Uncovered: The biggest frauds in history

As French rogue trader Jerome Kerviel heads to jail following his role in the near-collapse of banking giant Societe Generale, we uncover the tricks and losses behind the biggest frauds in history

This month marks the second anniversary of the global credit crisis that almost brought the world economy to its knees - and the shockwaves triggered by the reckless actions of traders and investment bankers are still being felt.

This week saw investment trader Jerome Kerviel handed a three-year prison sentence - and ordered to repay a staggering £4.1bn to banking authorities - for his role in the near-collapse of French investment bank Societie Generale. Kerviel’s unauthorised actions triggered losses of £4.3bn and almost brought the bank to its knees.

Yet Kerviel’s case isn’t the biggest corporate fraud ever detected - merely the most recent. We uncover seven of the most shocking frauds of the past 100 years.

1: Charles Ponzi

If you were offered a 50% return on your money after just 90 days - having seen a handful of investors do just that - wouldn’t you want to sign up? No wonder then that entrepreneur Charles Ponzi persuaded thousands of New England residents to invest in his postage stamp ‘investment scheme’ in the 1920s.

Ponzi started out by importing international mail coupons before selling them on at a profit - but when the scheme became hugely over-subscribed he quickly switched to using new investment funds to pay off his earlier investors. Authorities intervened before the scheme collapsed completely and Ponzi was sentenced to five years in jail for 86 separate counts of mail fraud in 1920.

2: Bernard Madoff

Ponzi may have been caught, but his methods have been widely copied since. For a Ponzi or Pyramid scheme to succeed there has to be an endless stream of new recruits - which means most end in failure.

Yet New York financier Bernard Madoff beat the odds for more than 20 years, juggling massive sums for wealthy East Coast clients in the biggest pyramid scheme the world has ever seen. Madoff’s business eventually collapsed in 2008 with losses totalling $18bn and he was sentenced to a 150-year prison sentence in June 2009.

3: The Guinness Four

Insider trading - the use of confidential company information to manipulate or profit from share price movements - is the City’s great taboo and can result in stiff prison sentences. It’s little surprise then that in 1986 Britain’s financial establishment was rocked by rumours that four of the country’s most prominent financiers had broken the rules to engineer a takeover of iconic brewer Guinness.

The four men - led by then Guinness chief executive Ernest Saunders - were found guilty of using the company’s money to inflate the Guinness share price through dubious trades to help push the takeover through. Saunders received a jail sentence while his partners were hit with multi-million pound fines.

4: Jerome Kerviel

French trader Jerome Kerviel almost triggered the downfall of French investment bank Societie Generale in 2008 with fraudulent activity that resulted in losses of £4.3bn (€5bn) - the largest-ever alleged fraud committed by a single trader.

Working on the bank’s “Delta One” desk in Paris, Kerviel made €50bn of unauthorised and fraudulent stock market trades over a three-year period - trades totalling more than the bank’s net worth. His fraud was uncovered by internal auditors in January 2008 and this week ‘Le Rogue Trader’ was sentenced to jail and ordered to repay £4.1bn to French banking authorities.

5: Nick Leeson

Why Kerviel committed his audacious alleged fraud remains unclear - but the motivation behind the actions of original ‘rogue trader’ Nick Leeson are all too clear. Leeson single-handedly brought about the collapse of British merchant bank Barings Bank through a series of desperate and ill-advised actions that resulted in - what was then - Britain’s biggest-ever financial crisis.

Leeson worked as head trader in the bank’s Singapore operation, charged with maximising returns from trades between Asian markets. Instead Leeson ran up massive debts through risky speculative trades, before attempting to trade out of them by illegal means. His losses totalled a staggering £827m and brought the Queen’s private bank to its knees.

6:  Alves Dos Reis

The Portuguese economy was almost crippled during the 1920s by the actions of fraudster Alves dos Reis. In jail Reis conceived a plot to forge a contract in the name of the Bank of Portugal to persuade a legitimate company to print 200,000 500 escudo notes which he would later attempt to launder in Portugal’s colonies.

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The massive sum was equivalent to around 1% of the country’s GDP and Reis successfully duped London currency printers Waterlow and Sons into printing the banknotes. Reis laundered some of the cash and was only caught when he used the remaining funds to open a bogus investment bank in 1925. He was sentenced to 20 years in jail in 1930.

7: Enron

Energy trader Enron was hailed as a financial powerhouse and America’s ‘most innovative company’ by business bible Fortune during the 1990s. The reality was rather different - Enron’s share price was bolstered by dubious accounting practices and America’s seventh-largest company was struggling to survive.

Enron habitually declared future profits on its balance sheets to bolster its share price - but these profits eventually failed to materialise. The company plunged into bankruptcy, but not before senior executives pocketed tens of millions of investors’ money in bonuses. Founder Kenneth Lay was convicted of fraud but died before he could be sentenced in 2006.

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