30 Costly Scandals Of Business & Financial Fraud

29. Theranos

In 2003, an ambitious and manipulative young woman named Elizabeth Holmes claimed to have invented a technology that would provide blood tests for multiple diseases with just a small amount of blood. She launched a startup called Teranos in Silicon Valley along with other tech companies. At the moment, it takes an entire vile of blood just to test for one illness at a time. So of Theranos could fulfill their promise, it would have been a revolutionary medical technology.

Holmes raised over $700 million from investors, and the company was valued at $9 billion by 2013 thanks to her efforts. People were so impressed that politicians, hospitals, and patients all got on board to see what Theranos could do. However, this was all just a front. Elizabeth Holmes was a teenage girl with a bright idea, but absolutely no way of actually making that technology a reality.

She hired a huge team of scientists, yet none of them could invent these magical blood tests that she promised the world. In 2018, Holmes had to go to court to answer for fraud charges. If you want to know more about the story, there’s an HBO documentary series called The Inventor: Out For Blood in Silicon Valley. There’s also a book called Bad Blood: Secrets and Lies in a Silicon Valley Startup, and an upcoming movie, all due to Holmes’ false claims.

28. Wells Fargo

In 2016, it was discovered that Wells Fargo created millions of fraudulent checkings and savings accounts in their customer’s names without their consent. Customers were shocked to find unexplained fees for these additional accounts. The corporation tried to blame the employees of the individual branches for “accidentally” creating the accounts as a result. They were also adding on unnecessary fees to car insurance and mortgages. In reality, it was a scheme to bring in millions of dollars’ worth of fees from customers who they hoped would never figure it out.

The United States Consumer Financial Bureau found out about this and fined Wells Fargo $185 million due to their gross negligence. On top of that, there was a class-action lawsuit where Wells Fargo had to pay an additional $575 million across all 50 states. If there’s any lesson to be learned here, it is to always carefully examine your bank statement and speak up if you see something strange.

27. Freddie Mac

You may have heard of Freddie Mac, which is short for the Federal Home Loan Mortgage Corporation. In 2003, there was a shocking scandal when Freddie Mac doctored their quarterly earnings report by $6 billion in order to meet the expectations of their investors on Wall Street. Considering that this was supposed to be a government-affiliated program, this fraud was even more shocking than if it had been committed by a private bank.

They were forced to pay a $125 million fine to the Office of Federal Housing Enterprise Oversight. But that was not the end of their troubles. In 2006, they paid $400 million in 2006 to the SEC and OFHEO. Many people blame Freddie Mac for the start of the 2008 financial crisis as a result. If you want to know more about the scandal, visit Investopedia for their in-depth explanation of what happened.

26. Republic of Poyais

Between 1821 to 1837, a Scottish soldier named General Gregor MacGregor managed to convince hundreds of British and French investors that he was the Prince of a fictional country called The Republic of Poyais. He told people that they had the opportunity to invest in Poyaisian bonds. The idea that someone would lie about such a thing seems preposterous due to its absurdity. But back then, photography did not exist, so he provided people with illustrations of this so-called country. That was enough to convince them that it was real. Some people even agreed to buy land and emigrate to Poyais!

MacGregor was originally from Scotland, and he spent a lot of time living in Venezuela and surviving in the wilderness. He purchased a large piece of land in the middle of Nicaragua in a place called The Mosquito Coast. This was once an English settlement that was full of bugs and dangerous pirates, and he decided that he would become the Prince and fill it with new settlers. But once they arrived, people were shocked to see that this was not a country at all, but a place with absolutely no resources for them to live on. Sadly, a lot of people died because they fell for Gregor MacGregor’s trick.

25. Cendant

Cendant was a real estate and travel services company built by two men named Walter A. Forbes and E. Kirk Sheldon. The two executives falsely reported that the company had grown to the point where it was making $500 million in profits. Investors put billions of dollars into Cendant based on these false numbers. Once they were rolling in the dough, the company was able to form CUC International Inc., and they acquired some impressive companies like Century 21, Avis car rentals, the Days Inn hotel chain, and the Jackson Hewitt tax preparation company as a result.

Even with all of this success, they still continued to lie about how much money they were making. Eventually, the value of the shares plummeted and investors lost $19 billion. Forbes and Sheldon had to go to court to face fraud charges due to their underhanded dealings. The trial lasted for eight years, but they were finally convicted of fraud in 2006. Walter Forbes was sentenced to 12 years in prison and forced to pay $3.275 billion in restitution.

24. Bernie Madoff

By now you know what a Ponzi scheme is. Shockingly, Bernie Madoff was a scam artist who made it all the way to becoming the chairman of the NASDAQ and founded a wealth management firm in New York City. Madoff started out as a stockbroker in the 1960s who was able to help investors make huge profits. Even though he was successful in his career, he decided to start a Ponzi scheme in 1991. He claimed that he could help people made a profit of 12% because of his financial exertise.

When people became suspicious as to how Madoff managed to bring back such consistent returns, complaints were filed with the SEC. Eventually, after the stock market crash in 2008, the firm completely lost its money and Madoff could no longer keep up the ruse. In 2008, his own sons turned him into authorities. In 2009, he plead guilty to several federal crimes and was put in prison because of it.

23. Joseph Meli and the Hamilton Scam

Unless you’ve been living under a rock, you’ve probably already heard of the Broadway hit “Hamilton” and how notoriously difficult and expensive it is to buy tickets for. Between 2015 and 2017, a man named Joseph Meli wanted to start a firm where he purchased Hamilton tickets and sold them for a profit. Essentially, he wanted to start a ticket scalping business. He convinced investors that he had struck a deal with the producers of the show and was able to buy 35,000 tickets.

Meli told investors that if they helped him start this company, they could make a huge profit by overcharging people for these tickets. Of course, this was a front for a classic Ponzi scheme. None of that money went to Broadway tickets, and he enjoyed a $3 million mansion in The Hamptons while he juggled the remaining funds around to his investors. In just two years, Meli was able to collect over $100 million from 130 investors as a result of his scam. Eventually, he was caught, and charged with fraud, and forced to give back the $100 million.

22. Kirbyjon Caldwell & Gregory Smith

A financial planner named Gregory Smith and a pastor named Kirbyjon Caldwell were well-respected businessmen. Caldwell was famous for taking a congregation of just 25 people and creating a mega-church with 16,000 members. Even George W. Bush looked up to him as his pastor due to his success in religion. The two were selling Chinese bonds, claiming that these investments could turn a profit in a few years. In reality, these bonds were from The Republic of China, which was overthrown in 1949. (Clearly, their investors didn’t know much about Chinese history.) The bonds were real at one point in time but are now completely worthless.

Caldwell and Smith targeted elderly people to invest in these bonds, convincing them that they could make an even bigger profit compared to bonds found in the United States. They pocketed the money for themselves, spending at least $1.8 million on luxury cars, homes, and the good life. Finally, the SEC caught up with this Ponzi scheme and filed a criminal complaint in 2018. The two have not yet been convicted of fraud because it’s still an ongoing case.

21. Enron

The Enron scandal is one of the most famous stories on this list. Enron was founded as a gas and power company and continued to acquire other gas companies to their corporation. They even tried to break into online stock trading, internet, and video-on-demand services. Believe it or not, they had some part in the failure of Blockbuster as a result. For years, the corporation was one of the powerhouses of Wall Street. They released false profit statements that made it seem as though they were making billions more than they were.

At the company’s peak, shares were trading at $90.75. But when they suddenly revealed they owed far more money than they were actually earning, they were forced to declare bankruptcy. The stock value went down to just $0.26 per share. Employees and investors both lost their retirement funds due to the scandal, and thousands of people lost their jobs. Between 2004 and 2011, the company was forced to pay back $21.7 billion in restitution.

20. Frank Abagnale Jr.

You may have already heard of Frank Abagnale Jr. because his life story was turned into the film Catch Me if You Can. From age 15 to 21, Frank pretended to be a pilot, a doctor, a lawyer, and more. In each of his new identities, he was able to forge paychecks and made over a million dollars. He escaped police custody twice and was always on the run.

When he was finally caught at 22, Abagnale spent less than five years in prison. Once he regained his freedom, he began working for the FBI as a consultant to help them find other criminals who are just like him. He also runs a corporation called Abagnale & Associates, which is a financial fraud consultancy company. So he very literally turned his life of crime into a career, even though everything he is doing now is completely legal.

19. Jordan Belfort

Leonardo DeCaprio played yet another con artist years after Catch Me If You Can. This time, he was Jordan Belfort in The Wolf of Wall Street. You may already know from watching the movie that Jordan Belfort began his career as a run-of-the-mill stockbroker. His life changed when he realized that he could make a fortune on penny stock scams. Soon enough, he was living the lifestyle of a high roller with fancy cars, houses, and a yacht. The only trouble was that he was stealing money from hopeful investors.

In the end, Belfort spent just 22 months in prison because of his crimes. He was willing to give authorities as much information as possible, and of course, his life story was made into a movie. By 2013, he had paid back $10 million from the $11.6 million he owed to his victims, and he also put some of his proceeds from the movies and books towards restitution as well. He was determined to turn his life around to show his kids that he could make an honest dollar. He now works as a motivational speaker because of that focus.

18. Waste Management

Since the 1960s, Waste Management has been a national corporation that collects garbage throughout the United States. You have probably seen their green trucks and famous logo. In 2002, the Securities and Exchange Commission (SEC) filed a lawsuit against Waste Management for fraud. Between 1992 to 1997, Waste Management published false financial statements for their investors to make it seem as though they were making $1.7 billion more than reality. Every single one of the executives of the corporation was pocketing millions of dollars from their financial fraud.

The Associate Director of the SEC’s Division of Enforcement, Thomas C. Newkirk, had this to say about Waste Management: “Our complaint describes one of the most egregious accounting frauds we have seen. For years, these defendants cooked the books, enriched themselves, preserved their jobs, and duped unsuspecting shareholders.” The executives from Waste Management were able to settle with the SEC in 2001, which is why you may have never known they committed fraud in the first place.

17. WorldCom

WorldCom was a telephone company that specializes in long-distance calling. (Remember when you had to pay for long-distance?) They were huge during the dot com bubble of the 1990s. When the bubble finally burst, however, fewer companies were buying their services, so they lied to make it seem as though they were still thriving. Between 1999 to the first quarter of 2002, WorldCom was doctoring their books to make it seem as though they made $3.3 billion more than they actually were.

WorldCom went down in history as being the biggest accounting fraud, as well as the largest bankruptcy filing in US History. After going to court, CEO Bernard Ebbers was sentenced to 25 years in prison because of his role in the scam. CFO Scott Sullivan was sentenced to five years due to his role. The company is still around today, but after the embarrassment of the fraud trial, they changed their name to MCI Inc. in 2003.

16. ZZZZ Best

In the 1980s, a 15-year-old boy named Barry Minkow started a carpet cleaning company called ZZZZ Best in his parents’ garage. At first, he was trying to run a legitimate business until he began to struggle financially. He began using an illegal technique called “check-kiting,” and took advantage of an insurance company scheme with restoration costs. ZZZZ Best quickly became a front for a Ponzi scheme.

In 1986, he wanted to take the company public with a valuation of $300 million. Just seven months later, the company went bankrupt. When its assets were auctioned off, everything was worth a mere $64,000. Minkow was found guilty of fraud and was sentenced to 25 years in prison as a result. Once he was released, he became a pastor and founded the Community Bible Church. Of course, this was yet another front for his schemes, and he committed fraud again. This time, he had to go back for another five years due to his latest scam. In 2018, the movie Con Man was released based about Barry Minkow’s life. He still owes $612 million in restitution.

15. Tyco International

Tyco International was a security solution and fire protection company that was originally from Ireland. They opened up a second location in Princeton, New Jersey. The company also oddly began to delve into the totally unrelated field of manufacturing electronic components as well as providing health care services. But this mismatched line of work was not the only problem with the corporation. The founders were also committing financial fraud.

CEO L. Dennis Kozlowski and CFO Mark Swartz were discovered to have stolen hundreds of millions of dollars from the company. The two founders took out $170 million in loans without notifying the shareholders. Then they sold 7.5 million shares of fake and unauthorized Tyco stock for $450 million. They both began to buy multiple houses, and Kozlowski even threw his wife a $2 million birthday party. In 2002, Tyco’s stock price dropped 80% in just six weeks. They were found guilty of fraud and sentenced to 25 years in jail along with being forced to pay back $175 million in restitutions.

14. Charles Keating

Charles Keating was in the heart of the 1989 scandal run by a group of state senators called The Keating Five. In the 1980s, Keating ran a home construction business called American Continental Corporation as well as a bank called the Lincoln Savings and Loan Association. At the time, Keating was taking advantage of very loose banking regulations.

The bank declared bankruptcy in 1989, and 21,000 people lost their life savings. Keating sold over 23,000 worthless bonds. When the bank collapsed, it cost the federal government $3.4 billion courtesy of the American taxpayer. Thankfully, Keating was sent to prison for fraud.

13. Columbia HCA Medicare

The Columbia HCA Medicare was responsible for the largest health care fraud case in the United States. HCA was guilty of cost report fraud, false medicare filings, and giving financial kickbacks to physicians. A man named Rick Scott was the governor of Florida, and he was also the CEO of HCA. As a Republican, Scott claimed that the Democrats were going to cut medicare for seniors. In reality, he was very literally committing the biggest medicare theft in history.

Whistleblowers who worked for HCA informed the government there was financial fraud and secretly worked together with the government to gather enough evidence to take them to court for criminal charges. In 2000, HCA had to pay $840 million in criminal fines. And in 2003, HCA agreed to pay the United States government $631 million. In total, the government recovered $1.7 billion.

12. The Hitler Diaries

Adolf Hitler is one of the most hated people in history, and yet people are still fascinated by him years after his death. This fascination was enough for people to lose millions of dollars in the quest to find new information. In 1983, a German magazine called Stern claimed to have found Hitler’s personal diaries that were lost in a plane crash in 1945. The diaries included details like that Hitler had bad breath, or that his girlfriend Eva Braun had a hysterical pregnancy.

In reality, they were written by a man named Konrad Kujau. It only took two weeks for experts to realize they were fake because many of the details were not historically accurate. Kujau was a professional forger who sold the diaries for 2.5 million deutschmarks to a collector. This man turned around and sold them to Stern Magazine for 9.3 million. Once this was discovered, Konrad Kujau had to spend nearly five years in jail for forgery.

11. James Paul Lewis Jr.

Lesser-known Ponzi schemer James Paul Lewis Jr. owned a firm called Financial Advisory Consultants in Orange County, California, one of the wealthiest places in the United States. He stole $814 million from thousands of clients over the course of his 20-year career. Just like many of the other schemers on this list, Lewis was running a classic Ponzi scheme where he promised investors a return on their money.

When the jig was up, Lewis fled to Houston, Texas. However, the FBI was on his tail and arrested him for fraud. After freezing his assets, the FBI found that even though the company was supposed to be managing investments, there was only $2.3 million left out of the $814 million Lewis received. They seized his five luxury cars and froze his bank accounts. He was sentenced to 30 years in jail and ordered to return the millions that he stole. However, the court has only been able to recover $11 million out of the $814 million.

10. Victor Lustig

Today, the Eiffel Tower is an iconic part of Paris. But back in 1925, the French were actually sick of it. The tower was erected for The World’s Fair and was never meant to be a permanent part of the city. So residents were hoping it would be taken down. A con-man named Victor Lustig heard about this and decided to take advantage. He found the top five scrap metal dealers in Paris and offered to sell the tower to them. Lustig managed to sell the tower twice and fled France to start a new life in the United States.

Once in America, Lustig was not satisfied with the money he earned from pretending the sell the Eiffel Tower. He began to counterfeit money and hid from authorities with multiple fake passports. Lustig could also speak five languages fluently, so he was able to pretend to be from a different country in order to evade capture. In 1935, Lustig was finally captured and sentenced to 20 years in prison on Alcatraz Island.

9. Bitcoin Savings & Trusts

A man named Trendon Shavers founded a company called Bitcoin Savings and Trusts. This was a classic Ponzi scheme. Only this time, it was with Bitcoin. Shavers promised his investors that he could make them a profit by trading cryptocurrency. In reality, he was using investor money to pay early investors with their so-called profits. Between 2011 and 2012, he earned 764,000 bitcoin. This was worth well over $4 million at the time.

Shavers was sentenced to 18 months in prison and forced to pay $1.23 million in restitution to his victims. He was also charged $40.7 million in fees to the U.S. Securities and Exchange Commission. This hurt the reputation of Bitcoin as a whole. Many people who are wary of getting involved with cryptocurrency often call it a “Ponzi Scheme” without realizing that this individual case of fraud has nothing to do with the blockchain technology itself.

8. George C. Parker

In 1883, the Brooklyn Bridge had just been built in New York City. Parker offered to sell the bridge to people for just $75. With inflation, that’s over $2,000. While it is a lot of money, it’s still nowhere close to what the bridge would have cost to build in the first place, and yet people still fell for his lies. These poor victims would only realize that they were duped when the police stopped them from building toll booths on the bridge.

Parker wasn’t just trying to sell the Brooklyn Bridge, though. He also tried to sell Madison Square Garden and the Statue of Liberty to his unsuspecting victims. Aside from these fake sales, he was a full-time career con man who also made thousands off false documents. Eventually, he was caught and sentenced to life in Sing Sing prison.

7. American International Group (AIG)

American International Group, better known as AIG, was a huge insurance corporation. This all came crashing down in 2008 when the company was on the brink of financial failure. In their London branch, AIG Financial Products sold insurance for people who wanted to ensure they would not lose on their investments. Obviously, during the 2008 financial crisis, customers were suddenly cashing in on their insurance policies. The had also gotten involved with collateralized debt obligation and mortgage-backed securities. These were subprime mortgages that were given to people who were not actually qualified to pay them back. These people also defaulted on their mortgages during the crisis.

AIG was such a huge institution that it was considered “too big to fail” without completely crippling the US economy. For example, some of the biggest corporations such as Goldman Sachs had $20 billion tied up in AIG. With so many of the major businesses entangled in this scandal, if AIG went bankrupt, so would nearly everyone else. AIG had to receive a government bailout worth $150 billion. Shockingly, they are still around today. If you want to know more about this incident, check out the in-depth guide by Investopedia, or watch the movie The Big Short.

6. Lehman Brothers

The Lehman Brothers corporation was founded back in 1884. Originally, they were a humble dry goods store, but they grew into a bank that became a nationwide institution. They were the fourth-largest bank in the United States and had 25,000 employees working all over the world. Their empire finally came crashing down in 2008 after getting involved in subprime mortgage schemes.

Their bankruptcy was the largest in history. They had $639 billion in assets and $619 billion in debt. After their fall, this removed $10 billion of market capitalization and was one of the huge contributing factors to the 2008 recession. If you want to know more about this story, check out Investopedia‘s in-depth explanation.

5. Satyam

Satyam is a computer services company in India. In 2009, chairman Byrraju Ramalinga Raju confessed to his shareholders that he had been doctoring the books. The accounting scam totaled $1.1 billion. In his confession, Raju wrote that what started as a small white lie quickly escalated. He said, “The concern was that poor performance would result in a takeover, thereby exposing the gap. What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of the company operations grew significantly.”

Independent auditors from Price Waterhouse Cooper examined the case, and the US Securities and Exchange Commission fined them $6 million. In a crazy twist of events, in 2018, the Securities and Exchange Board of India barred Price Waterhouse Cooper from doing any audits in India for two years because they discovered they were actually complicit in the Satyam case. This case has been called “The Enron of India” because the amount of money scammed out of shareholders was so massive.

4. Crazy Eddie

Back in the 1980s, a businessman from New Jersey named Ed Antar went by the name “Crazy Eddie.” He would film himself for commercials to be aired on TV advertising low prices on household appliances and electronics. At the peak of his businesses’ success, Antar opened 43 stores in four states and was earning $300 million in sales. Throughout the entire course of running their business, the Antars were committing various forms of fraud. They would hire workers under the table, skimmed money off the books, and falsely reported lower income to avoid paying taxes.

They eventually sent millions of dollars to an overseas bank account in Israel in order to hide it from the IRS. By 1983, it was getting harder to hide their success and avoid the questions about where all the money had gone. So they decided to take the company public. During the opening of their IPO, the Crazy Eddie stock was worth $8 per share and eventually ballooned to $75. Eventually, all of his shady dealings caught up with him. He tried to flee to Israel but was caught and sentenced to eight years in prison.

3. Equity Funding Corporation of America

Back in the 1960s, Equity Funding Corporation of America (EFCA) started out by selling life insurance. The offered what was perceived to be a new and innovative investment, the potential to grow stock mutual funds. Whenever they sold a mutual fund, they borrowed against it to purchase life insurance. Customers believed their returns from the fund would be enough to cover the cost of their life insurance premiums.

In 1964, CEO Stanley Goldblum ordered his employees to create fake accounting entries to meet their deadlines. After this, they continued to create fake life insurance policies. Then, they would fake the deaths of the fictitious people to cash out on the policies and use that as revenue. Eventually, they reached $2 billion in fake revenue. In 1973, an angry former employee became a whistleblower. That insider information was enough for prosecutors to charge 22 people with fraud.

2. McKesson & Robbins

In 1925, pharmaceutical company McKesson & Robbins was purchased by a man named Philip Musica. He used the company as a front for his bootlegging operation. Musica hired his three brothers to help him run the business. The key to their deception was that they truly did expand the real business and it seemed to be very successful. They continued to launder their bootlegging money for years, with accounting that totaled $78 million in phony revenue.

By 1938, the Securities and Exchange Commission caught up with the fraud. Musica committed suicide before he could spend any time in prison for his crimes. After this year, the SEC began to create laws about auditing to make sure these fake accounting practices would not happen again. Of course, companies still found a way, even decades later.

1. WeWork

New York City is full of startups that have big dreams of “disrupting” current culture. As for WeWork, they promised to create better work spaces for the future. When the company went public, founder Adam Neumann claimed that WeWork was worth $47 billion, because of their advantage “technological infrastructure.” The statement to the SEC never bothered to explain what this technological infrastructure actually was. In reality, they were a company that rented out retail space to other corporations and had little to do with any disruptive tech. After this self-imposed valuation of $47 billion, they received $12.8 billion from private investors to start their company.

Once WeWork began getting ready for its initial public offering, the company’s value suddenly dropped to $10 billion. They claimed that they no longer wanted to go public because there was not enough interest from investors. This meant the company would have to declare bankruptcy immediately. They had to lay off over 2,000 employees. Neumann stepped down and took $1 billion with him. JP Morgan stepped up to invest in order to keep the company afloat. Technically, no one has been charged with fraud yet. But if you look at all of these other cases, it wouldn’t be surprising if Neumann was sued in the near future.