Wealth is very much so at the forefront of how society functions and is central to the satisfaction that we have in our lives. While the saying is that money doesn’t buy happiness, it is undoubtedly a huge factor in living a happy life. Financial security means that we can live comfortably and relaxed, knowing that essentials such as food and housing are assured for long-term while having a bit left over to indulge in luxury items. Unfortunately, there are a group of people who always want more than what they have. Where there is money, there is also a crime to be had. Over the years, there have been several stories of corrupt members of our society engaging in financial scams and other related criminal activity, often leaving the most vulnerable to be the greatest affected.
AM1 Claims Management is a specialist financial claims company that deals with a wide range of cases where clients have been mis-sold financial products. Therefore, they are more than qualified to talk about some of the world’s most notorious financial scandals. AM1 Claims have provided us with this article featuring their very own round-up of three of the biggest financial scams ever to occur.
Original Ponzi Scheme
A Ponzi scheme is defined as a fraudulent activity whereby existing investors receive funds that are obtained from new investors. The promise of high returns is never met, and the money does not go towards an investment. In simpler terms, the money is circulated around rather than being used to return profits. As soon as new investors dry up or existing investors decide to cash out, the scheme will usually have run its course.
While the name is well known these days as a way of grouping these similar crimes together, what you might not be aware of is where the term Ponzi scheme originated from. The original Ponzi scheme was spearheaded by infamous Italian swindler Charles Ponzi. While similar schemes existed beforehand, Ponzi’s scam was significant enough that it coined the phrase. Back in the 1900s, Ponzi, who was living in Boston, MA at the time, came up with the scam when he received a letter in the post. A Spanish company sent him an international reply coupon that could be redeemed for postage back to Spain. His plan was to purchase coupons in one country and to then exchange them for postage in another country which offered greater value. With the promise of high returns, several investors joined the scheme. However, Ponzi’s existing investors were only paid with funds from new investors, and they would end up losing $20m. Charles Ponzi was ultimately sentenced to five years in prison for mail fraud, of which he served three and a half years, before receiving additional jail time and deportation.
Another form of pyramid scheme that rocked the world involved Bernard Madoff, a money manager who is believed to have created the largest Ponzi scheme to date. Madoff was seen as a respected figure by investors and he was able to convince them that his strategy was legitimate. His scheme is believed to have lasted for at least 17 years, starting in 1991 at the earliest, but there are suggestions that it ran for longer. During this time he defrauded thousands of investors out of tens of billions of dollars and the Madoff Victim Fund was created in 2013 to distribute funds to the victims.
In 2008, amidst the global financial crisis, Madoff’s scheme began to collapse with funds running out. In December of that year he finally confessed to his sons who then immediately reported him to the authorities. Having been prosecuted, Madoff was sentenced to 150 years in prison and ordered to forfeit $170 billion.
Run by American businessman Barry Minkow, ZZZZ Best seemed to be an ordinary and successful carpet-cleaning and restoration business. However, this was far from the truth. Minkow formed the company when he was just 16, using his parent’s garage as base. With the business performing badly and having to deal with complaints and supplier collection requests, he decided to engage in criminal activity to make ZZZZ Best look like a profitable business. This included check kiting, theft, insurance scams, and fraud. Minkow then teamed up with business partner Tom Padgett, an insurance claims adjuster, to branch into the insurance restoration sector. This led to the creation of a fraudulent company called Interstate Appraisal Services, and the start of a sophisticated Ponzi scheme. ZZZZ Best would be wrongly credited for restoration work, with Interstate Appraisal Services used to verify the credit.
As a way of alleviating cash flow problems at ZZZZ Best, Barry Minkow was in the process of acquiring KeyServ, the authorised carpet cleaner for department chain Sears. However, his criminal activity was exposed by a homemaker who had previous lost a few hundred dollars as a result of a credit card fraud scheme that ZZZZ Best was involved in during the company’s early years. Minkow was subsequently prosecuted on a series of charges and sentenced to 25 years in person, of which he served just seven years. In later years he received more prison time for additional crimes he had participated in over the years.