Financial fraud is nothing new in this country. In fact, it’s been going on in some form or another for centuries. Let’s take a look at the top U.S. frauds in recent history.
Original Ponzi Scheme
OK, well, this one isn’t exactly recent, as it happened in 1920, but it sets the stage for Ponzi schemes, which are all based on this one event. Charles Ponzi bought postal coupons for a steal, then sold them overseas for full price. To say he exaggerated the benefits is an understatement: he told unsuspecting investors that they would experience a 50 percent profit in 90 days (instead of the five percent profit that it really was). Thousands of people took him up on his offer but all told they lost $10 million by the time the scheme was discovered. He fled the country and died a poor man.
ZZZZ Best Cleaners
Owner of the fictional ZZZZ Best Cleaners, Barry Minkow was the guy to be on Wall Street back in the mid-1980s when he brought his industrial rug cleaning firm public. The stock took off right away, valued at $200 million. Turns out, ZZZZ Best Cleaners was not a real company and had been funded with credit card theft. In 1987, this stock scam came to light and it plummeted to zero, landing Minkow 25 years in jail.
Savings and Loan Scandal
In 1989, Charles Keating was a corporate officer in charge of many savings and loan institutions, which work like banks minus the regulations. After making one bad investment after another, Keating did not apprise his investors that they held stock in worthless junk. He was soon convicted of securities fraud leading to stricter government regulation – at least for a time.
The year 2001 saw the downfall of Enron, an energy, commodities, and services company based in Houston, Texas. Ken Lay was the CEO of this company at the time, employing 22,000 people with revenues of $101 billion in 2000. Just one year later, it all came to light that Enron’s finances were all but a work of fiction due to some “creative” accounting practices.Not only was the company taken down, but so too were the auditors from the Arthur Andersen accounting firm, leading to the creation of the Sarbanes-Oxley act. This was designed to make it hard for small companies to issue stock.
Madoff Pyramid Scheme
By the end, Madoff’s Ponzi scheme bilked investors out of $65 billion – a scheme that went on for several years without detection. He was able to keep the ruse going for so long due to his standing in the financial industry, despite tip-offs to the SEC that he may be running a scam. He was sentenced to 150 years in prison for spearheading this Ponzi scheme.
The main objective of such a stock scam is to create a fake company, get everyone excited about it, and borrow money from new investors to pay off the old investors. These schemes often come to light when the original fraudster runs out of money to pay everyone back. Don’t become a victim…contact your trusted securities fraud lawyer.