Ponzi schemes to Panama Papers: Seven financial scams that shook the world


Finance is no stranger to scams, counterfeits, lies and criminality. As long as there's been money, there's been inventive ways to steal it - often with insiders as the main culprits.

The scams are usually variations on similar methods, like a Ponzi or pyramid scheme (in which a fake fund's performance is based on getting new investors), accounting tricks to mask theft, or legal but foolish use of financial arrangements ultimately based on nothing but hot air.

Enron, 2001

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This Houston energy conglomerate was widely considered one of America's leading companies - until it filed for bankruptcy, revealing its success to be nothing more than an elaborate accounting fraud.

The scandal was so traumatic that it destroyed the company's auditor, Arthur Andersen (now reimagined as Accenture), and prompted the US Congress to pass the Sarbanes-Oxley law putting onerous controls on public companies.

Lesson: Corporations can and do willfully steal, and use their reputations to deflect serious scrutiny.

Lehman Brothers, 2008

Lehman was a storied investment bank, the fourth largest in the US at the time of its demise. It was not the sole cause of the 2008 global financial crisis (GFC), but its bankruptcy revealed a hole at the heart of Wall Street. Lehman and other banks got rich buying packages of home loans and repackaging them as securities with spurious credit ratings, to be sold on to pension funds and other investors.

When a critical number of these loans proved to be duds, issued to people who could not repay them, Lehman was the biggest player left exposed. The rest of Wall Street realised Lehman wasn't good for the credit instruments it was peddling and cut it off from interbank funding - the death knell.

Lesson: Banks and other creators of credit, if left to their own devices, are dangerous to society.

Bernie Madoff, 2008

Madoff was a pioneer on Wall Street, ushering the first electronic trading for stocks and founding NASDAQ. But he was also a fraudster who built a Ponzi scheme, luring wealthy investors into a fund whose performance was built on the investments by later victims.

In the wake of the Lehman Brothers collapse, investors wanted to redeem more money than Madoff's fund had - and the world realised Madoff, all this time, had been a scammer.

Lesson: Investors, even sophisticated ones, still fall for Ponzi or pyramid schemes.

Mossack Fonseca, 2016

This Panama-based law firm provided tax evasion and shell companies to help rich clients dodge international sanctions. The extent of its work on behalf of global elites came to light following a data leak from a whistleblower, whose identity remains unknown.

The so-called Panama Papers documented the legal and illegal ways rich people and corporations hide their money from governments. Mossack Fonesca closed in 2018, but nothing has changed for how rich people use secrecy.

Lesson: There seem to be different tax and financial structuring arrangements for the very rich and the rest of us.

Equifax, 2017

A long-standing American consumer credit reporting company, Equifax aggregates credit information about 800 million consumers and 88 million businesses worldwide. It's meant to provide US consumers with a free annual credit report, but the company received 57,000 consumer complaints about shoddy reporting and data - a warning sign that all was not well.

In September 2017, the company revealed it had suffered a cyber security breach in which criminals accessed private financial data for over 149 million consumers, including credit card details. Three Equifax executives were later found to have illegally sold company stock before revealing the breach. The company's lawyers made sure, following the settlement with prosecutors, that the average consumer would receive about $7 in compensation.

Lesson: Data is the new asset criminals want to steal, and arrogant corporations will use their power to serve interests other than their customers'.

Australian banks, 2017-2019

The Australian government established a royal commission to investigate misconduct by its biggest consumer banks. Australian banks had avoided the damage of the 2008 GFC, but allegations of similar profit-at-all-cost practices to those  used by US banks led to the investigation.

It found not just greed but fraud, dodgy financial advice, rigged interest rates, and money laundering. The fallout forced many banks to restructure their businesses, but they all continue to operate.

Lesson: It doesn't have to take a crisis to reveal financial wrongdoing - sometimes the lack of a crisis leads to dangerous complacency.

OneCoin, 2017-2019

The biggest scam to date in the world of cryptocurrency. OneCoin was a Ponzi scheme promoted as a crypto coin, but there was no underlying blockchain technology.

Bulgarian fraudster Ruja Ignatova, who had hyped OneCoin as a challenger to Bitcoin, disappeared in 2017 after siphoning up to $4 billion in investor funds; she remains at large.

Lesson: Old-fashioned types of scams work well for cryptocurrency too.

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Jame DiBiasio is an American author and award-winning financial journalist based in Hong Kong. He is the founder and editor of DigFin Group, and the author of Cowries to Crypto: The History of Money, Currency and Wealth.
Charles Carcary
October 4, 2020 11.56am

two Things seem to have been ignoed by the banking royal commission

The amazing financial ignorance of Australians. Many borrowers did not seem to understand that if they defaulted on a loan the banks could take the mortgaged security

Banks continue to close branches where managers knew the local community and were known and trusted the locals.

Further Reading