Top 10 Highlights
In Boston, 1920, Charles Ponzi used a financial arbitrage business as the front for a scheme that used the money from later investors to pay off the money owing to earlier investors. Fraudulent financial schemes that use this model are now known as Ponzi Schemes.
10. $380 million
Nicholas Cosmo. Agape World. New York, USA. 2009
Nick Cosmo was convicted of mail fraud in 1999 and spent 21 months in jail. The month after he was release he set up Agape World Inc., a business offering bridging finance to real estate developers. He managed to persuade thousands of people to invest in the business on the promise of high returns, however by 2008 the returns had dried up.
The Securities and Exchange Commission (SEC) investigated the company and charged a number of sales agents for misleading investors while taking over $50 million in commissions. It was alleged that the agents guaranteed very high returns with only a very small percentage of the investment being put at risk. In fact the securities the investors thought they were buying did not exist and the funds were used to pay out earlier investors.
In January 2009 Cosmo was again charged with mail fraud. He managed to secure bail but was put on electronic monitoring and restricted to his home on Long Island. In October 2009 his house arrest was terminated and he was put back in jail to await his trial. In October 2011 Cosmo was given a 25 year jail term.
9. $500 million
Gerald Payne. Greater Ministries International. Florida, USA. 1997. 18,000 victims
Gerald Payne ran the Greater Ministries church in Florida and throughout the 1990’s ran an investment scheme under the guise of a ‘gifting’ program that used religious text to support its claims. Investors were told they would double their money in less than 18 months from investments the church had in precious stone mines in the US and Africa. However the mining investments never made any profits and most failed completely.
To keep the scheme going, Greater Ministries paid investors from the new investments they were receiving. Those running the scheme inside the church received large monthly commissions.
In March 2001 five Greater Ministry leaders, including Gerald Payne and his wife Betty Payne, were arrested. They were all given jail terms that ranged from 13 years to 27 years.
8. $1.0 billion
Ioan Stoica. Caritas, Cluj-Napoca. Romania. 1994. 400,000 victims
Ioan Stoica started a business called Caritas (taken from the Latin for ‘charity’) in April 1992 with the stated aim of helping the poor of Romania as the country converted itself to a capitalist economy. He promised investors returns of up to eight times their investment within six months. Stoica was given credibility by his connections with the Party of Romanian National Unity and the mayor of Clu-Napoca where the business was based.
There were concerns about the activities of Caritas throughout 1993 and by February 1994 the business stopped and started citing a restructure. In May the business was formerly closed.
In 1995 Stoica was given a seven year jail term however this was reduced to two year after appeal. This was further reduced to 18 months after the case was taken to the Supreme Court. Stoica was released from jail in June 1996 while trials between investors and Caritas continued. Precise figures were difficult to get, but it is estimated that up to half of Romanian households were involved in the fraud.
7. $1.0 billion
Peter Lombardi. Mutual Benefits Company. Florida, USA. 2003. 28,000 victims
The Mutual Benefits company, run by President Peter Lombardi and brothers Joel Steinger and Steven Steiner, provided life insurance products between 1994 and 2003. They ran a scheme whereby investors could, in effect, buy the life insurance policies of people dying of AIDS, ill or aged, at a discount, collecting the full value of the insurance policy on the holders death. $1.25 billion of insurance was sold to around 30,000 investors.
As it turned out, the life insurance policies were manipulated with regard to the life expectancy of the holder, supporting the exceptionally high returns (up to 60% per annum) expected by investors. However once the policy holders started to live longer than expected, and the insurance premiums still had to be paid, the scheme came undone.
Peter Lombardi, Steven Steiner and nine other MBC employees pleaded guilty and are serving jail terms. Joel Steinger is awaiting trial.
6. $1.1 billion
Damara Bertges and Hans Gunther Spachtholz. European Kings Club. Switzerland. 1994
Damara Bertges and Hans Gunther Spachtholz started this scam in 1994, offering investors 12 monthly dividends of 200 Swiss francs for an initial input (‘letter of investment’) of 1,400 Swiss francs. This equates to an annual return of 71%. The company did nothing to earn a return on the money it received although it told investors that it purchased goods out of bankruptcy and provided corporate financial services. In reality it was simply paying early investors with money received from later investors in order to keep the scam going for as long as possible.
The scam lasted about 2 years and took $1 billion from almost 100,000 investors from Switzerland, Germany and other countries including the US.
Bertges received a jail term of 7 years, Spachtholz just 5 years.
5. $1.2 billion
Wong Fengyou. Yillshen Tianxi. Liaoning, China. 2007. 1,000,000 victims
Wang Fengyou, a Chinese businessman, started the Yillshen Tianxi Group in 1999 selling traditional Chinese medicines made from ants. On the promise of returns of more than 30% per annum Wang enticed what is believed to be one million people to invest in the business. Most of those who invested were farmers, factory workers and even the unemployed.
For several years the business appeared to be working spectacularly well. Wang was recognised as an astute entrepreneur and revenue soared to 15 billion Yuan ($US2.5 billion). However it all started to fail in 2007 when Yillshen Tianxi failed to distribute profits to investors who had put in $US1.2 billion.
Wang was arrested in December 2007 and the company went into liquidation.
4. $1.4 billion
Scott W. Rothstein. Rothstein Rosenfeldt Adler. 2009
Rothstein graduated from Law School in 1988 and worked in Fort Lauderdale before forming several Law partnerships, culminating in the firm Rothstein Rosenfeldt in 2004. Adler was added early in 2005. The firm rapidly expanded to over 70 lawyers including a long list of former judges, mayors, commissioners, prosecutors, lobbyists and/or their sons or daughters.
Rothstein lived the high life with numerous residential properties, exotic cars, yachts, artwork and even a Boeing 727 jet. He has publicly acknowledged his craving for money and material success, and, it turns out, was prepared to do anything to get it.
The investment scheme devised by Rothstein was a side business to the law firm and essentially involved investors putting up the cash to buy large legal settlements at a discount. The discount margins were significant and this was the hook for the investment.
After realizing the scheme was unravelling, Rothstein had his staff come up with a list of countries that didn’t have an extradition agreement with the US or Isreal. He transferred $16 million to Morocco and fled there in October 2009. Within a few days of landing in Morocco Rothstein sent his law partners a suicide note. The president of his law firm, Stuart Rosenfeldt, sent Rothstein repeated texts urging him to “choose life”. On the 3rd November 2009, Rothstein returned to the US.
Scott W. Rothstein was sentenced to a 50 year prison term on 9 June, 2010.
3. $3.65 billion
Tom Petters. Petters Group Worldwide. Minnesota, USA Apprehended 2008
Tom Petters worked in, and then owned a variety of retail businesses throughout the 1980’s and 90’s. In the late 1990’s he sold the Petters Warehouse Direct chain in order to concentrate on retail online. In the early 2000’s his Redtagbiz.com retail internet business grew strongly, reaching gross sales revenue of more than $1 billion.
At the same time as moving online, Petters also started a number of investment funds and raised more than $4 billion through these vehicles. The money raised was used to finance other acquisitions, including the Polaroid brand for $426 million in 2005 and Sun Country Airlines in 2006. Petters Group Worldwide had become a large and diverse global company with more than 3,000 employees, ownership or investments in 60 companies and annual revenue of $2.3 billion.
In 2009 the FBI uncovered a range of fraudulent activities including fake documents and phoney paperwork that allowed Petters to get billions of dollars in loans approved to one or a number of his companies based on fictitious orders and revenue.
Tom Petters was found guilty of conspiracy, wire and mail fraud and in April 2010 sentenced to 50 years in prison.
2. $8.0 billion
Allen Stanford. Stanford International Bank. 2009.
Allen Stanford made money in real estate in Texas in the early 1980’s and used the money he made to finance a move into banking in 1986. He set up operations in Antigua, West Indies and offered various financial products that gave consistently better returns than similar products.
In February 2009 the US Securities and Exchange Commission (SEC) charged Allen Stanford, his Chief Investment Officer, Laura Pendergest-Holt and Chief Financial Officer, James M. Davis, with fraud in relation to the firms Certificate of Deposit (CD) investment scheme. On the 27th February the SEC announced that Stanford, Pendergest-Holt and Davis had misappropriated billions of dollars and hidden the fraud by falsifying records, to the extent that the banks financial statements were “fictional”.
The then 62 year old Stanford was given a 110-year goal sentence in March 2012.
1. $65 billion
Bernard Madoff. Madoff Investment Securities LLC. 2008.
Madoff, with his wife Ruth, started Bernard L. Madoff Investment Securities LLC in New York in 1960. Madoff was 22 years old. The firm went on to become a major private investment management company that, at it’s peak, accounted for up to 5 percent of securities traded on the New York Stock Exchange. The returns Madoff achieved were consistently high and he gained a reputation as being an astute investor. The company developed computer software to run stock quotes and this later became the NASDAQ exchange. Madoff was President of the NASDAQ from 1996-2003.
All these things gave Madoff and his firm a strong reputation which was further enhanced by the many celebrities who used the firm. Madoff’s celebrity victims included John Malkovich, Liliane Bettencourt (L’Oreal heiress), Kevin Bacon, Uma Thurman, Steven Spielberg, Larry King, Jeffrey Katzenberg (Movie Producer), Larry Silverstein (property mogul) and Zsa Zsa Gabor.
Far and away the largest financial fraud in history, the scale of what Madoff did is perhaps testament to his financial skills, albeit used in a bad way, not a good way. In June 2009, the then 71 year old Bernard Madoff was sentenced to 150 years in prison.
In the early 1990’s Albania emerged from Communist rule and dozens of Ponzi Schemes popped up, some with government backing. The schemes collapsed in 1997 leaving more than 60% of the population with loses of over $1.2 billion. Riots killed 2,000 people and the government fell. The country was stateless and went close to collapse.