The Biggest Cheats and Fraudsters In The Finance Industry

I wrote about some of these types of guys a few years ago, and thought I would revisit the topic.  While there have been some bad actors in the crypto world, fraud and theft has been around as long as humans have been on this earth. Here are a few that rank at the top for being slimeballs.  Some you probably have heard of, others may be new to you, they were to me.

Michael De Guzman

He was the man many believe was the perpetrator of the famous BreX debacle. Bre-X is a Canadian company, but De Guzman was Filipino. De Guzman was the chief geologist for Bre-X, and he had access to core samples retrieved from a mine in Indonesia. When the gold deposit numbers came in a little below average, De Guzman helped contribute to the biggest mining fraud in modern history by faking the samples to indicate a massive gold find. As time went on, the estimates were increased to as much as 200 million ounces. To get a handle on this number, the U.S. Treasury Department has about 250 million ounces of gold in its reserves.

This fraud was accomplished by inserting gold into the samples to make it look like there was much more gold in the Indonesian mine than there really was. As a result, the 30-cent penny stock quickly climbed to as high as $250.  However, independent geologists were suspicious of the mine's supposed riches, and the Indonesian government started moving in. De Guzman eventually jumped to his death from a helicopter. (I mean, if you are gonna go, go in style.) Bre-X stock plummeted, costing its investors $3 billion.

Richard Whitney

He was the president of the NYSE from 1930 to 1935. On October 24, 1929, acting as an agent for a pool of bankers, he bought shares in many companies, creating a dramatic turnaround in the market. This caused him to be falsely hailed as a hero to the market, but the inflated stocks inevitably crashed five days later. To cover his losses, he would borrow money from friends, relatives, and business acquaintances. This allowed him to buy even more stock in a market that was collapsing, which made his problems even worse.

Despite his losses, he continued to live a lavish lifestyle. When he could no longer borrow any more money, he began to embezzle it from his customers as well as from an organization that helped widows and orphans. His fraud became more perverse when he looted the NYSE's Gratuity Fund, which was supposed to pay $20,000 to each member's estate upon death.

Bernard Ebbers  

Known as "Bernie", he was the CEO of a long-distance telecommunications company called WorldCom. In less than two decades, he took the company to a position of dominance in the telecommunications industry, but shortly thereafter, in 2002, the company filed for the largest bankruptcy in U.S. history.

Under Ebbers' leadership, the company made 70 acquisitions, the largest of which was MCI in 1997.All of these acquisitions created problems for the company because it was difficult to integrate the old company with each new one. The acquisitions also threw massive amounts of debt on the company's balance sheet. To keep earnings growing, the company would write off millions of dollars in losses it acquired in the current quarter and then move smaller losses going forward to create the perception that the company was making more money than it really was. This gave WorldCom the ability to take small charges against its earnings every year and spread the large losses over the decades.

This scheme worked until the U.S. Justice Department denied the company's acquisition of Sprint in 2000, fearing that the combined companies would dominate the nation's telecommunications industry. This forced WorldCom to make the previous mergers work for them and meant that it would only be a matter of time before all the losses that they were taking from other acquisitions would affect the company's growth.

When WorldCom filed for bankruptcy, it admitted that it inappropriately booked the losses from its acquisitions from 1999 to 2002. Ebbers also took personal loans from the company. He resigned as CEO in April 2002 and was later convicted of fraud, conspiracy, and filing false documents with the SEC. He was sentenced to 25 years in prison.

Ivan Boesky

His career on Wall Street began in 1966 as a stock analyst. In 1975, he started his own arbitrage firm, and by the 1980s, his net worth was estimated to be in the hundreds of millions. Boesky looked for companies that were takeover targets. He would then buy a stake in those companies on speculation that news of a takeover was going to be announced, then sell the shares after the announcement for a profit.

Throughout the 1980s, corporate mergers and takeovers were enormously popular. According to a 1986, article in Time Magazine, there were almost 3,000 mergers worth $130 billion in that year alone.

However, Boesky's alarming success in this strategy was not all instinct: Before the deals were announced, the prices of the stocks would rise as a result of someone acting on inside information that a takeover was going to be announced. This is a sign of illegal insider trading, and Boesky's involvement in this illegal activity was discovered in 1986 when Maxxam Group offered to purchase Pacific Lumber. Three days before the deal was announced, Boesky had purchased 10,000 shares.

As a result of these and other insider-trading activities, Boesky was charged with stock manipulation based on inside information on November 14, 1986. He agreed to pay a $100 million fine and serve time in prison. He was also banned from trading stock professionally for life. He cooperated with the SEC, taping his conversations with junk-bond firms and takeover artists. This led to both investment bank Drexel Burnham Lambert and its highest-profile executive, Michael Milken, being charged with securities fraud.

Michael Milken

In the 1980s, Milken was known as the junk bond king. A junk bond (also called a high-yield bond) is nothing more than a debt investment in a corporation that has a high probability of default, but provides a high rate of return if it does pay the money back. If you wanted to raise money through these bonds, Milken was the person to call. He used them to finance M&As as well as leveraged buyouts (LBOs) for corporate raiders. Despite their reputation, the debt securities known as "junk bonds" may actually reduce risk in your portfolio.

But what he was doing was nothing more than creating a complex pyraid scheme. When one company would default, he would then refinance some more debt. Both Milken and Drexel Burnham Lambert would continue to make their fees as a result of this behavior. The company made at least half of its profits from the work of Milken.

Later on, Milken also started purchasing stock in companies that he knew would become potential takeover targets. Boesky, when charged with insider trading in 1986, helped implicate both the firm and Milken in several insider trading scandals. This led to criminal charges against the firm and nearly a hundred charges against Milken, who pleaded guilty, was sentenced to 10 years in prison and paid $600 million in fines.

It is argued that the savings and loan crisis in the late 1980s and early 1990s occurred because so many institutions held large amounts of Milken junk bonds. After he was released from prison, Milken focused his attention on his foundation, which supports cancer research.

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