Wednesday, December 24, 2008

Madoff and Some Of History's Other "Great" Ponzi Schemes and Frauds

Sad Postscript

In a sad commentary to the Madoff ripoff, the first suspected suicide took place on Monday night as a fund manager took his life after having reportedly been distraught over the vast sums lost by his hedge fund. Thierry Magon de la Villehuchet, co-founder of money manager Access International was found dead in his office on Tuesday morning. In addition to the current charges, Madoff should somehow be held complicit in this death.

Who Amongst Us Has Not Been The Victim Of Some Type Of Fraud?

Ever play 3-card Monti, shoot a game of nine ball against a hustler, play poker with two guys tipping each other off, buy tickets to a game from a scalper only to find out they are not real? There are few of us that have not had a scam of some type pulled on us in our lives. Some cost us money, some cost us a place in line or some other small or temporary inconvenience. There have, however, been many GREAT frauds and schemes pulled off over the years that have cost people enough as to make a permanent difference in their lives or to cost firms enough to make a dent in their operations.

Some Examples From Wall Street and the World

From the Associated Press:
- William "520 Percent" Miller of Brooklyn, N.Y., claimed in 1899 he had inside information on stocks and promised interest of 10 percent a week. He defrauded investors out of $1 million.
- Charles Ponzi, an Italian immigrant in Boston, ran a bogus investment scheme in 1919-20 involving postal currency. As many as 20,000 people invested $8 million to $10 million. He spent time in prison before being deported in 1934.
- Lou Pearlman, the mastermind behind the Backstreet Boys and 'N Sync, operated a $300 million stock and investment scam. He was sentenced earlier this year to 25 years behind bars.
- James Paul Lewis Jr. told investors he made money by buying and selling distressed businesses, leasing equipment to medical offices and financing medical insurance premiums. He was sentenced to 30 years in prison for a scheme that ran from 1985 to 2003 and cost nearly 3,300 investors around $70 million.
- Steven Hoffenberg, a bill collector who once briefly ran the New York Post, admitted he defrauded investors of $460 million. He pleaded guilty in 1995.
- Reed Slatkin, co-founder of Earthlink Inc. and once a Scientology minister, was sentenced in 2003 to 14 years in prison for swindling investors out of about $240 million over 15 years. Groups affiliated with the Church of Scientology agreed to return millions received from his scheme.
- Daniel Heath was sentenced to 127 years in prison for running an investment scam in Southern California that bilked 1,800 people out of $187 million in the early 1990s. Prosecutors said he preyed on the elderly in a scheme that involved money-losing real estate and small-business projects.
- Tom Petters of Minnesota is accused of orchestrating a $3.5 billion Ponzi scheme that lasted at least 14 years. He has pleaded not guilty.

From CNBC and Wall Street:
Dennis Kozlowski
The former Tyco International CEO was convicted in June, 2005, for misappropriation of about $400 million of the company’s funds.
Bernie Ebbers
Ebbers, the former CEO of WorldCom, was imprisoned on charges of fraud and conspiracy for falsifying the telecommunications company’s finances. It’s estimated that the fraud cost investors about $11 billion.
Nick Leeson
The British investment bank Barings collapsed after massive currency market losses were incurred but hidden by trader Leeson in 1995. The fraud cost the company about $1.4 billion in losses.
Hunt Brothers
Oil executive Nelson Hunt and his brother William Hunt tried to corner the market on silver. The market eventually crashed in 1980, a day known as Silver Thursday. The Hunts were convicted in 1988.
Jerome Kerviel
The French trader was charged in January, 2008, of abuse of confidence and illegal access to computers for losing a reported $7 billion for Societe Generale.

If you have other favorites from history (or perhaps a personal experience), please leave a comment below.


  1. I am not sure how Kozlowski can be compared to the above mentioned people: his situation is over a pay dispute and Tyco is still doing very well today! He did not lose investor's monies nor did he misappropriate funds. For a new years resolution - you should speak the truth.

  2. I was in the stock when it went to $19 from about $40 I think. For anyone selling at the lows his greed and theft cost quite a bit of money.

    As far as telling the truth, if you read the post this was reported by CNBC. I always tell the truth when I write something.

    Always appreciate the feedback.

    Merry Christmas and a Happy New Year.

  3. TYC stock was driven by the media, not by Kozlowski. If you invested in TYC when Kozlowski became CEO, he would have made you a very wealthy man. How do you know CNBC speaks the truth? That's bullshit.

  4. How do you know they don't. You must have the inside track to CNBC AND Tyco.