Frauds and financial scandals have been a constant feature in the business realm. Fraudsters, even here in Australia, are all over, constantly looking for the next way to make easy money. As technology advances, sometimes businesses end up playing catch-up with technology and loopholes in the financial system. That’s what makes it easy for them to execute their plans to scam others.

Some of the masterminds of these schemes are very good in what they do, to the extent that sometimes their schemes take years to unearth. Some even take years to gather evidence for the courts. In fact, there are many business-related court cases here in Australia associated with fraud that have been difficult to prove.

In this post, we will look at 5 of the most sensational business frauds of all time. These are some of the most well-planned and executed though they eventually got unearthed. However, the colossal amount of financial damage was huge. Below are the 5 most sensational business frauds of all time:

1. The Ponzi Scheme

businessman sharing couponsI know this term will sound familiar, especially with people that have lost money to Ponzi schemes in the past. The term comes from a fraud scheme that was planned and executed by Charles Ponzi back in 1918. The financial market was doing very well after WWI, and most people were not familiar with frauds and scams. With such an environment, Charles Ponzi saw an opportunity to con people by buying and selling reply coupons.

Ponzi planned to purchase the coupons cheaply in Italy and sell them at a higher price in the US. The expected returns on the investment were 400 percent. It is such profit margins that brought many investors into his business, which was operating legally. The scheme worked by collecting from the public and paying the first investors in order to attract new ones. More investors put their money in the business but what they were getting was statements of accounts only.

The authorities uncovered the fraud, and Ponzi was sent to prison. But investors lost their money to the con artists. It was the biggest scheme of this kind where investors lost about USD 200 million. That’s why today, these kinds of con artists’ schemes are named after this fraudster.

2. Baring Bank Collapse

This is another fraud that shocked the financial industry in the year 1995. What’s interesting about this scandal was that it was perpetuated by a single individual, Nick Leeson. He brought down a bank that had been in the business for 238 years. During the time of the collapse, the bank had the Queen of England as a client.

During this year, Leeson was the head derivative trader for Baring’s Singapore operation. Unfortunately, business was not good for the bank, and he chose to conceal the losses. In the eyes of the investors and his senior in London, the business was doing well, while the truth was quite the opposite.

Leeson thought he could recoup the bank’s losses, but things went from bad to worse. In the end, the resulting debt was more than US$1.3 billion, which was twice the bank’s capital. That’s how the Baring Bank collapsed, and Leeson got sent to jail.

bankrupt bank

3. Enron Bankruptcy

This is another business fraud that shocked people around the year 2000. It left many investors counting losses after the bank lost its share value abruptly. Enron was named ‘America’s Most Innovative Company’ for six years in a row. That was because of the huge profit margins ranging between US$101 billion in 2000. But what investors did not know is that the bank was sharing fake data.

The CEO Jeffrey Skilling and the Founder Ken Lay plus the CFO Andrew Fastow, had conspired to lie about the revenues. Most of the US$101 revenue was due to ‘planned accounting fraud,” which had created limited liability special purpose entities where the company hid its liability. But the secret did not last long, as a whistle-blower revealed it to the authorities.

The news about the fraud caused their stock to drop from a high of US$90 to just a few pennies. That’s how the bank collapsed, and investors lost a lot of money because of this fraud. To date, how the Enron bank managed to execute this scheme so efficiently for so long baffles many.

Both the CEO and the founder got convicted of fraud and sentenced to prison. What made this fraud a sensation is that the bankruptcy was the largest in US history at the time.

4. Madoff Investment

We talked about the Ponzi scheme in the first fraud, but we can say the Charles Ponzi scheme was child’s play compared to the Madoff investment scheme. Bernie Madoff pulled one of the largest Ponzi schemes in history with his cleverly crafted plan. What makes this scheme a sensation is that it ran for more than two decades.

police handcuffs on tax form and money

With this cleverly crafted fraud, Madoff claimed he could buy blue chip stock and hedge them with options. He promised to pay investors more returns than what S&P 500 offered. This is what attracted most people to his business. What investors did not know is that Madoff was running a Ponzi scheme in disguise.

The fall of Madoff investments came during the 2008 financial crisis. Investors started requesting to withdraw more than US$7 billion. That’s when Madoff confessed to his son that his business was a big lie. He got arrested and pleaded to 11 federal crimes in 2009. He is currently serving 150 years in jail.

5. Steinhoff US$7.4 Billion Fraud

Steinhoff is a South African-based company that pulled a sensational fraud in recent history. The fraud had been going on for 8 years until PwC revealed it. The top clique at the business executive plus other influential individuals outside the company executed the fraud. What was going on in the company was overstated profits. That’s what tricked investors into putting more money in the business.

When auditing of the Steinhoff company was performed, PwC tracked fictitious transactions totalling US$7.4 billion from 2009 to 2017. The Chief Executive Markus Jooste resigned and denyed any wrongdoing but he would later get charged in Germany. Other high-ranking executives also exited the company. The shareholder value plummeted when the news of the fraud came out.

The Steinhoff US$7.4 billion fraud remains one of the largest scandals for a company in the business of selling goods. The company didn’t go into bankruptcy but has lost a lot of value in its shareholder value.

Business frauds have been here for centuries and are not going away even here in Australia. Just don’t be a victim. If they promise quick and big returns in a risk-free investment, it is probably a fraud. If you have to invest, put your money in a reputable company. If you have lost money to a fraud in Australia, you need a lawyer specialised in criminal law to help you recover your investment.