List of Financial Scams in History

List of Financial Scams in History: A financial scam is a fraudulent scheme or practice that tricks individuals, investors, and institutions into losing their money. These are usually carried out by a single person or a company. They can take various forms and exploit the vulnerabilities of the financial system of the country.

There are several financial scams in history. some of them are bank frauds, and others are stock market frauds. In this article, we will discuss the financial scams in history. we will discuss international as well as Indian Scams.

What are Financial Scams?

Financial scams are dishonest or fraudulent schemes designed to trick people out of their money. These scams often involve deceitful practices, such as offering fake investment opportunities, misleading promises of high returns, or pretending to be from a reputable financial institution to steal personal information. The goal of financial scams is to take advantage of individuals by manipulating them into giving away their money or sensitive financial details.

Reasons for the Occurrence of Financial Scams in History

There are several reasons for the occurrence of financial scams and they can vary depending on the circumstances. But there are a few common reasons behind the biggest financial scams in history:

• The most common motivation for individuals or companies to scam others is greed. Individuals or companies want to generate sly gains through huge returns and profits.
• In many cases, weak regulatory frameworks contribute to the occurrence of financial scams. Fraudulent activities can go unnoticed for longer periods if regulatory bodies fail to enforce rules.
• Weak internal controls within companies can also create opportunities for scams to take place. When there is insufficient oversight, employees of a company may engage in unethical practices.
• Complex financial instruments also create opportunities for fraud and scams. Investors and regulators struggle to understand complex financial instruments, thereby providing cover for financial scams.
• Globalization and its effects can be seen in financial markets also. This also leads to complexity in financial instruments leading to the weakening of regulatory frameworks.

List of International Financial Scams in History

There have been several scams throughout history that have duped institutions, investors, and individuals. Some of the biggest financial scams in history are:

• Charles Ponzi Scam (1919)– Charles Ponzi, an Italian immigrant living in Boston, was the mastermind behind this scam. He came up with a scheme that involved purchasing international reply coupons for cheap abroad and then selling them at a profit in the US. The earlier investors were paid with the funds collected from the newer investors.
• Waste Management (1998)– Waste Management was a publicly traded company based out of Houston. They falsely increased the depreciation period of their property, plants, and machinery on their balance sheets. They adjusted their accounting records to fraudulently show that the company had met its targets that were shared with the analysts. The estimated losses were about $6 billion.
• Enron (2001)– Enron was a company that would carry out trade in natural gas and other commodities. It was crowned as “America’s Most Innovative Company” by Fortune Magazine. It used accounting tricks to hide mounting debts and losses from shareholders. The estimated loss at that time was $74 billion.
• Worldcom (2002)– The Mississippi-based telecommunications company defrauded its investors for over $11 billion. The company found itself overextended and used fraudulent accounting practices to hide its losses. The company’s internal audit department uncovered the fraud.
• Bernard Madoff (2008)– Bernard Madoff was the mastermind of the biggest Ponzi scheme in history. He defrauded investors of an estimated $64.8 billion. He invented stock trades and fabricated brokerage accounts. The profits were pocketed by him and he would pay the investors with other inventors’ money.
• Lehman Brothers (2008)– Lehman Brothers was a financial services firm for over 150 years. It collapsed due to the usage of cosmetic accounting tricks which was exposed by the subprime mortgage crisis. The bank was forced to file for bankruptcy. The failure of the fourth-largest investment bank in the US at that time had severe ramifications for the global economy.
• Theranos (2016)– Theranos CEO Elizabeth Holmes and Chief Operating Officer Ramesh “Sunny” Balwani, raised billions for their healthcare startup. They claimed their automated compact testing device could conduct a range of common blood tests with a single trick thereby making blood tests more efficient, accurate and faster. Later they were exposed as unworkable by medical testing professionals.
• Wells Fargo (2016)– Wells Fargo was a bank that was involved in a class action lawsuit. It was accused of defrauding investors after a fake account scandal. It had opened millions of unauthorised accounts for existing customers to meet sales goals. This was done without the consent of the customers. Wells Fargo had to pay $185 million in fines and penalties.
• Wirecard (2020)– Wirecard was a Germany based electronics payment firm. Wirecard declared insolvency in 2020 and regulators found that 1.9 billion euros were missing from the company’s accounts. There was misappropriation of company funds and billions were raised from banks and investors to cover the company’s losses.
• FTX (2022)– The crypto exchange company collapsed after a liquidity crunch. It had been using customer deposits to fund risky bets through a hedge fund. The fraud was estimated at over $7 billion. Wire fraud, securities fraud and money laundering were some of the activities being carried out by the company.

List of Indian Financial Scams in History

India has unfortunately been shaken by several financial scams over the years. Some of the biggest financial frauds in Indian history are:

• Harshad Mehta Scam (1992)– Harshad Mehta was a stockbroker from Gujarat. He manipulated the stock market and the banking system. He used to raise funds from the banks and illegally invested them in stocks on the Bombay Stock Exchange. This led to the artificial inflation of stock prices. When the scam came to light the stock market crashed by 72 percent and a bearish phase lasted for two years. The scam swindled about ₹ 250 crores.
• Ketan Parekh Scam (2001)– Ketan Parekh was a chartered accountant and stockbroker. He manipulated stock prices and thereby rigged the market. He would purchase large stakes in lesser known companies and then jack up their prices through circular trading. He dumped his stocks on a large scale thereby crashing the market. This resulted in large scale losses for large institutional investors like insurance companies. The scam led to a fraud of about ₹ 137 crores.
• Stamp Paper Scam (2003)– It is also known as the Telgi Scam because the main mastermind behind this scam was Abdul Karim Telgi. There were two parts of this scam- one was producing counterfeit stamp papers and the other was creating a shortage of stamp papers to supply the counterfeit documents. Many high ranking officials in the police and the government were deemed to be involved in this scam. The scam was valued at over ₹ 30,000 crores.
• Satyam Scandal (2009)– The founder and chairman of Satyam Computers Ramalinga Raju confessed to tampering with the company’s accounts. He, along with his associates, inflated the company’s assets and profits for several years. He manipulated the books by non-inclusion of receipts which resulted in an overall misstatement of ₹ 12,318 crores.
• Saradha Scam (2013)– The Saradha Group financial scam was an infamous scam that took place in West Bengal. It was also known as the chit-fund scam. The Saradha Group, set up by businessman Sudipto Sen, was a consortium of over 200 private companies. It was a ponzi scheme wherein funds from new investors were used to pay the earlier investors. Money was collected from the investors promising higher returns. The scam was estimated to be over ₹ 30,000 crores.
• Vijay Mallaya Kingfisher Airlines Scam (2016)– Businessman Vijay Mallaya was the owner of Kingfisher Airlines. He had taken huge loans from various banks for the operation of the airlines. But instead of paying back the loans, he chose to buy assets in Europe. The airline went bankrupt due to this financial mismanagement and defaulting on the loans. Mallaya left the country to avoid legal proceedings. He owes ₹ 9,000 crores to 17 Indian banks.
• ABG Shipyard Scam (2017)– ABG Shipyard, the flagship company of ABG Group was a key player in shipbuilding and ship repair. The scam involved creating a web of transactions to divert funds. 27 paper companies and 38 Singapore based companies were created to divert these funds which were then invested in tax havens. A total of ₹ 22,842 crores were cheated from 28 banks.
• Nirav Modi Punjab National Bank Scam (2018)- Nirav Modi, a diamond merchant and his uncle Mehul Choksi were involved in this scam. They obtained fraudulent Letters of Undertaking (LoUs) on behalf of Punjab National Bank (PNB) to secure loans from other banks. On being exposed they both fled the country. The scam had swindled PNB of over ₹ 11,000 crores.
• IL&FS Financial Scam (2018)– Infrastructure Leasing and Financial Services was a core investment company. The scam involved auditors suppressing information on bad loans and inflating profits, short term resources being used to give out loans for long term projects and not following the RBI guidelines. It defaulted on short term and long term debt obligations to a tune of ₹ 91,000 crores.
• DHFL Scam (2019)– Dewan Housing Finance Limited promoters, the Wadhawan brothers defrauded 17 banks. They defaulted on debt payments by diverting money. This was done by creating 2,60,000 fake borrowers and 87 shell companies. The 17 banks led by Union Bank of India (UBI) were cheated out of a total of ₹ 34,615 crores.

How to avoid Financial Scams?

Avoiding financial scams requires vigilance, and a proactive approach to protecting your personal and financial information. Here are some tips to avoid financial scams:

• Be cautious of unexpected emails, phone calls, or messages, especially if they claim to be from banks, government agencies, or companies. Scammers often use these methods to gain access to your personal information.
• Before providing any personal or financial information, verify the identity of the person or organization contacting you. Use official contact information from their website or other reliable sources rather than relying solely on contact details provided in the communication.
• Exercise caution if an investment or business opportunity promises extraordinarily high returns with minimal risk. If it sounds too good to be true, it probably is.
• Never share sensitive information like passwords, Social Security numbers, or credit card details via email or over the phone unless you initiated the contact with a trusted and verified entity.
• When making online transactions or providing personal information, ensure that the website is secure. Look for “https://” in the URL, which indicates a secure connection.
• Regularly review bank statements, credit card bills, and other financial statements for any unauthorized transactions. Report any discrepancies to your financial institution immediately.
• Use reputable antivirus and anti-malware software on your devices to protect against phishing attempts, malware, and other online threats.
• Stay informed about common scams and fraudulent tactics. Awareness is a powerful tool in preventing falling victim to scams.

Conclusion: List of Financial Scams in History

The history of financial scams acts as a reminder of the vulnerabilities present in financial systems all over the world. They are a significant threat to the individuals, institutions, and investors that get involved in these scams. The consequences of these scams are far-reaching and cause huge financial losses. They also affect the economy of the country and sometimes when the scams are enormous they affect the economy of the world too.

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FAQs on List of Financial Scams in History

Which is the biggest ponzi scheme in history?

Bernard Madoff was the mastermind of the biggest Ponzi scheme in history which happened in 2008. He defrauded investors of an estimated $64.8 billion. He invented stock trades and fabricated brokerage accounts. The profits were pocketed by him and he would pay the investors with other inventors’ money.

Which was the biggest financial fraud in India?

Nirav modi, a diamond merchant and his uncle Mehul Choksi were involved in this scam. They obtained fraudulent Letters of Undertaking (LoUs) on behalf of Punjab National bank (PNB) to secure loans from other banks. On being exposed they both fled the country. The scam that occurred in 2018, had swindled PNB of over ₹ 11,000 crore.

What was the scandal associated with Lehman Brothers?

Lehman Brothers was a financial services firm for over 150 years. It collapsed in 2008 due to the usage of cosmetic accounting tricks which was exposed by the subprime mortgage crisis. The bank was forced to file for bankruptcy. The failure of the fourth-largest investment bank in the US at that time had severe ramifications for the global economy.

What was the Harshad Mehta scam?

Harshad Mehta was a stockbroker from Gujarat. He manipulated the stock market and the banking system. He used to raise funds from the banks and illegally invested them in stocks in the Bombay Stock Exchange. This led to the artificial inflation of stock prices. When the scam came to light the stock market crashed by 72 percent and a bearish phase lasted for two years. The scam of 1992 swindled about ₹ 250 crore.

What is the latest FTX scandal?

The crypto exchange company FTX collapsed in 2022 after a liquidity crunch. It had been using customer deposits to fund risky bets through a hedge fund. The fraud was estimated at over $7 billion. Wire fraud, securities fraud and money laundering were some of the activities being carried out by the company.