If you’re going to cheat, pilfer, or defraud, think big—that is, unless you want to pocket the money quietly and retire to Ibiza. Getting greedy eventually gets you busted.
It’s illuminating to look back over some major fraud busts of past years. As the real estate bubble swelled, so apparently did the grandiose imaginations (and unmitigated greed) of fraudsters. Some of these scams, in the US and worldwide, were of a scale that threatened to bring down venerable financial institutions and even threaten national economies.
Why did they do it? For the money, of course! But in some cases, there seemed to be deeper motives: Ego. Power. A sense of ‘otherness,’ of being bullet-proof, and of living outside of the laws of society. How else can you explain the utter brazenness of a Bernie Madoff?
To recognize Fraud Awareness Week, we give you this: a roundup of four recent scams that we consider to be particularly heroic in scale, creativity and ambition. Well done, Fraudsters! Now get thee to jail.
Doctors Without Borders
The Scam: Attorney General Eric Holder charged 91 people, including nurses, doctors, and other medical professionals, with Medicare fraud.
The Method: Hospitals, clinics, and home care facilities billed the government for unnecessary services or for treatments which were never received. One rather creative scam provided free cigarettes and other kickbacks to patients who enrolled in a partial hospitalization program…in which many of them watched TV and received no treatment.
The Take: $432 million
The Full Story: CNBC: Nationwide Medicare Fraud Bust Among Biggest Yet, Oct. 2012
Billion-Pound Boondoggle
The Scam: In Britain’s biggest recent banking fraud, a 32-year-old city trader at Swiss bank UBS (Kweku Adoboli) racked up staggering losses over a two-year rogue trading spree and sent the bank’s share price plummeting.
The Method: As the losses built. Adoboli cooked up fake deals and invented nonexistent investors to cover the shortfalls.
The Take: Adoboli lost £1.4 billion in trades for the bank; his salary and bonuses shot from £65,000 to £360,000 in two years, on the strength of his sham trades.
The Confession: “I take full responsibility for my actions and the s*** storm that will now ensue. I am deeply sorry to have left this mess for everyone and to have put my bank and my colleagues at risk.”
The Full Story: Daily Mail: UBS Rogue Trader Gambled Away 1.4 Billion, Sept. 2012
Libor Lies
The Scam: In which British banks reported falsified interest rates to prop up their creditworthiness or to increase trading profits.
The Take: Incalculable. It’s more pertinent to talk about the losses, however: Forbes estimates that the ensuing legal battles could cost billions.
The Repercussions: Banks’ reported interest rates underpin the Libor (London Interbank Offered Rate), an average rate based on rates submitted by banks, and a measure of the health of the financial system. Manipulating the Libor isn’t just a problem for Britain because US derivatives markets also rely on the Libor rate. Even big US banks like Bank of America, Citigroup, and JPMorgan Chase are finding themselves caught up in this quagmire.
The Full Story: Salon: Banks’ Biggest Fraud Ever?, Jul. 2012
Mortgage Mayhem
The Scam: Could the mortgage crisis of recent years turn out to be the most wide-reaching financial fraud in history? The worms are just beginning to wriggle out of this particular can. (One such worm—a $1 billion suit against Bank of America for allegedly selling defective loans to Freddie Mac and Fannie Mae.)
The Methods: Various, the most creative and spectacular being the bundling of junk mortgages into securities which were then shined up with excellent credit scores and re-sold to unsuspecting investors
The Perpetrators: Still at large
The Take: Incalculable. But you can likely count the losses to the American economy in the trillions.
The Full Story: Forbes: (op ed) Madoff Has Met His Match: Mortgage Fraud, Crime of the Century, Oct. 2012
Do you know of a financial fraud in progress? Find out how to report it at stopfraud.gov