5 Famous Investment Scams

5 Famous Investment Scams - Charles Ponzi

As long as there has been currency, there has been scams.

Unfortunately, we live in a world where less than 1% of the people out there make it so that more than 99% of the people out there have to worry.

In the world of investing, this is no different. In fact, there have been several investment scams that have become overwhelmingly famous.

Here’s a list of the 5 most famous investment scams in history and what we learned from them.

Scam #1 – The Charles Ponzi Pyramid Scheme

Charles Ponzi was a very smart man. Unfortunately, he used his intellect for bad things. You see, Ponzi was the inventor of the pyramid scheme. In fact, you may have heard of the Ponzi Scheme, which was later given as the name of his scam.

Essentially, Ponzi promised his victims that they would receive 50% returns on their investments in no longer than 45 days. To pay back the returns in the beginning, Ponzi used investments from new investors. However, there came a point in 1920 where Ponzi couldn’t bring in enough new investors to pay out on the promises he had made.

As a result, 5 banks and all investors involved in the scheme were forced to take losses that added up to a total of $20 million; which works out to well over $200 million these days.

The lesson we learned is simple. When investing, if it sounds too good to be true, it probably is. Just to make sure, it’s important to ensure that a third party custodian is involved and authors the statements made.

Scam #2 – The Jordan Belfort Stratton Oakmont Scam

5 Famous Investment Scams - The Jordan Belfort Stratton Oakmont Scam

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Jordan Belfort started what is now known as a pump-and-dump firm back in the 1990’s. Essentially, the brokers would drive the price of stocks up. Once the price was up, Belfort and his team of con-artists would cash out, causing the value of a stock to tank and taking profits in the process.

Eventually, in 1998, Belfort was caught playing his games after he caused losses in the range of $200 million. He was indicted for securities fraud and money laundering and ended up serving 22 months in prison and being forced to pay a $100 million fine.

The lesson we learned from this is simple. If a telemarketer is trying to sell you a stock, it’s probably a bad move. Talk to your financial advisor before taking the advice of a telemarketer.

Scam #3 – Barry Minkow’s Pyramid Scheme

Following in the footsteps of Charles Ponzi, Barry Minkow opened a company that was to be known as ZZZZ Best Inc. This was supposed to be a carpet cleaning business that went public. In order to do this, Minkow doctored up massive amounts of documents and sales receipts that later turned out to all be fraudulent. These fraudulent documents made it seem as though he had built a multi-million dollar carpet cleaning business, but in all reality, there was nothing there. At the end of the day, Minkow was simply using new investor money to pay returns for previous investors. However, after stealing around $100 million, everything caught up to Berry. He was eventually sentenced to 25 years in prison and forced to pay $26 million in restitution.

The lesson here is that you should never take the advice of the business owner. Always make sure a third party custodian is delivering statements and do your due diligence.

Scam #4 – Kenneth Lay And Jeffrey Skilling, The Enron Scam!

5 Famous Investment Scams - Kenneth Lay & Jeffery Skilling

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The Enron scam was probably the largest scam in history. Essentially, Kenneth Lay founded Enron and did everything he could to exaggerate the financial results of the company, making it look like it was doing incredibly well.

However, the exaggeration caught up to the company that was once believed to be the 7th largest in the United States. When everything hit the fan, Enron fell from $90 per share to under $1 per share over the course of a year. In 2001, the company filed for bankruptcy, putting an end to the problem!

However, Kenneth Lay was indicted on 11 counts of security fraud related to his exaggeration of how well Enron was doing. Nonetheless, he never did any time for the $74 billion he stole from investors. Lay died on vacation while awaiting his sentence.

The lesson here is that if a company is looking at loans as revenue, there’s probably something that’s going wrong!

Scam #5 – Bernie Madoff

The Bernie Madoff scam is likely the most popular scam that ever took place. Madoff was another man that followed in the footsteps of Charles Ponzie. Through Bernard L. Madoff Investments Securities LLC, Madoff made fake balance statements for every one of his investors, showing that their money was doing incredibly well.

However, as the market started to crash Madoff simply didn’t have the money to pay out to the investors that were pulling their money out of the market. As a result, his pyramid scheme was uncovered after investors lost around $65 billion in what later became known as the biggest Ponzi scheme in history. Madoff was eventually sentenced to 150 years in prison and was forced to pay $170 billion in restitution to the investors he stole from.

The lesson here… make sure that a third party custodian delivers the statements!

This article was written by the Binary Scam Sniffer – Binary Options trading can be very profitable but only when you trade with a reputable broker. At the Binary Scam sniffer we provide reviews of the best brokers and expose the Scam brokers.

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Poppy loves personal finance almost as much as she loves her two cats, Tif and Taz.
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