December 12, 2008 / 10:35 PM / 11 years ago

FACTBOX-Notable financial scams of recent years

Dec 12 (Reuters) - Wall Street veteran Bernard Madoff is alleged to have lost about $50 billion for his clients, which included major hedge funds. [ID:nN12444672]

But that alleged swindle has a lot of company in the annals of financial scams. Crooked financiers and rogue traders have tried everything from Ponzi schemes and old-fashioned embezzlement to the creation of phantom companies to enrich themselves or make up for huge losses before their clients or bosses noticed.

Here are some of financial skulduggery’s greatest hits of recent years.


Democratic fundraiser Norman Hsu was charged by the U.S. Securities and Exchange Commission of operating a $60 million Ponzi scheme, leading former Democratic presidential candidate Hillary Clinton to return $850,000 in campaign contributions in 2007.

The SEC said Hsu made political contributions to give himself “a veneer of respectability” and then persuade investors that his investments were legitimate.

JUNE 2008

Anil Anand, the former CFO of Allied Deals, was ordered to pay restitution of $683.6 million for his part in an international Ponzi scheme that led to losses at some 20 banks around the world, including JP Morgan & Chase (JPM.N).

MAY 2008:

Lou Pearlman, the impresario who launched 1990s boy bands the Backstreet Boys and ‘N Sync, was sentenced to 25 years in prison for swindling investors and banks out of $300 million. Pearlman convinced individuals and banks to invest in two companies that existed only on paper, showing them fake financial statements.


French bank Societe Generale (SOGN.PA) alleged that fraud by a single trader caused a 4.9 billion euro ($7.1 billion) loss. Jerome Kerviel, a junior trader, was jailed in connection with the case. He was later released but still faces accusations that he caused SocGen billions of euros of losses.


James Marquez, who cofounded hedge fund Bayou Group with the now also incarcerated Samuel Israel III, and defrauded investors of more than $10 million. Marquez admitted that between 1996 and 2001, he told investors the funds were reaping large gains even as they sustained consistent losses.

In the summer of 2008, Israel faked his own death and went on a road trip as a fugitive before getting nabbed after a few days.


Hedge fund Amaranth Advisors LLC and former head trader Brian Hunter racked up $6.4 billion in losses from natural gas contracts before the fund folded in 2006. In July 2007, the Commodity Futures Trading Commission sued Amaranth and Hunter, alleging they tried to manipulate natural gas futures prices.


Financier Reed Slatkin, who helped created Internet service provider Earthlink Inc ELNK.O, was sentenced to 14 years in prison for bilking investors out of hundreds of millions of dollars.

He had portrayed himself as a shrewd manager whose investments were outperforming the markets, but prosecutors said he was in fact running a Ponzi scheme. He was ordered to pay more than $240 million in restitution to clients.


Enron employees tell media outlets, including Reuters, about a fake trading floor the energy company set up in 1998 to impress Wall Street analysts. The company spent about a half million dollars adding big-screen televisions, computers and telephones to regular office space to make it look like a nerve center for Enron Energy Services. EES actually got up and running in the space weeks later.


Ireland’s largest bank, Allied Irish, revealed a rogue U.S. trader, John Rusnak, had defrauded its U.S. subsidiary of up to $750 million. Rusnak was sentenced in January 2003 to seven and a half years in prison. He admitted devising a scheme that netted him $850,000 in salary and bonuses from 1997 to 2001.


Merrill Lynch MER.N fired two senior executives for their failure to supervise a currency dealer who diverted profits on foreign exchange deals to favored clients, leaving the bank facing a $10 million bill.


One of Britain’s oldest investment banks, Barings Plc, collapsed after a lone futures trader in Singapore, Nick Leeson, lost $1.4 billion in derivatives trading. Leeson was jailed in Singapore. Barings was subsequently sold to Dutch bank ING ING.AS for one pound. (Compiled by Phil Wahba and Nagesh Narayana, editing by Matthew Lewis)

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