6 Of The Most Significant Frauds In History

Global fraud levels are nothing short of shocking, with fraud and financial crime set to become one of the most dominant topics amongst businesses in the western economies. With fraudsters ranging from low level criminals fraudulently acquiring goods to high level, well thought of business leaders enacting their schemes in plain sight.

These criminals are often not only highly skilled at deception but also extremely knowledgeable about business and legal processes and how to exploit them; often this understanding far exceeds and is far more complete than the business people and legislators they outfox.

Whilst fraud levels have recently become unignorable it has been present throughout recorded history, with some staggering in the scale and brazenness.

So let's look at some of the most significant frauds in recent history.

William Chaloner (1691-99) est. £30,000

William Chaloner is viewed to be one of the most gifted counterfeiters in recorded history and was only brought to justice thanks to nearly six months of obsessive effort by none other than Sir Isaac Newton himself (in his role as Warden of the Mint). It should be noted that such effort was required as Chaloner has managed to wriggle free from Newton’s allegations on several occasions before, thereby outwitting what is recognised as one of the greatest minds in human history.

Besides this, what is significant about this case is the fact that Chaloner was operating when the Royal Mint was first introducing what was cutting edge anti-forgery technology; such as forging not casting coins, using patterned edges of coins to prevent clipping and marbled paper bank notes. No matter the advances made, Chaloner was able to bypass them, creating copies that were indistinguishable from the genuine article, even going so far as creating his own mint at home.

So successful was Chaloner that at one point, presenting himself as an expert in currency, he almost become overseer of the entire Mint itself.

Whilst time passed may make this case seem less relevant it demonstrates that fraudsters have always been able to operate on the cutting edge of technology, adapting almost immediately to counter them, and also that they are often highly intelligent and sophisticated people.

Francois & Joseph Blanc (1830s) amount unknown

Francois and Joseph Blanc masterminded and carried out the world’s first telecommunications scam and cyber-attack. Amazingly, this came 50 years before Bell would invent the telephone. Their scam was as such.

In early nineteenth century Europe messages were sent rapidly over long distances by optical telegraphs. These were essentially chains of towers with antennas that could be manipulated into various shapes, each representing a word or letter. A message would be delivered to a tower which would then communicate it via moving it’s antennas, this would then be seen and copied by the next tower in the chain and so on.

These messages were encrypted, with only a few individuals knowing what the movements of the antennae actually meant.

Despite it’s seemingly crude nature, information could be carried at hundreds of kilometres an hour. However, the cost of maintaining such a network meant that its use was restricted only to government and the most wealthy organisations.

One of which was the Paris Stock Exchange, the financial hub of the country. The Blanc brothers deduced that if they could translate these messages they would be able to act on financial information before it was made public, essentially insider trading. To do this and hack the system they relied on bribery.

The brothers used their insider knowledge to amount a vast fortune over the course of two years and were only revealed via a deathbed confession of one of their corrupt telegram workers.

The brothers received a small fine for bribery but no punishment for the hack itself as there was no legislation that made it actually illegal. Whilst this loophole was rectified the brothers faced no repercussions.

Aside from its significance as the first telecom scam, this case demonstrates that fraudsters are constantly coming up with ways to dishonestly profit that government and industry have not even considered.

Charles Ponzi (1920) $20 million

One of the most famous frauds of all time and possibly the most iconic, Charles Ponzi ran his eponymous scheme for nearly a year before its collapse.

Ponzi claimed to be generating profits for investors via buying postal reply coupons overseas where they were cheaper and then selling them for a profit in countries where they were worth more. A scheme he claimed could lead to 400% returns.

In actuality, Ponzi was paying existing investors through the funds of new investors with no actual attempts to generate revenue legitimately. The theory being that as long as money continued to flow into the scheme it could carry on indefinitely.

Ponzi’s rapid rise and extravagant lifestyle quickly brought attention upon his activities and they quickly collapsed under scrutiny.

Given this fraud’s near mythical status, it may be surprising that as quickly as November 2020 Ponzi was pleading guilty to mail fraud. He received 5 years in prison as part of his pleas deal.

Bernie Madoff (1970s–2008) est. $64.8 billion

One of the largest frauds of all time, Madoff operated an elaborate Ponzi scheme through the wealth management branch of his company Bernard L. Madoff Investment Securities LLC for decades. Federal investigators suspected the illegal activity started as early as the 1970s, though Madoff claimed that the fraud began in the 90s.

Once hailed as one of the leading lights of Wall Street, and once chairman of the NASDAQ, Madoff had over 4,800 clients enrolled in his scheme at the time of it’s collapse. It’s estimated that 50% of the direct investors into the scheme lost money.

Not only did Madoff maintain his fraud for nearly four decades but he was also an internationally respected figure in the world of finance, who enjoyed access to some of the world’s leading business and political leaders.

Bernard L. Madoff Investment Securities LLC did carry out legitimate business functions and did generate legal revenue and profits which lent legitimacy and longevity to the scheme. The Madoff name was synonymous with quality and trustworthiness before the scheme’s collapse and for decades was touted as a safe and wise investment by experts for decades.

For his part in the fraud, Madoff was sentenced to 150 years in prison.

Theranos (2003-18) $700 million

Started by Elizabeth Holmes in 2003, Theranos was started to revolutionise the medical testing industry by allowing near instant, at-home blood testing for most diseases. The company raised $700 million from venture capitalists and was once valued at $10 billion.

Despite the later massive corporate fraud, Holmes most likely did start the company with legitimate goals in mind and travelled down an unfortunate road paved with good intentions.

The main challenge that Theranos faced was that their end goal was not based in reality and required technology so far in advance of what exists even today that it may never be possible. Essentially wanting to a device that can fit on a countertop and a pinprick of blood to have the medical testing capability that requires buildings of laboratories, equipment, and staff and a significant amount of blood to perform.

Despite the general acceptance in the scientific community this was impossible, Theranos was a darling of investors and has since become a cautionary tale for venture capitalists investing without the requisite knowledge or understanding they need.

Whilst trying and failing to develop a product is not illegal, where Theranos became fraudulent was in their faking of advancements, capabilities, and likely outcomes to shareholders and the public. As far as pretending to have a working product in order to win contracts and then subsequently using standard lab tests or even delivering made up test results.

Their deception even included touring the then Vice-President Joe Biden around a fake laboratory which had been created for that very purpose.

Theranos eventually collapsed after warnings from the scientific, medical, and engineering communities of no peer reviewed papers or advancements from the company started to be listened to by the public and regulators.

Under scrutiny it quickly became apparent that not only had the company not made the advancements they claimed but that what they were trying to achieve was impossible.

It took 15 years for before this fraud came to light, during which Holmes was hailed as a visionary of Silicon Valley and whose net worth was valued at over $4 billion.

Holmes was sentenced to 11 years and 3 months in prison.

FTX (2017-22) $8 billion

FTX was a Bahamas based cryptocurrency exchange that had over a million users at the time of its collapse and was the third largest company of its kind. It was founded by Sam Bankman-Fried to help generate revenue for his cryptocurrency trading firms, Alameda Research.

Bankman-Fried remained CEO of both companies before stepping down from Alameda Research in favour of Caroline Ellison and Sam Trabucco, the former of whom was his on-again off-again girlfriend. The close relationship between the two companies and Bankman-Fried’s potential conflict of interest was often criticised by experts in the crypto world. Alameda was one of FTX’s major sources of liquidity and one of its most significant traders.

Despite this, Bankman-Fried was viewed as a visionary in an emerging field by many in the mainstream finance and currency world, with many senior figures being keen to invest.

This all came to an end in November 2022, when the exchange collapsed and revealed an $8 billion hole with many customers being unable to withdraw funds deposited into the exchange. This effectively wiped out the savings of a huge number of individuals and caused over 100 associated business entities to have to declare bankruptcy.

In the ensuing investigation it was found that FTX had lent over half of its customer funds to Alameda to cover losses at the firm, up to $2 billion of customer funds were missing with no way of accounting for them, $473 million had been withdrawn from the fund in the run up to its collapse, and that a $400 million sim-swopping scheme had been carried out on the fund.

The fallout of FTX’s bankruptcy led to the collapse of both Silvergate Bank and Signature Bank, the latter of which was the third biggest bank collapse in US history.

For his part in the fraud, Bankman-Fried

These frauds demonstrate the sophistication, and at times brilliance, of those willing to engage in financial crime and that they are often viewed as upstanding and trustworthy, indeed they are often celebrated. They also show that victims of these crimes are often not so through any failure or lack of care on their part.

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