People conducting financial scams continue to create new ways to defraud people out of their hard earned money, and the biggest financial scams in history cover a range of topics.
Ponzi schemes, identity theft, corporate malpractices, and investment frauds have been around for centuries but as the world becomes more interconnected, these scams are becoming more prevalent and sophisticated.
In this article, we are going to share some of the biggest financial scams in history, along with some of the main financial scam topics you may want to keep an eye out for.
All this being done in the hope that we can take what we know from the past, along with some of what is going on in the present, to protect ourselves from scams in the future!
10 of the biggest financial scams in history
1. The Enron Scandal
In 2001, one of the biggest financial scams in history, by way of corporate scandals came to light. The energy giant Enron had been ‘cooking its books’ for years, hiding billions of dollars in debt and inflating its earnings. When the truth was finally revealed, Enron imploded, filed for bankruptcy, and saw dozens of its top executives convicted of fraud. The scandal cost investors billions of dollars and shook public faith in corporate America.
2. The Subprime Mortgage Crisis
The subprime mortgage crisis was a major financial scandal that led to the 2008 financial crisis. Banks and other lenders gave loans to people with poor credit, expecting that they would be able to sell the loans to investors before they defaulted. But when the housing market crashed, many borrowers defaulted on their loans, leaving the banks holding the bag. The resulting financial crisis cost investors trillions of dollars and plunged the world into recession.
Whilst this crisis is not a direct financial scam in the way we traditionally think about these things, the whole system was being scammed by a series of manipulated, or paid for credit ratings, and swathes of misinformation.
The financial crisis lost millions of hard working citizens countless amounts of their hard earned savings that was invested in pension funds, and the stock markets in general, along with their homes to absolutely devastating results.
3. The Madoff Scandal
In 2008, another major financial scandal came to light. This time, it was Bernie Madoff, a money manager who ran a Ponzi scheme that defrauded investors out of billions of dollars. Madoff is currently serving a 150-year prison sentence for his crimes.
4. Michael De Guzman – Bre-X
The Bre-X scandal is one of the most famous mining scams in history. In the 1990s, a Canadian company called Bre-X claimed to have found gold deposits in the Indonesian jungl with Michael De Guzman said to be the man behind the reports.
The stock prices of the company soared, and it became one of the hottest stocks on the market. However, it was later revealed that the gold samples had been faked, and the company was forced to declare bankruptcy losing investors around $6bn.
5. The Barings Bank Bailout
The year was 1995, and a derivatives trader by the name of Nick Leeson had single-handedly bankrupted one of Britain’s oldest and most prestigious banks, Barings.
After making some unauthorized trades and then trying to cover them up, Leeson caused the bank to lose £827 million, leading to its collapse. The scandal led to an international bailout and cost investors billions of dollars.
6. Allen Stanford
Allen Stanford was a Texas billionaire who ran a massive Ponzi scheme through his bank, Stanford International Bank. Stanford promised investors obscenely high returns on their investments, but instead used the money to fund his lavish lifestyle.
During this period, he was brandished ‘the man who bought cricket’, having used millions to set up an international tournament in the Caribbean prior to his fraud unravelling. In 2012, he was convicted of fraud and sentenced to 110 years in prison.
7. Worldcom Scandal
The Worldcom scandal is a major financial scandal that came to light in 2002 when the telecommunications giant was another revealed to have been cooking its books, inflating its earnings by billions of dollars. A similar pattern emerges, as when the truth was revealed, Worldcom filed for bankruptcy and saw its stock price plummet.
Dozens of top executives were convicted of fraud and went to prison including CEO Bernard Ebbers. The scandal cost investors billions of dollars and shook public faith in corporate America.
8. Takata Airbag Scandal
The Takata airbag scandal is a major financial scandal that came to light in 2014. The Japanese company Takata was revealed to have been using defective airbags in its vehicles. When the airbags deployed, they often sent shrapnel flying into the passengers, causing serious injuries and even deaths.
Takata pleaded guilty to fraud and agreed to pay $1 billion in fines. The scandal cost automakers, and investors billions of dollars and led to the recall of millions of vehicles.
9. VW emissions scandal:
The VW emissions scandal is a major financial scandal that came to light in 2015 when the German automaker Volkswagen was caught cheating on emissions tests for its diesel vehicles. When the truth was revealed, VW was fined billions of dollars and its stock price plunged.
10.Theranos
The Theranos scandal is a major financial scam that came to light in 2016. The blood-testing startup Theranos was revealed to have been using defective technology and when the truth was revealed, the company’s valuation plunged from $9 billion to zero.
Elizabeth Holmes currently stands trial for her part in the Theranos case.
11. The Wolf Of Wall Street
Whilst not necessarily one of the largest financial scams, this is definitely one of the most famous and deserving of a mention. The Wolf of Wall Street is a 2013 film based on the true story of Jordan Belfort, a stockbroker who was convicted of fraud for his role in a major financial scandal surrounding penny stocks. The film tells the story of how Belfort and his colleagues defrauded investors out of millions of dollars through a scheme known as “pump and dump.”
Financial Scam Topics
1. The Ponzi Scheme
Named after Charles Ponzi, this type of fraud involves promising investors inflated returns on their investment. The scammer then uses the money from new investors to pay off the original investors, giving the appearance that the investment is profitable. Eventually, the scheme collapses when there is not enough money to keep up with the payments, and many people lose their money.
2. Identity Theft
Identity theft occurs when someone uses your personal information, such as your social security number or credit card number, without your permission. They may use this information to open new accounts in your name and run up debt, or they may sell your information to other criminals. Either way, identity theft can wreak havoc on your finances and your credit score.
3. Investment Fraud
Investment fraud occurs when someone convinces you to invest in a company or product that doesn’t exist, or that is not as profitable as they claim. They may use high-pressure sales tactics, false promises, or even fake documentation to convince you to part with your hard-earned cash. Always do your research before investing in anything, and be wary of anyone who guarantees you will make a profit. We have a short list of things to watch out for on the topic of forex scams.
4. Phishing Scams
Phishing scams are a type of fraud that occurs when someone uses fraudulent emails or websites to trick you into giving them your personal information. They may claim to be from a legitimate company, such as your bank, and ask you to update your account information. Or they may send you an email with a fake link that downloads malware onto your computer. Be very careful about giving out your personal information online, and never click on links from unknown senders.
5. Pyramid Schemes
Pyramid schemes are a type of fraud that involve convincing people to invest in a product or service, with the promise of high returns. The problem is that there is no actual product or service being sold, and the only way to make money is by recruiting more people into the scheme. Eventually, the pyramid collapses when there are not enough new investors to keep it going, and many people lose their money.
6. Cloned Companies
In the case of forex, and online trading, cloned versions of legitimate brokers are used to lure investors and traders onto the wrong version of a trading platform. These rely on the trust and faith built by established brands to get investors to part with money by deception.
One way to avoid falling foul of this particular type of scam is to check the brokers financial regulation status with their regulators, confirming the licence numbers and names match exactly.
You can also verify from the approval notification the website that is approved to offer these services, and if they do not match with the one you see, exercise caution and steer clear until you know for sure it is the legitimate firm you are dealing with.
The FCA have a dedicated area for cloned firms which you can find here.
Financial Scams From History Summed Up
These are just a few of the many financial scams that exist. Be sure to do your research before investing in anything, and never give out your personal information to someone you don’t know. If something sounds too good to be true, it probably is. Protect yourself from fraud by being informed and aware of the dangers that exist.
The Madoff scandal is perhaps the most infamous financial scam in history, but there have been many others that have cost investors billions of dollars. These scams highlight the importance of due diligence when investing your money. Make sure you research any investment thoroughly before handing over your hard-earned cash.
Investing can be a risky business, but if you arm yourself with knowledge and take care to avoid scams, you can make your money work for you.
If you are looking for a trusted broker to trade with, we have put together various lists of regulated brokers that may help.