1. Madoff Fraud
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| Image source:Economist.com |
New York hedge fund manager and Wall Street legend Bemard Madoff has been charged with what
could be the largest Ponzi scheme in history. Madoff had apparently planned to carve up his last
$300 m between friends, family and employees before making the shocking confession that his
investment prowess was really the result of one of the world's biggest ever fraud.
2. Enron
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| Image source: Economist.com |
When it comes to the financial fraud Enron comes on the top of the list. Result of such a massive
fraud at Enron, an energy company based in Huston, Texas, shareholders lost tens of billions of
dollar. Many Enron executives, Enron's accounting firm and bank officials were indicted. Andrew
Fastow, Enron's former finance chief, testified that many of the banks transactions were contrived,
deceptive deals done solely to create the false appearance of profits and cash flow.
Kernneth Lay, the founder of Enron whose spectacular implosion in 2001 lead to one of the biggest
fraud in the history, was convicted of fraud for duping investors over the health of Enron
finances before it plummeted into bankruptcy. Prosecutors accused lay of pocketing millions of
investor's money, and Lay was charged with 11 counts of securities fraud.
3. Charles Ponzi Scheme
It was other biggest scams in the US history. Ponzi schemes began with legitimate business, until
the business fails to achieve the returns expected. Then the business becomes the Ponzi scheme
and continuous to operate under fraudulent terms. Person behind this scheme was a con artist
Charles Ponzi, who becomes notorious for using technique in 1920. This scheme was based on
arbitrage of international reply coupons for postage stamps; however, he diverted investors money
to make payment to earlier investors and to himself.
About 40,000 people invested about $15 million all together and in the end only one third of the
money was returned to them. he was indicted on 86 counts of mail fraud and sentenced to 5 years
of prison in 1920.
4. Pharmalat Scam
Popularly known as "Europe's Enron" the scam that has engulfed Italy's milk processing giant
Pharmalalat and its senior executives, Blue-chip European and American Banks, Accounting Firms,
Politicians 130,000 small shareholders following the discovery in 2003 of a $14 bn black hole in its
finance. In 2008, Fausto Tonna is given 2.5 years sentence in this case. In December 2010, Calisto
Tanzi is given an 18-year sentence and launches an appeal. In April 2011 after a 3-year trial, a Milan court acquits four Banks- Morgan Stanley, bank of America, Deutsche Bank and Citygroup of
Market-rigging. Prosecutors had demanded €120m of the bank’s profits be impounded. It is currently estimated that at least $17bn of Pharmalat funds have simply
disappeared and cannot be accounted for.
5.Barrings Collapse
Massive fraud and malfeasance by its single employee, Nick Leeson - a derivatives trader led to the
collapse of Barrings PLC a 233-year-old bank in February 1995. After landing the bank with debt of
$1.4bn, Leeson fled for Malaysia. By the time of collapse, the bank accumulated losses amounted to
$2.2bn. Leeson was sentenced to six-and-a-half years jail in
Singapore for two charges of fraud and Forgery.
6.Portuguese Bank Note Affair
This is one of the biggest frauds in the history designed by a single person, Alves dos Reis against
Banco de Portugal. He is also known as "The Man Who Stole Portugal". Reis fraud had enormous
repercussions on the economy and politics of Portugal. By the end of 1925, Rois had managed to
introduced escudo banknotes worth £1,007,963 (at 1925 exchange rates) in the Portuguese
economy which was equivalent to 0.88% of the Portugal's nominal GDP at that time. The
Portuguese currency, escudo, was fiscally disturbed and lost much of its credibility. After the
scheme was found out, the Bank of Portugal ordered the withdrawal of all 500 escudo banknotes.
Wnen Reis fraud came into the public knowledge in December 1925, it brought about a crisis of confidence in the Portuguese government.
On 6 December 1925 Reis's bank's wealth was confiscated and arrest warrents were issued for him
and most of his associates. He was arrested few days later. He was 28 years old. He received 20
years sentence and was released in May,1945. Alves dos Reis died of a heart attack in 1955.
7. Amarnath Hedge Fund Scams
Branded as the biggest hedge fund collapse in the history, Amarnath lost $6bn of investors money
in one week alone. Amarnath Advisors, the US based hedge fund whose investments were hit by a
misplaced bet on gas prices, saw its losses reach about $6bn in 2006. The firm sold its portfolio of
energy trades and off-loaded other assets in a bid to stave off collapse. Amarnath invested most off
its funds on trades that bet the longstanding trend in rising natural gas prices would continue.
However natural gas price dropped sharply. According to reports, the firm and its former head
trader Brian Hunter's poor bets on the price of natural gas triggered those losses. As the losses
increased, the fund's banker called in their loans, forcing the fund to sell more assets to avoid
defaulting. The collapse in fund's value raised major questions over the lack of adequate risk
management controls at Amarnath, and wider concerns over lax control of hedge fund managers.
8. Worldcom Scandal
Another biggest financial scams in the world's scams history is Worldcom scandal. Worldcom
inflated its assets by underreporting line cost by capitalizing rather than reporting as expenses, and
inflating revenues with fake accounting entries as much as $11bn, leading 30,000 losing their jobs
and investors loosing $180bn. The main player in this scandal was the company's CEO Bernie
Ebbers. This scams was caught when the internal auditing department uncovered $3.8bn in fraud.
After the fraud was detected CFO was fired, controller was reassigned and the company filed for
bankruptcy. Ebbers was sentenced to 25 years for fraud, conspiracy and filing false documents with
regulators. Following the scandal, Congress passed the Sarbanes-Oxley Act, introducing the most
sweeping set of new business regulations since 1930s.
9. Lehman Brothers Scandal
The only advantage of financial meltdowns is that they smoke out frauds. One of the biggest
financial scandal in the list is Lehman Brothers Scandal involving $50bn. Lehman executives,
company's auditors Ernst & Young were the main players in this scandal. They hide over $50bn in
loans disguised as sales. They were caught when they went bankrupt. Sec didn't prosecute due to
the lack of evidence.
10. Satyam Scandal
Another scandal which is worth to mention is the Indian IT services and back - office accounting
firm, Satyam scandal involving its Founder/Chairman Ramalinga Raju. Fraud of $1.5bn was known
when he admitted the fraud in a letter to the company's board of director. Raju and his brother was
charged with breach of trust, conspiracy, cheating and falsification of records. They were released
after the Central Bureau of Investigation failed to file charges on time.
3. Charles Ponzi Scheme
 |
| Image source: Antonenglish.com |
the business fails to achieve the returns expected. Then the business becomes the Ponzi scheme
and continuous to operate under fraudulent terms. Person behind this scheme was a con artist
Charles Ponzi, who becomes notorious for using technique in 1920. This scheme was based on
arbitrage of international reply coupons for postage stamps; however, he diverted investors money
to make payment to earlier investors and to himself.
About 40,000 people invested about $15 million all together and in the end only one third of the
money was returned to them. he was indicted on 86 counts of mail fraud and sentenced to 5 years
of prison in 1920.
4. Pharmalat Scam
Popularly known as "Europe's Enron" the scam that has engulfed Italy's milk processing giant
Pharmalalat and its senior executives, Blue-chip European and American Banks, Accounting Firms,
Politicians 130,000 small shareholders following the discovery in 2003 of a $14 bn black hole in its
finance. In 2008, Fausto Tonna is given 2.5 years sentence in this case. In December 2010, Calisto
Tanzi is given an 18-year sentence and launches an appeal. In April 2011 after a 3-year trial, a Milan court acquits four Banks- Morgan Stanley, bank of America, Deutsche Bank and Citygroup of
Market-rigging. Prosecutors had demanded €120m of the bank’s profits be impounded. It is currently estimated that at least $17bn of Pharmalat funds have simply
disappeared and cannot be accounted for.
5.Barrings Collapse
 |
| Image source: Dw.com |
collapse of Barrings PLC a 233-year-old bank in February 1995. After landing the bank with debt of
$1.4bn, Leeson fled for Malaysia. By the time of collapse, the bank accumulated losses amounted to
$2.2bn. Leeson was sentenced to six-and-a-half years jail in
Singapore for two charges of fraud and Forgery.
6.Portuguese Bank Note Affair
This is one of the biggest frauds in the history designed by a single person, Alves dos Reis against
Banco de Portugal. He is also known as "The Man Who Stole Portugal". Reis fraud had enormous
repercussions on the economy and politics of Portugal. By the end of 1925, Rois had managed to
introduced escudo banknotes worth £1,007,963 (at 1925 exchange rates) in the Portuguese
economy which was equivalent to 0.88% of the Portugal's nominal GDP at that time. The
Portuguese currency, escudo, was fiscally disturbed and lost much of its credibility. After the
scheme was found out, the Bank of Portugal ordered the withdrawal of all 500 escudo banknotes.
Wnen Reis fraud came into the public knowledge in December 1925, it brought about a crisis of confidence in the Portuguese government.
On 6 December 1925 Reis's bank's wealth was confiscated and arrest warrents were issued for him
and most of his associates. He was arrested few days later. He was 28 years old. He received 20
years sentence and was released in May,1945. Alves dos Reis died of a heart attack in 1955.
7. Amarnath Hedge Fund Scams
 |
| Image source: Investorslayers.com |
in one week alone. Amarnath Advisors, the US based hedge fund whose investments were hit by a
misplaced bet on gas prices, saw its losses reach about $6bn in 2006. The firm sold its portfolio of
energy trades and off-loaded other assets in a bid to stave off collapse. Amarnath invested most off
its funds on trades that bet the longstanding trend in rising natural gas prices would continue.
However natural gas price dropped sharply. According to reports, the firm and its former head
trader Brian Hunter's poor bets on the price of natural gas triggered those losses. As the losses
increased, the fund's banker called in their loans, forcing the fund to sell more assets to avoid
defaulting. The collapse in fund's value raised major questions over the lack of adequate risk
management controls at Amarnath, and wider concerns over lax control of hedge fund managers.
8. Worldcom Scandal
 |
| Image source: cbsnews.com |
inflated its assets by underreporting line cost by capitalizing rather than reporting as expenses, and
inflating revenues with fake accounting entries as much as $11bn, leading 30,000 losing their jobs
and investors loosing $180bn. The main player in this scandal was the company's CEO Bernie
Ebbers. This scams was caught when the internal auditing department uncovered $3.8bn in fraud.
After the fraud was detected CFO was fired, controller was reassigned and the company filed for
bankruptcy. Ebbers was sentenced to 25 years for fraud, conspiracy and filing false documents with
regulators. Following the scandal, Congress passed the Sarbanes-Oxley Act, introducing the most
sweeping set of new business regulations since 1930s.
9. Lehman Brothers Scandal
 |
| Image source: theguardian.com |
financial scandal in the list is Lehman Brothers Scandal involving $50bn. Lehman executives,
company's auditors Ernst & Young were the main players in this scandal. They hide over $50bn in
loans disguised as sales. They were caught when they went bankrupt. Sec didn't prosecute due to
the lack of evidence.
10. Satyam Scandal
 |
| Image source: slideshare.com |
Another scandal which is worth to mention is the Indian IT services and back - office accounting
firm, Satyam scandal involving its Founder/Chairman Ramalinga Raju. Fraud of $1.5bn was known
when he admitted the fraud in a letter to the company's board of director. Raju and his brother was
charged with breach of trust, conspiracy, cheating and falsification of records. They were released
after the Central Bureau of Investigation failed to file charges on time.
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