Every year, investors on stock market lose huge sums of money, running into millions of dollars. Wondering how even the biggest Wall Street sharks can get burned by scam? Because the whole point of investment fraud is to not raise the slightest suspicion that you’ll never see your money again. Some scams go unnoticed for years and are inflated to the size that, when they burst, they trigger a global economic crisis like 2008. Now let’s take these scams one by one.
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10. Charles Ponzi
Creator of the famous Ponzi scheme. This pyramid scheme promised a 50% return in just 45 days. However, in 1920, the scheme collapsed, leaving 5 banks and all investors in the dust. Thanks to the Ponzi scheme, Ponzi made $20 million, which in 2011 would have been worth $222 million.
9. Stock market scam by Tyco
Tyco International was a multinational company that manufactured security systems, electronics and industrial products. However, in 2002, it became the target of a huge fraud scandal when its management, led by CEO Dennis Kozlowski, embezzled tens of millions of dollars in corporate funds. The fraud was uncovered and Kozlowski was charged with embezzlement, fraud and tax evasion. In 2005, he was sentenced to 8 to 25 years in prison, and most of the other individuals responsible were also charged and convicted.
8. Bre-X Minerals scam
A Canadian company claimed that their gold mine had discovered a “gold vein” in Indonesia. Their value skyrocketed to $6 billion. Unfortunately for Micheal de Guzman (CEO of the company) the Indonesian government became suspicious, which was confirmed and the value of the company dropped to zero. Because of the fraud, Michael de Guzman was sentenced to X years in prison.
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7. Lehman Brothers
One of the triggers of the global financial crisis in the 200s is the collapse of Lehman Brothers. The main reason for the collapse was investment in mortgage loans. At the tipping point, the company was worth $60-70 billion and just a year before the crash had a profit of $4.2 billion.
6. HealthSouth stock market scam
Soon after the turn of the millennium, the very fast growing healthcare company HealtSouth found itself in trouble. In 2002, the company sold $75 million worth of stock. The scandal came to a head in May 2003 when the SEC (Securities and Exchange Commission) announced that it had overvalued the company by $2.7 billion.
Barry Minkow was one of the most notorious stock fraudsters in history. In 1987, he founded ZZZZ Best, which was supposed to be a company that specialized in carpet cleaning, but was actually a huge scam. Minkow and his associates falsified the value of the company to raise millions of dollars from investors. In 1987, Minkow was convicted of fraud and sentenced to 25 years in prison. However, he later became a preacher and coach, and in 2011 he was again convicted of fraud and theft in connection with his new company.
4. AIG stock market scam
America’s leading international insurance and financial services company, was the victim of a huge fraud in 2008. The management, led by Mauricio R. Greenberg, was accused of embezzlement and accounting fraud. Its losses in 2008 are estimated at USD 99 billion.
3. WorldCom scam
Over 30,000 people lost their jobs when the US telecommunications company made a loss of $11 billion in 2002. The company’s CEO Bernard Ebbers embezzled billions of dollars. However, the court sent Bernard to jail for 25 years after a clarification.
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2. Stock market scam by Bernie Madoff
Madoff was a highly respected Wall Street investor, one of the founders, and even chairman of the NASDAQ stock exchange. That all came to an end when a scam using a so-called Ponzi scheme broke. The damage, for which Madoff received a 150-year prison sentence in court, was a staggering USD 65 billion (approximately CZK 1.3 trillion).
1. Enron stock market scam
In 2001, the energy giant Enron lost $74 billion (almost CZK 2.8 trillion at the exchange rate of the time). The trick was to hide the huge losses with false accounting. In a single year, the stock fell from $90 to less than a single dollar a share. Then the company went bankrupt. Jeffrey Skilling was sentenced to 24 years imprisonment and fined 45 million crowns, and was tried without his partner Kenneth Lay, who died while on holiday awaiting sentencing.
If you are to take anything away from this article, it is the saying “All is not gold that glitters”. You should be more than suspicious of any investment and not just bet on the promise of high profits in a short period of time.
Author: Nikolaj Potapov