Top Five Examples of Financial Fraud in US History
- Bernie Madoff
- Charles Ponzi
- ZZZZ Best
- Ivan Boesky
White collar crimes are some of the most high-profile events in American culture, and financial scams are usually the most salacious examples of white collar crimes. The US banking system has had its fair share of cases of fraud, and the perpetrators of many of these scams remain locked in minimum security prisons. With billions of dollars of lost market value and countless ruined investors left in their wake, the fraudsters on this list will be remembered only for the pain and destruction they caused in their professional lives.
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The Enron bankruptcy is one of the most shocking financial downfalls in US history. The bankruptcy came about as the result of faulty bookkeeping practices. Accounting fraud is a very serious problem for a multi-billion dollar corporation to have in the first place. The shock from the news of this problem caused stock values of Enron to plummet and all of the company’s value to quickly evaporate. Overnight, 78 billion dollars disappeared from the economy, and 16 Enron executives went to jail. Jeff Skilling, Enron’s CEO, was sentenced to 24 years in a white-collar prison.
2. Bernie Madoff
Bernie Madoff is perhaps the most unscrupulous fraudster on this list of con artists. He is currently serving a 150 year sentence for 11 federal felonies that resulted in the theft of around $68 million. His scam was essentially a very large Ponzi investment scheme in which early investors were paid off with money from later investors. Madoff’s firm was popular and successful until the end because Madoff’s clients earned huge dividends on their investments. The earnings from Madoff’s fraudulent investments were much greater than the earnings from typical investments. He was able to maintain the scam for over a decade by paying out huge dividends from the money given to him by new investors.
3. Charles Ponzi
The term Ponzi scheme comes from Italian con artist Charles Ponzi, who invented this particular type of swindle in the 1920s. Ponzi promised investors a 50 percent profit from an arbitrage scheme to buy US postage stamps at a discount in one market and sell them at full price in another market, according to The Richest. His arbitrage scheme actually worked to some extent, but it produced nowhere near the 50 percent profit promised. Ponzi covered the difference with money from new investors, paying off early investors until the entire scheme collapsed when too many investors demanded their money all at once.
4. ZZZZ Best
ZZZZ Best was a fictitious rug cleaning company concocted by 21-year-old Barry Minkow as a front for his criminal enterprise of money laundering, racketeering and credit card theft. ZZZZ Best was valued at over $200 million at its height. Its downfall was the biggest example of securities fraud on the west coast of the 1980s. Minkow and 10 of his colleagues were charged with fraud, money laundering, and racketeering.
5. Ivan Boesky
Ivan Boesky was the first Wall Street trader to be convicted of insider trading in 1986. By the time he was caught, Boesky had accumulated a fortune of over $200 million by betting on corporate takeovers with inside knowledge of the deals. His crime was a little like cheating at a casino and getting away with it for years. He avoided serious jail time by cooperating with authorities and informing them of the financial crimes of his fellow traders.
The world of financial crime is always active, and new instances of wrongdoing are discovered all the time. If you are ever approached by an investment banker promising to double your life savings in a few years, be careful not to fall victim to any financial scams.