I regret my actions.”
Best known of Kozlowski’s exploits are a $6,000 shower curtain – paid for by the company – and a lavish $2m party for his wife, featuring an ice sculpture of Michelangelo’s David urinating vodka – again, half paid for by Tyco by way of unauthorised company expenses and bonuses.
The otherwise highly successful Tyco executive was convicted on June 17, 2005 of various crimes, among them being $81m in allegedly unauthorised bonus payments and a $20m investment banking fee paid out to former director Frank Walsh.
Jérôme Kerviel
France’s highest court upheld the rogue trader’s three-year jail sentence in March this year and ordered a review of the €4.9bn in damages attributable to Kerviel’s illegitimate dealings at Société Générale. The decision came more than five years after the 37-year old former trader was discovered to have carried out $50bn in unauthorised trades and racked up record breaking losses for the bank.
The Brittany-born former trader claimed that officials at the bank were aware of his activities; moreover alleging that they were happy to turn a blind eye provided he turned a profit. “The only goal was money, money, money for the bank,” he told reporters while on route to Paris in March. “I didn’t care about what I was doing.”
