There are so many to choose from that these are the ones from the 1980s and the 1990s. More will follow!
1. Barry Minkow
A 15-year-old kid, which makes the story all the more worthy. The guy went from nothing to millionaire, with an IPO and hit the big time. Then, he ended up in prison to pay for the dastardly deed. You have to admire him though. A smooth-talking crook as good as they ever get.
He founded ZZZZ Best, a carpet-cleaning and restoration company at the age of 15, in San Fernando Valley. He had trouble making ends meet and despite his idea, he had banks closing down on him at the start because he was under age and minors can’t sign contracts or checks. He joined forces with Tom Padgett and forged documents for carpet restoration, stating that he was working on various projects to make it look like he had business. They set up a company to front the operation, Interstate Appraisal Services. The fake company gave the banks the ‘proof’ that he was raking it in and everybody believed him. Kids don’t lie, do they? The insurance company amounted to some 86% of his revenue. But, that was all fake. The carpet-cleaning company was bone fide, though. He financed his carpet-cleaning business by check-kiting schemes: he wrote checks from account X to finance account Y, and then wrote checks immediately from account Y back to account X and the money (which never existed) just got transferred from one account to another. Child’s play, wasn’t it? Now, don’t go getting any ideas, the banks will find out (one day)!
When Minkow left school, he needed investment and got it by meeting Jack Caitan, a businessman from LA that was involved in organized-crime deals.
Within four years, by 1986, Minkow had decided to go public. By some superb twist of fate, the accountant that was involved in the launch on the NASDAQ never visited the insurance restoration sites and so never discovered that they were nothing more than empty mailboxes in San Fernando Valley. Minkow owned 53% of the company that was launched in January 1986. He became a millionaire! But, the company had no money. He couldn’t pay anyone and so decided to raise $15 million through an initial public offering of the company’s stock. He set up fake offices and buildings for the insurance side of things and the financial consultant (Mark Morze) faked thousands of documents. At 21, he became the youngest guy in history to have an IPO!
TV ads were launched and the flash cars were bought. Ambitions and greed shot through the roof of all boundaries of reason. Within just over a year, by February 1987, the company was being traded at $18 per share. It was now worth $280 million. Based on what? Nothing! Minkow was worth an estimated $100 million. He negotiated a deal and merged with the bone fide carpet-cleaners that were used by Sear’s. That was for $25 million, with ZZZZ Best being the surviving company. Apparently, he had hoped to use the cash from the new company to finish the fake business and go legal.
The Los Angeles Times was tipped off about $72, 000 in credit-card fraud that Minkow had run up and that was just days before the signing of the merger deal. Shares plunged by 28% after that article. From then on, things just went from bad to worse. Shares tumbled to just $3.50 each by July 1988.Minkow ran off with $23 million in company funds and the company went bankrupt.
The police stepped in and found that he had been laundering money and that it was an organized crime-den. At the hearing, there were 54 counts of racketeering. Dummy companies were discovered all over the place and 90% of the company’s activities were now considered as fraudulent.
He got 25 years on March 27th 1989 and had to pay $26 million in restitution.
He was sentenced on the following counts:
racketeering
securities fraud
embezzlement
money laundering
mail fraud
tax evasion
bank fraud
credit-card fraud.
It cost the investors that were taken in by his talking to the tune of $100 million. He is considered as the largest one-man show for scams in the history of the stock-market. When he got out of prison in 1995, he had found god and seen the light. He became an Evangelic Pastor. But, he never lasted long. He was later involved in other shady deals, too, but that’s another story!
2. Michael Milken
Milken was known as the ‘Junk Bond King’. He worked for Drexel Burnham Lambert and he was their top man in the 1980s. At the height of his time, he was raking in $1 billion over a four-year period. That might sound like just peanuts today compared to some guys, but back then it was a record. He is still the 48thrichest person in the world, according to Forbes and has a net worth of $2 billion.
He provided the stock trader at Drexel (Ivan Boesky) with huge sums of money and they split the profits when he used insider knowledge of takeovers to hit the jackpot.
Milken was arrested and indicted in March 1989 on 98 counts of racketeering and fraud. He was accused of misconduct, insider trading, stock parking (or the concealing of the real owner of stock) and tax evasion. He had been paid $5.3 million in 1986 for his share in illegal trading profits. He pleaded guilty in April 1990 to:
six counts of securities and tax evasion.
By pleading guilty immediately, he avoided further investigation and the other charges were dropped. He paid $1.1 billion in lawsuits related to these actions (of which there was a fine worth $600 million). He got sentenced to ten years in prison, but served just 22 months.
He was banned for life from the securities industry. But, in February 2013, the Securities and Exchange Commission carried out an investigation to determine if he had violated this ruling, since he had allegedly provided consultancy to Guggenheim Partners regarding investment.
He turned good and bought himself a couple of years less in purgatory, though. When he got out of prison he set up institutes for medical-research into prostate cancer. He was called ‘The Man Who Changed Medicine’ by Fortune magazine and it seems like prisoners can make it good when they get out of jail. I wonder if the same goes for everyone?
3. Hiromasa Ezoe
Ezoe was at the bottom of the insider trading scandal with a bit of corruption thrown in for good measure at Recruit, a human-resources and classifieds company in Tokyo. As Chairman, he offered shares to politicians and senior executives in a subsidiary company called Cosmos just before it went public in 1986.
Cosmos was launched publically, the shares soared and most people ended up making a profit of 66 million Yen each. The Prime Minister of Japan at the time, Noboru Takeshita, and the Deputy Prime Minister, Yasuhiro Nakasone, were involved as well as other prominent members of the government. The government was forced to resign over the scandal.
There were 155 people that were indicted in the insider-dealing scheme.
The Nikkei fell by 40% as a result, rocked by the political scandal.
What happened to Ezoe? His trial lasted 13 years! He was given a suspended sentence after all of that! Just makes you wonder why they even bothered after all.
4. Bernard Madoff
No scammer would look himself in the face unless he pronounced the words Madoff, would he? This guy was the biggest scammer possibly of all. The dark side of Wall Street!
He started swindling people way back in 1989, if not well before that. Remember, we probably only know the half of it. Madoff’s fraud was the largest scam ever to have taken place in the world and in history. Primarily because it lasted so long (until 2009). He cheated the world’s investors out of $65 billion. There are 9, 000 claims that have been filed against the guy!
What was he offering? Low-risk, high-yield (sounds too good to be true, doesn’t it?). It came to light as early as 1999 when the Securities and Exchange Commission was made aware of the mathematical impossibility as to the gains being made by Madoff (at least the gains that were on paper). The New York SEC ignored the complaints in 2005 and 2007. The Boston SEC did the same as early as 2000 and 2001! Were people blinded? Or were they just turning a blind eye to the scam?
False trading reports were being issued in the back office as and when Madoff ordered them for each client. Trades were backdated and manipulated, accounts were falsified. He simply deposited the client’s money into a special bank account at the Chase Manhattan Bank. He never invested it as they had believed he was going to. As clients asked for their money, he removed it from the account. Everything was going fine, at least until people started wanting their money back all at the same time. His was considered as the biggest Ponzi Scheme ever.
He accused his four largest clients in an interview from his prison cell saying that they were at fault: Norman F. Levy, Jeffry Picower, Stanley Chais and Carl Shapiro. They knew, according to Madoff exactly what he was doing and they should have stepped in before! He said that J. P. Morgan was in on it all too! They should have been alerted by the millions that were going into and out of the accounts. Better to blame someone else, isn’t it?
In June 2009, he got a ridiculous (ridiculous not because of what he did that didn’t deserve it, but because it will never be served) 150 years in prison at the age of 71 and was found guilty on 8 counts of fraud, money laundering and theft. He had been turned in by his two sons.
5. Anthony Elgindy
Coming after the main-man Madoff, this guy seems like he is just small-fry. He was founder of Pacific Equity.
Elgindy was providing stock advice via an internet site in the 1990s to people who were paying up to $600 a month to get his tips. Little did they know he was in actual fact working alongside the FBI agent that was investigating companies and so had inside information.
He also used blackmail to extort funds from other companies, telling them that he would reveal negative (false) elements about the companies that his clients would believe. He was charged with stock manipulation and was fined $51, 000 for revealing information about companies. However, this was overturned by the Securities and Exchange Commission that decided that it was not manipulation to reveal information that was indeed true and accurate.
However, by 2005, he had been charged again for fraud, racketeering and other crimes in relation to FBI and SEC investigations that he had revealed to the public. His trial lasted four months and he was accused of revelations concerning 32 different stocks. He ended up with nine years in prison, however. He appealed, but his sentence was upheld in 2008. His total gains came to a measly $66, 000, which if you compare it to what Madoff ended up with and how much he lost for his investors, this guy really looks like he either got used as the scapegoat or got caught with his hand in the bag at the wrong time.
Elgindy will go down in history as the short seller that people were afraid of; the guy companies didn’t want mentioning their names with adverse stuff about their companies as it would influence trades that day.
So, just a few examples of history’s swindlers. But, history is always in the making. It’s being done today! There are people that in five years from now will be arrested, the ones that created scams, who fleeced the poor gullible ones into parting with their hard-earned cash and that thought they wouldn’t get caught. The perpetrator is attractive. He draws us to him because he made us believe in some stupid scheme that we thought would never work and yet it did for a bit, and fooled us all.
So, who do you think will be added to that list of scammers and swindlers? Who’s the lying, cheating, gifted chiseler that will welch and fleece you dry today?
In the next installment, we will take a look at the stock-markets scams of the 2000s and bring us closer to the present time!
