The financial world is no stranger to scandals and greediness. There’s a mastermind behind every corporate financial scam, and the appetite for wealth and power has given birth to some of the biggest con artists. Some fraudulent corporations and businessmen are able to run their operations for years without anyone questioning their activities. However, one false step or careless move can shine light on a long history of criminal acts.
The grandfather of fraudulent investment schemes, Charles Ponzi’s persuasive and trusting demeanor resulted in the defrauding of thousands of investors during the 1920’s. Ponzi’s investment strategy involved international reply coupons, which were a type of prepaid postage stamp. Investors jumped at the opportunity to invest in these coupons and receive a massive return on their money within a relatively short period. The money collected from investors made Ponzi a millionaire in only a few months, and investors immediately began to earn profits off their initial investments.
However, these funds didn’t come from actual profits. Instead, Ponzi paid investors with a percentage of newly invested funds, while keeping the majority of the money for himself. Investors became suspicious of his activity and this triggered an audit of his books. The scam was uncovered and Ponzi reportedly took in 20 million dollars with his operation.
Bernie Madoff is the Charles Ponzi of the 21st century. His greed for money and wealth led to the creation of an “elaborate Ponzi scheme.” He manipulated thousands of investors and convinced these individuals to invest their life savings in a slow growing investment strategy. Madoff promised high returns on investment dollars and some investors did see increases in their investment portfolios. But similar to Charles Ponzi’s scheme, these profits weren’t real and Madoff fabricated fake financial statements to conceal is criminal activity.
So-called profits were actually paid from an investor’s own money or taken from new investment dollars. Madoff’s fraudulent investment strategy came to light after the great financial collapse of 2008 when several of his investors requested their money at the same time. Madoff couldn’t produce the cash and this launched an investigation that ultimately revealed a $65 million dollar scheme. This ended with the trial and sentencing of Bernie Madoff.
The financial world was shocked in October 2001 when the Enron Corporation filed bankruptcy and the company’s years of fraudulent activity was revealed to the public. The company was established in 1985 and was viewed as a profitable, reputable company for most of its existence. Enron was the biggest seller of natural gas and the company enjoyed high stock values. As Enron’s financial health declined, the company resorted to unethical practices to hide its financial problems. This included fraudulent audits, in which accountants and auditors exaggerated income and cash flow numbers and hid the company’s massive debt.
The attempt to deceive shareholders and present a picture of good financial health came to a screeching halt in late 2001. A careful review of financial reports showed that the company had hidden billions of dollars in debt. This resulted in shareholders losing about $11 million dollars and the company’s stock value — which once sat as high as $90 a share — dropped to less than a $1 per share. The company was forced into bankruptcy, many executives were brought up on charges and later convicted, and many Enron employees had their retirement income completely wiped out.