Ten financial frauds that shook the world!

Madoff’s alleged fraud has apparently shook the world. More so because it is stated to the world’s biggest financial fraud till date.

However, it is interesting to know that despite increasingly stringent legislation aimed at combating fraud and increased enforcement efforts by government agencies, the world is hardly seeing any reduction in the number of financial frauds. Instead it is increasing by the day.

Here we take a look at some of the world’s top financial frauds:

1) Madoff fraud

New York hedge fund manager and Wall Street legend Bernard Madoff has been charged with what could be the largest Ponzi scheme in history. Madoff had apparently planned to carve up his last $३००m (थ्२००m) between friends, family and employees before making the shocking confession that his investment prowess was really the result of one of the world's biggest ever frauds.

But, according to the Federal Bureau of Investigation, the ७०-year-old could not implement his plan before his huge pyramid scheme - whose १०-१२% annual returns had attracted top-flight investors around the globe - collapsed with losses of at least $५०bn.

The alleged victims span from the super rich, to pensioners and powerful financial institutions, to local charities. Some investors claim they've been wiped out, while others are still likely to come forward. Among the world's biggest banking institutions, Britainङs HSBC Holdings PLC, Royal Bank of Scotland Group PLC and Man Group PLC, Spainङs Grupo Santander SA, Franceङs BNP Paribas and Japanङs Nomura Holdings have reported to have fallen victim to Madoff's alleged $५० billion Ponzi scheme.

2) Enron

As a result of the massive fraud at Enron, an energy company based in Houston, Texas, shareholders lost tens of billions of dollars. Many Enron executives, Enronङs accounting firm and certain bank officials were indicted. Andrew Fastow, Enronङs former finance chief, testified that many of the banksङ transactions were contrived, deceptive deals done solely to create the false appearance of profits and cash flow.

Kenneth Lay, the founder of Enron whose spectacular implosion in २००१ lead to one of the biggest fraud cases in history, was convicted of fraud for duping investors over the health of Enronङs finances before it plummeted into bankruptcy. Prosecutors accused Lay of pocketing over थ्४० million of investors' money, and Lay was charged with ११ counts of securities fraud.

3) Charles Ponzi

It was one of the biggest swindlers in US history. In one of Charles Ponzi’s early scams around 1920, he offered investors a 50% return on their money in 45 days, or a doubling of their money in 90 days. By February 1920, Ponzi’s best-known scam had taken in $5,000, by March, he was up to $30,000.

At that time Ponzi began hiring agents to expand his swindle. By pushing his impressive high rate of return, he could often persuade would-be investors to send money. In May 1920, he was up to $420,000 and by July 1920, he was up to millions.

About 40,000 people invested about $15 million all together; in the end, only a third of that money was returned to them. Ponzi was indicted on 86 counts of mail fraud and sentenced to five years in prison in 1920.

4) Parmalat

A massive financial scandal involving Italy’s largest food company Parmalat underscored the fact that corporate fraud was not just an American problem. With the disappearance of about $10 billion in declared assets, the scandal was one of the largest in corporate history.

Parmalat collapsed in December 2003 under 14 billion euros ($27 billion) of debt, after uncovering a 4 billion euro hole in its accounts. Some dubbed the episode ‘Europe's Enron’. It is currently estimated that at least $17 billion of Parmalat funds have simply disappeared and cannot be accounted for.

5) Barings

A lethal mix of massive fraud and malfeasance led to the collapse of Barings PLC in February १९९५. In February, the oldest merchant bank in Britain collapsed because of massive trading losses run up by Nicholas Leeson, २८, a trader whose bosses believed was running a riskless yet highly profitable arbitrage operation in Singapore.

Rather than the large profits the management of Barings thought were being posted in Singapore, the Bank of England's report showed that Leeson's operation lost money almost from the beginning. By the end of १९९३, those losses totaled थ्२० million, rising to more than थ्२०० million by the end of १९९४ and escalating to थ्८२७ million ($१.३ billion) by the end of February.

6) Alves dos Reis

Alves dos Reis was a Portuguese criminal who perpetrated one of the largest frauds in history, against Banco de Portugal in १९२५, often called the Portuguese Bank Note Crisis. Reisङs fraud had enormous repercussions on the economy and politics of Portugal. By the end of १९२५, Reis had managed to introduce escudo banknotes worth थ्१,००७,९६३ at १९२५ exchange rates into the Portuguese economy, which was equivalent to ०.८८% of Portugalङs nominal GDP at the time.

The Portuguese currency, escudo, was fiscally disturbed and lost much of his credibility. After the scheme was found out, the Bank of Portugal ordered the withdrawal of all ५०० escudo banknotes. When Reis's fraud became public knowledge in December १९२५, it brought about a crisis of confidence in the Portuguese government. Reis was finally tried in May १९३०. He was convicted and sentenced to २० years in prison.

7) Hedge fund Amaranth

Branded as the biggest hedge fund collapse in history, Amaranth lost $6 billion of investor’s money in one week alone. Amaranth Advisors, the US-based hedge fund whose investments were hit by a misplaced bet on gas prices, saw its losses reach about $6bn in 2006. The firm sold its portfolio of energy trades and off-loaded other assets in a bid to stave off collapse. Amaranth invested most of its funds on trades that bet the longstanding trend in rising natural gas prices would continue.

However, natural gas prices dropped sharply. According to media reports, the firm and its former head trader Brian Hunter's poor bets on the price of natural gas triggered those losses. As Amaranth's losses mounted, the fund's bankers called in their loans, forcing the fund to sell more assets to avoid defaulting. The collapse in the fund's value raised major questions over the lack of adequate risk management controls at Amaranth, and wider concerns over lax control of hedge fund managers.

8) Jerome Kerviel

The French trader blew billions in catastrophic gambles on the stock market. Jerome Kerviel, ३१, began his reckless dealings after a succession of personal tragedies. The trader was left devastated by the sudden death of his father Charles a year ago and then, while still grieving, his wife of two years walked out on him.

The double heartbreak sparked the beginning of a chain of events which allegedly culminated in one of the worldङs largest frauds in the beginning of २००८, with monumental losses of थ्३.६ billion for Franceङs second largest bank Societe Generale.

9) Bernard Ebbers

Bernard Ebbers, the former CEO of WorldCom, was found guilty in March 2005 for his role in the huge accounting scandal that led to the largest bankruptcy in US history at that time. A federal jury in New York, on its eighth day of deliberations, convicted Ebbers on all nine counts that he helped mastermind a $11-billion accounting fraud at WorldCom, now known as MCI.

Ebbers, 63, had been charged with one count of conspiracy, one count of securities fraud and seven counts of filing false statements with securities regulators.

10) Long Term Capital Management

The brightest star in the financial world, it was a hedge fund that was too big to fail. Built by legends of Wall Street and two Nobel laureates, it spiralled to ever greater heights, commanding unimaginable wealth.

Therefore, when it fell to earth in September 1998, it shook the world. Long Term Capital Management lost more than 90% of its capital and cost loss of at least $4 billion.

Source: Economic Times