5 Largest Investment Fraud Cases in History

Is your broker broke? Are you worried they’re going to break your bank? At Savage Villoch Law we’re determined, no, obsessed with keeping that from happening. We will work with and for you to keep your money, business, and reputation safe in the financial/legal world. Financial investment fraud criminals are our worst enemies. If we had our way, no one would have ever been swindled by the five infamous criminals below.

Investment Fraud #1: Postage Ponzi

Charles Ponzi died more than sixty years ago, but we’re still talking about him today. That’s because he orchestrated one of the most famous investment fraud schemes, ever. It’s criminal, self-defeating, but was famous at its time. Learn the details below.

The Original Ponzi Scheme

Charles Ponzi was never a law-abiding citizen. He did two stints in jail, in two different countries, before his most successful scheme. It all started with an envelope. Ponzi had family in Italy and they sent him a letter. That letter came with a response certificate, that covered the cost of return postage. He would have friends purchase these cheaply in another country, then redeem for more expensive stamps in the US. Then he sold the stamps and netted a profit. With this scheme, Ponzi promised investors a fifty percent return in ninety days. He delivered, but only for his initial investors. Those investors were so excited to have an ROI, they encouraged others to invest. Then, Ponzi paid his secondary investors with money from his tertiary ones. And on it went. He stole two hundred million dollars (in modern amounts) with his postal scheme before he got caught. He served a long sentence, then was deported to Italy before dying in 1949.

Investment Fraud #2: Lustig’s Tower

Victor Lustig sold the Eiffel Tower, made a good profit, and never got caught. It sounds ridiculous, but it’s true! Keep reading to see how.

Selling the Eiffel Tower

Victor Lustig was a career con man. He even wrote the Con Man’s 10 Commandments, which are still in circulation today. One of the con commandments is paying attention, which is exactly what Victor did when he found out the Eiffel tower needed repairs. Instead of reading this news and moving on, Victor hired a state secretary and copied her seal. He then forged papers saying he had the authority to sell the Eiffel tower for scrap metal. Papers in hand, he contacted French scrap metal industry people. At a secret meeting in a Paris hotel, he told them the monument would sell to the highest bidder. The bids rolled in, at amounts that amazed even Lustig. But the investors thought they were paying the French government, not Victor. He had a way around that too. He took Mr. Poisson (the highest bidder) into confidence and asked for a bribe. He said that if he had a little padding he could guarantee him the contract. The (now) poor man delivered the asking price plus the bid and Victor hopped on a train to Vienna with a bag full of money. Victor never served time for this particular investment fraud scam.

Fraud #3: Colonel Baker’s Estate

If your last name is Baker you could be the heir to an estate in Philadelphia! Just pay a small fee to help legal counsel prove you’re the true heir. That simple idea made the people behind it $25 million dollars. Adjusted for inflation, that would be approximately $448 million today.

The Details

In 1839 a man named Cameron Smith posted ads in newspapers announcing the death of a rich “Colonel Jacob Baker”. This Mr. Baker had an estate worth 3 billion dollars. That estate was basically the entire city of Philadelphia, or so Cameron said in his ads. If you wanted to fight for a piece of that inheritance, you could pay the firm “William Cameron Morrow Smith” a fee. This pool of money would then be used to find the rightful heir of the Baker fortune. The only catch? Colonel Jacob Baker didn’t exist. But William Cameron Morrow Smith’s firm did! That pool of money they scammed from people added up to 25 million dollars. They lived on it for a while, too. The scam ran for almost seventy years before the government shut this investment fraud down. Hundreds of people with the last name Baker paid into this scam, even though there are records of all the landowners in Philadelphia.

Investment Fraud #4: Cendant

What if you thought you were investing in/doing business in one company, but it was actually another? That’s what happened with the Cendant investment fraud scandal. In 1997 the “unethical company” CUC International merged with Hospitality Franchise Services (HFS). They combined to become the Cendant Corporation. Unfortunately for HFS, CUC entered the merger with inflated reported earnings. That wasn’t their first offense; investigations found they’d been doing dishonest accounting for at least 10 years. After the merger, these dishonest practices continued and the company hid their debt by projecting an image of wealth. The merger went on for a year before Cendant was found out. In 1998, Cendant admitted they’d overstated their earnings by 100 million dollars. A further investigation found the real number to be five times that. The company’s shares dropped to mere dollars in late 1999 and the two CEO’s were brought to trial in 2004. They’re both serving terms for conspiracy, false reports, and multiple types of fraud.

Investment Scam 5: Major Madoff

We started off our list with the original Ponzi scheme and we’re ending it with the biggest. Bernie Madoff’s 64 billion dollar scheme gets that title.

The Madoff Scheme

Madoff ran his scheme like Ponzi, but with a better strategy. He told his investors he used the “split-strike conversion” investment strategy, which is real. The large, steady returns that he promised from this strategy weren’t real though. Payouts were taken out of the same bank account investors deposited in. This went well for Madoff, for almost twenty years. It was the 2008 recession that did him in since there wasn’t new money for investing. Madoff pleaded guilty to eleven charges in 2011 and forfeited $170 million in assets. He’s currently serving a 150-year sentence with a projected release in 2139.

Your Verdict

Yes, the above scams were evil and fleetingly successful, but there are better ways to build a business. Make sure you don’t invest in a grimy broker, get caught up in a terrible merger, or buy into a Ponzi scheme by working with our legal team. Already in trouble or have a bad feeling? We trust your gut. Give us a call!