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The Golden Age of Fraud

Regular readers might recall I'm collecting examples of massive frauds as raw material — there's a book I'm due to write next year that has some, ahem, interesting observations on the subject — and today the comics fishwraps newspapers have got two beautiful ones.

First, the one everyone in the USA has already heard of: the Broadcom indictment has gone surreal. Not only have Federal prosecutors charged Broadcom's co-founder Henry T. Nicholas III with a huge stock-option backdating scam (which forced his company to write down $2.2Bn in profits last year), but they've served a second indictment, alleging that "the billionaire drugged his business cohorts, hired prostitutes and maintained a drug warehouse" as the Associated Press puts it.

Stock-option backdating is hum-drum, tedious fraud; the perp is an executive, and what happens is, they notice that their company stock is soaring and they think "why can't I get some of that action?" So they fake some paperwork granting themselves an option to buy shares today at whatever price they were trading at a couple of years ago, and they back-date it. Stock options: fine. Back-dated stock options with a forged dateline: not so hot. This is generally stupid and foolish and greedy, and it's what drags them into court — auditing and oversight regulations require corporations to keep an eye on what options their executives are being awared — but it's merely venal.

Henry transcended mere venality, though, "jetting around the world in his two private planes, building a secret lair under his house and hiring strippers to party at a private warehouse stocked with cocaine, methamphetamine and ecstasy." So let's get clear about what we're looking at: a billionaire master criminal with a secret bunker. And for Carl Hiaasen, or maybe Christopher Moore, twist on the tale: "In 2001, Nicholas smoked so much marijuana during a flight on a private jet between Orange County and Las Vegas that the pilot had to put on an oxygen mask, the indictment states."

I am shocked, shocked! That our upright captains of industry could spend their (alleged) ill-gotten gains on such a debauched and hedonistic lifestyle. (Where do I git me some of them Broadcom stock options ..?)

And now for the slightly more obscure fraud that proves that the Scriptwriter in the Sky has been trying to get into TV drama: "Viren Rastogi, the businessman behind a global metals trading fraud that duped 20 banks - including West LB, JP Morgan Chase and Dresdner Bank - out of $750m (£383m), has been jailed for nine and a half years."

This one is even more surreal, because it's a classic boiler room scam gone metastatic, and indeed multinational:

Rastogi and his family were using "boiler rooms" around the world to manufacture a bogus paper trail to support their metals trading scam. Unbeknown to the lending banks and auditors, Rastogi was in control of more than 200 supposed trading counterparties at "brassplate" addresses in more than 20 different countries.

Instead of shipping millions of tonnes of metals around the world, the web of bogus transactions simply churned cash lent from the banks - with a proportion being salted away in a maze of offshore trusts in the British Virgin Islands.

In 1996-97 they were showing an annual £1Bn turnover (US $2Bn or thereabouts in today's money; $1.75Bn back then) and Rastogi was paying himself a cool megabuck a year as CEO.

They were busted when they used the same fax machine to send paperwork from twenty of their fake companies to their auditors, PriceWaterhouseCooper, who (to their credit) noticed that something smelly was going on; once the investigation got under way it snowballed, with the Serious Fraud Office taking an interest. Oh, and the TV Screenwriter twist? Would you believe in a chief investigator (in a British crime thriller) called "Paige Rumble"? Not in the BBC Drama department, that's for sure ...

102 Comments

1:

The Nicholas indictment should answer any remaining questions about "irrational exuberance."

2:

This is some crazy stuff.

3:

Doesn't appear to be affecting Braodcomm's stock price though.

4:

So let's get clear about what we're looking at: a billionaire master criminal with a secret bunker.

Funny, I was taking sort of the opposite line: I was disappointed that, with mountains of money at his disposal, the average corrupt executive can't think of anything more interesting to buy than parties.

5:

Your second example speaks to the quasi-sexual frisson of 'getting away with it' that seems more important to this type of criminal than the money involved. Look at the complexity, the managerial skills necessary to pull it off, the interpersonal skills needed to sell it to sophisticated victims. I would think that these abilities could propel someone to success in legitimate efforts. But the straight life lacks 'the juice.'

6:

Don @5: Oh yes indeed. One suspects that with that amount of cash sloshing about, the Rastogi clan could have laundered the money differently; instead of shoving it into offshore bank accounts, what if they'd used the proceeds to take over real corporations, pay back the creditors over time, and exit the scam in possession of substantial assets that would deliver real dividends? Probably nobody would have been any the wiser as long as they did it slowly and carefully on a rising market (and indeed, the charges were laid around 2002 or thereabouts, if my reading of the story is correct). Whereas a pure boiler room scam is always going to blow up sooner or later.

In some cases, the only difference between the successful entrepreneurs and the jailed fraudsters seems to boil down to their exit strategy.

7:

Why does everybody have a bunker these days?

8:

If you're looking for fascinating frauds, be sure to check out the former head of a company I used to work for: Kobi Alexander. He and a couple of cronies decided that simply handing themselves backdated options was too obvious, so they (allegedly!) set up a series of fake employees to whom they issued the bogus options, then pilfered the options from the fake employees' brokerage accounts.

When the SEC caught up with this, he fled to Germany; when the Germans found him he vanished again. His company hired a private detective to track him, and he was found in Sri Lanka but again fled before he could be apprehended. He's now in Namibia, fighting (successfully, so far) extradition.

At least one of his two co-conspirators is still free as well (and, as if to fulfill every overdone stereotype, running a hedge fund) -- as the SEC needs his testimony to nail Kobi if they ever manage to catch him. So as long as Kobi can stay in Namibia, the whole thing is quite without consequence.

Kobi was not exactly well-loved -- on the day he resigned and fled the company's stock went up, and I believe it's continued that way since.

9:

You know what would be awesome? If Ricky Jay blogged. I would actually pay for that.

10:

Jonathan @9: Who or what is "Ricky Jay"?

12:

How did he manage to smoke that much pot betweeen OC and Vegas? That's maybe a one hour flight (400-450 km)!

13:

Brian R: He may be famous to you, but the only magicians I can name are Penn and Teller (and mostly because of their other activities).

P. J. Evans: he wasn't the only smoker aboard, apparently.

14:

Well, I'm getting all these spams from a group running a conference in Vegas on how to profit from the real estate collapse. The best is yet to be, apparently...

15:

Depressingly enough, some of this type of corruption has managed to become institutionally sanctioned; if I'm not mistaken, backdating options is in some cases legal (I think - this is definitely _not_ my area of expertise - that the matter turns on disclosure), for example, Conrad Black did just this.

But as to those 'exciting' ages, well, all we need now is to perfect the theory and practice of jaunting. This may be an age of Romance, but it's certainly not a nice one to be living in for most people.

16:

Hrm, massive fraud, massive fraud .... Scientology? Christianity? Fractional reserve banking? Wine (a conspiracy of the French =)? Critical theory? Modern art? Bioethanol? THE IRAQ WAR! The whole fucking universe (perpetrated by Ur-SnowGlobeCo for the amusement of the Metas)?

17:

Hey, going by the Senate Intelligence Committee inquiry Phase II report, Michael Ledeen is exhibit A.

18:

I dunno about the idea of "going legit" as major fraud. If everyone gets paid, and you end up in control of a profitable company, that seems to indicate only that you didn't share the whole of your business plan with your investors. Also, someone would have to show a loss in order for it to be fraud.

For me, politics has to be the ultimate fraud. They sell promises of Utopia and deliver (at best) inertia.

19:

Charlie, here's another one. Apologies if you have already seen it. Saudi wanted for $1.7B bank fraud gets $80 million US military contract to supply jet fuel to US military bases in Afghanistan. http://www.boingboing.net/2008/06/05/indicted-saudi-gets.html

20:

Yes, I was thinking of Ricky Jay the magician. He has an astonishing knowledge of various cons, etc. He advises David Mamet (and others) on them and appears in his films. He has written some wonderful books that, although typically focussed more on performers than conmen, I think you would find interesting. In particular, Jay's Journal of Anomalies is excellent. I would strongly recommend springing the extra couple of quid for a used hardback. Hell, I'll even loan you my copy if you promise to return it within a year. At his personal site there is some additional information. There is a fascinating New Yorker article on him from several years ago that he makes available. Scroll to the bottom for HTML limk or direct to .PDF.

Anyway, I'm familiar with much of his work and have a moderate case of fanboyism. Reading your post made me suddenly think that Ricky Jay blogging about cons and frauds in a manner similar to Bruce Sterling on "Centipedes" would be awesome.

21:

Or unformalized reputation-index fraud -- the Bill and Melinda Gates Foundation as clever exit strategy? (or any other evil bloated plutocrat-cum-philanthropist)

22:

@13
Added details:
His mother is a member of the group who bailed him out (US $3.4 million). He's been ordered to a drug treatment center (in Malibu - I hope it's legitimate), with a tracking device to be worn all the time, and both of his jets have been ordered to be 'disabled'.

I'm not sure how many joints it takes to foul an aircraft's system that badly. The only time I was in a vehicle where someone was using it, the driver (it was a bus) threatened to drop them off halfway over the Grapevine (miles from anywhere).

23:

So, did the pilot fly by instruments? Can't imagine it was too easy to see through smoke and O2 mask.
At least you don't get high on second hand pot smoke (not in my limited experience anyway).

24:

Yes, back dating options is perfectly legal. It's a contract, and as long as both parties agree to the terms, it's all OK. It's fairly common as a hiring bonus, for example, to give someone options as if they were struck back when the stock was cheaper. Or, for a start-up, it's common for everyone to get the same options (strikes and dates), even though hiring took a bunch of time. It simplifies everything for the company, and keeps people from resenting each other too much.

What isn't OK is pretending that the cost to the company is the same as if they hadn't back dated the options. If I give you options that are in the money and can be exercized immediately, that cost should be recognized.

25:

@23: Being realistic for a moment, I suspect the pilot probably freaked at the first whiff and grabbed the oxygen mask; failing a dope test is a guaranteed way to lose a commercial pilot's license (not to mention probably ending up in the slammer for a while).

Even so, for the smoke to circulate that much is, cough cough, interesting.

26:

You want fraud? Alves dos Reis. He's about a third the reason why Portugal ended up with an economist as a dictator.

27:

Carlos: thanks! Wow, Alves dos Reis was special, and not in a good way. You know the fraud's far-reaching when it destabilizes the national currency.

Hmm. And that reminds me of the Albanian pyramid schemes of 1995-1996 that brought down the government ...

28:

There's got to be some good material in the big mass-murders of the 20th century, many of which were coverd up for some time. A small to medium scale event South Korea just came to light. The biggest one was the Stalin era, in which case much of the US academic establishment refused to believe...

29:

Jim: mass murder does not meet my definition of fraud, which includes the requirement that it be robbery by subterfuge not violence. Violence: check. Robbery: nope, mass murder is not the same as robbery. So: no useful material there.

30:

Hi Charlie,

I actually have the IMF's working paper on those, somewhere. As a percentage of GDP, it was a much larger fraud than Alves dos Reis in Portugal. However, it existed in parallel to the official financial system, which is why it went on for so long, and also why the economy recovered more quickly than one would have expected. It was something of a "game" economy, players investing back into the schemes, keeping the overall macroeconomic impact minimal. (The civic violence when they collapsed, on the other hand, trashed Albania's output for a year.)

Anyway. Lot of stuff out there. Do you know about Kuwait's stock bubble, based on post-dated checks? That's a fun one.

31:

Kuwait's Souk al-Manakh Stock Bubble ... wow, pretty fascinating. On the other hand, aside from some of the obvious candidates in the shape of optimists kiting cheques (Jassim al-Mutawa: a passport office employee who ended up with a $3.4 billion overdraft?!?) the whole scenario doesn't obviously seem to have been designed as a scam from the get-go. Unless I'm missing something ...

Mind you, seeing $90,000 going "pop" in a bubble for every human being in your country has got to hurt.

32:

It's interesting to contrast the depressing reality of fraud with how it is often treated in fiction. And while the Straussian notion that people are having a fraud perpetrated on them for their own good is an entertaining plot device(It looks like a washing-machine. It's actually the first defense against an alien mind-invasion!), I can't think of any examples in real life. Are there any examples? All I can think of are things like bank officials lying about the solvency of their firm to prevent a self fulfilling prophecy from occurring.

33:

There was the recent Office Space/Superman fraud, which you're probably already aware of.

34:

And the Eve Online Heists, which you're also probably aware of.

35:

And some relatively recent fraud in Second Life.

36:

And this video on Barry Minkow is sort of interesting. I swear I'm done now.

37:

JamesPadraicR @23, my throat got irritated the three times I went to big rock shows back in the 70s.

38:

Charlie, most of the Kuwaiti stocks traded were empty shells, with little or no assets. At the time, aside from its national oil company, Kuwait had a small cement industry. The fraud was on the part of the people who set up the dummy companies.

39:

Marilee @37 As I said my exposure was limited, I'm sure it didn't compare to being at a concert especially in the 70s.
anyhow,
I was going to add a link to a story I just saw on CBS News about misuse of funds at Oak Ridge Laboratory --used for cigars and booze for visiting scientists. Unfortunately they don't have it up yet. Not exactly fraud/scam and small potatoes compared to the above mentioned.
Only story I found in a quickie search:
http://www.knoxnews.com/news/2008/may/27/federal-audit-spanks-ornl-conference-costs/

(Sorry I have no style to clean that up.)

40:

It's fascinating how a crook can look like an astute businessman, when looked at through MBA-colored glasses. I was just googling Bill Millard, my favorite bent corporate executive, and found this hosannah to his name and business acumen on a website dedicated to resellers. They consider him the founder of their industry, and marvel at his foresight. What he really was, was a shady dealer who was as happy screwing over his own friends as his customers.

I worked for Millard for a while at Imsai in the 70's; he was a crook, no question. He had a bad habit, that got him into some trouble with the US Post Office, of selling products through the mail that had not yet been designed.* Somewhat later he gave a bunch of stock in Imsai to his friends who worked there (all the management and senior technical staff), then milked the company of all the cash and used it to start Computerland, the first directmail computer products retailer. He made more than US$1 billion out of Computerland, but all of his friends got nothing, because the stock didn't transfer.

Ultimately he was successfully sued by his founding partner, stockholders, and franchise owners for the same sort of financial and marketing shenanigans at Computerland. He left the US with only $200 million and moved to Saipan, a tax haven and, thanks to US lobbyists like Jack Abramoff, a place where there are no laws or protection for workers, so that large numbers of the inhabitants are, for all intents and purposes, slaves. I do wonder if that was one of the attractions for Bill.

* And I don't mean that the engineering wasn't done, I mean it had not been started yet; Millard planned to use payments for orders to do the development and initial manufacturing, but didn't bother to tell his customers that they were ordering vapor.

41:

DELETED BY MODERATOR

ARY: if you post on that particular subject again I will ban you. (Hint: they're litigious and I'm vulnerable due to my jurisdiction. That idiotic little comment of yours could easily end up bankrupting me due to legal fees.)

42:

Daniel Rutter has been following, with some interest (And some legal threats from the parties he's been commenting on) the goings on of some "Fuel Pill" scammers here in Australia.

It's got to the point where one of our national Basketball teams have got embroiled, as well as the government, all over a scam that has been around pretty much as long as there has been petrol cars.

Largely covered under this tag. Ahh Firefower, how we now point and laugh.

43:

Re 'good frauds': In _Slide Rule_, Nevil Shute as near as dammit admits that Airspeed was trading while insolvent, and supports the position of a putative friend who kept an enterprise going in order to employ his workforce. Also, if the sector goes down, a local bank goes down with it, so the manager might not look too closely at the balance sheet.

44:

Charlie: Are you aware of the tragick history of Ivar Krueger, the Swedish "Match King"?

In 1929, at the peak of his career, the Kreuger fortune was thought to be worth 30 billion Swedish kronor, equivalent to approximately 100 billion USD in 2000, comprising more than 200 companies. In the same year the total loans made by Swedish banks were barely 4 billion SEK. ... His death precipitated the Kreuger Crash which hit investors and companies worldwide, but particularly hard in the U.S. and Scandinavia.

Wikipedia doesn't cover it too clearly (no surprise!) but a lot of his companies' assets appear to have existed only on paper, or consisted of holdings in his other companies.

I read a book on him in my teens and was mightily impressed.

45:

BTW, there might be a conversion error in that conversion to 2000 USD as $100 billion, but maybe not... At that point, a couple years before his suicide, Krueger owned or controlled most of the match manufacturing companies in the world, and had extracted government monopolies in a number of countries. The contemporary descriptions of him sound as though besides being a megalomaniac - which he certainly made work for him - he might have been both bipolar and OCD. (He was deathly scared of germs, a la Howard Hughes, for instance.)

46:

Speaking about mass murders AND frauds, there was the Belgian Congo. Ten million dead to cover up the lack of profits from scam rubber harvests. The investors figured that if the King of Belgium was killing that many people, there had to be money in it somewhere.
It was uncovered by a reporter. Then Belgium's elite bailed out the king for fear of the impact if he defaulted.

47:

The thing that really, really upsets me about all of this is that I never got to party with Henry T. Nicholas III.

48:

Oh, duh! On a smaller scale, right here in Hawaii in the '70s-80s, what the hell was his name? [google google]

Ron Rewald, that's right. Took a mere $22 million via "investment counseling" using fancy offices and the classic Ponzi approach, but managed to confuse a whole lot of wealthy and well-connected people during and after with a dizzying patter about how their investments would be guaranteed due to his CIA connections. (He may have had some, in addition to being a swindler - some apparent connections to the Nugan Hand Bank came up - but it didn't help.)

There are a bunch of his victims who still swear to this day, along with various conspiracy theorists, that he was really just a poor hapless CIA agent who the agency turned on, and not a conman in the least.

49:

A realtively small scale, maybe, but with a big impact on British society...
Ernest Marples.
Made transport minster, got a tame hatchetman (Doctor Beeching) to close down railways that were just tunrning a profit, or could have been, with a little effort, and built under-spec Motorways - to which his firm, Marples Ridgeway got a LOT of contracts.
Also a rack-renter.
Died in tax-and-criminal exile in Monaco (I think) as the Revenue men were after this ex-minister by then.

Steven Norris Jarvis of the railway screw-up firm Jarvis Norris is a minor present-day example - very worrying to see that he has been let loose on London's transport by Boris J.

50:

This is maybe drifting off-topic, but consider the Congo Free State (as it was in the Heart of Darkness days) as an example of corporate colonialism in general. Or the Slave Trade.

The late-Victorians in Nigeria were liable to wax lyrical about how good it was to see the natives happily going about their business, safe from the threat of the slaver, while conveniently forgetting it was their ancestors, in the previous century, who had been buying the slaves.

And wasn't the South Sea Bubble essentially corporate colonialism as fraud?

51:

Modern day snake oil - very litigious - check out Ben Goldacre in the "Grauniad" [hint] May 31st etc.

It would be interesting to see what research the company did when they set up to find a suitable market.

52:

There is one rather short entry in the wikipedia that you should know about:

http://en.wikipedia.org/wiki/Treuhand

The brevity of the entry masks the effects.

The Treuhand (Treuhandanstalt or Treuhand agency) was the agency that privatized the East German enterprises owned as public property (common property). Created by the Volkskammer on June 17, 1990, it oversaw the restructuring and selling of about 8,500 firms with initially over 4 million employees. At that time it was the world's largest industrial enterprise.

Its operations drew heavy criticism for unnecessary closing off of profitable businesses, misuse and waste of funds and unnecessary layoffs. When its operations ended in 1994, it had amassed 260 to 270b DM in debt. It had gained a mere 30b DM from sales of its units.

The former chairman of the Treuhand, Detlev Karsten Rohwedder was shot by an unknown assassin and succeeded by Birgit Breuel.


All this was followed by the exodus of 2-3 million people (about 15-20% of the total population) towards western Germany, precipitated by unemployment figures well above 50% (official numbers were much lower, of course) and probably a lot of damage to economies further east who were embedded in industrial cooperation with east German industries, whose links were suddenly snapped. (Think China suddenly deciding not to export to the US any more.) Eastern Germany had the most advanced industry of the eastern bloc.

And we're not even talking about the take-over of politics by almost exclusively 3rd class western German politicians who earned a lot more than their peers in the rather rich western countries. Same goes for civil servants who got a "bush-premium" (bush as in developing country) on their salaries if they worked in the east.

Of course, all monetary benefits of people born in eastern Germany were much lower than for those in the west, even when serving in the exact same position, doing the exact same work in the exact same place.

[/rant]

53:

@50: the south sea company's main economic activity consisted of sending a single ship to South America, once. Not exactly colonialism.

54:

Maggie@51: If you're referring to the company I think you are, my understanding is that they've gone bankrupt... and, in deference to Charlie's fears of litigation, I will simply say that it is my personal opinion that it couldn't happen to a more deserving bunch; and that, in an unrelated note, the indispensable Mr Goldacre has a website at badscience.net which is quite informative on a variety of subjects.

55:

Don't forget Robert Vesco (who has died - we think) and that massive Ponzi scheme in Albania(?) during the 1990's.

Now almost all the cases in this thread are financial. But fraud is nothing more than a deceit perpetrated on others. So it should include "The Turin Shroud" for example, maybe even the issue of the War in Iraq might come under this topic.

While the details of huge frauds are interesting, and the voyeuristic nature of reading about the excesses of the perpetrators, I find it more interesting about what this repeating phenomenon says our minds and cultural evolution.

56:

Surely @41 is an overreaction ... or I'm missing a joke? It's my understanding that bloggers aren't liable for libel in unmoderated commentary, anyway. Or maybe my lyxdexia is wetting my gords all mixed up-

57:

Luke, I think the point is that if he didn't take it down, Charlie would end up liable.
Besides all it takes is a nasty letter or tow from some lawyers, and Charlie then has to waste time replying, and probably money of his own in hiring a lawyer to draft the appropriate reply. If the person was sufficiently litigious, CHarlie could lose his house and suchlike, even if he won the court case.

I think, anyway. I am not a lawyer. A forum I am a nod on is run part time by someone who has been close to pulling the plug on it because getting involved in libel (i.e. one poster saying " X sells really dodgy stuff, don't go there" then leads to a solicitors letter from X, adn so on) can snowball and get really messy.

58:

@56

English libel law: it has features intended to make it hard to say, "It's not my fault," which are unfortunately easy to abuse.

Since pretty well anything on the Internet can be read in England, it seems possible that anyone in the world could be sued for libel in an English court.

Of course, I've seen rather exaggerated reactions to the threat. I was a Demon customer when they lost the famous libel case, and the words "Crack Legal Team" acquired unlookedfor meanings. For a moment, they seemed afraid that their own lawyers would sue a customer for libel.

At the time, the different perceptions seemed so different that you just knew somebody had to be somewhere around Barstow, on the edge of the desert. But Demon still had the lawyers.

59:

Luke @56: my server is located in England, so English legal jurisdiction applies.

If I leave a libelous comment on my server then in English law I am publishing it and am party to Libel.

Absolute truth is not a defense. To successfully defend a libel claim you need to prove that the plaintiff's reputation was not damaged. (Facts are merely mitigating factors in a "guilty" verdict.)

Paying a lawyer is expensive. Best not to go there.

Let me repeat this fact: this is not an American blog and is not subject to American laws. It is subject to British (and specifically English) laws, which differ significantly in their scope and nature. Everything you know about libel under American law is WRONG under English law, which is most unreasonable on the subject.

If you want to be rude about someone (naming no names, a Church funded by a crap science fiction writer), do not refer to them by name: use a nickname instead. For example, saying rude things about "the Clams" or about David "Rat-bastard" Cameron is allowed, because these nicknames aren't official names of the entities in question.

60:

Holy Chairman LMAO, "Somewhere around Barstow" is my new favorite code-phrase.

61:

Wow, duly-noted Charlie, and apologies.

Veeerrry interesting discussion, tho.

62:

BTW, I just thoroughly depleted the Stross reserves at my local mom and pop, so I can no longer say "Yar!" with such conviction.

63:

There's always Bre-X, if you're looking for a big mining scandal…

64:

Wasn't one of Robert Silverberg's Urbmon stories about the one whose elite were most deeply into sex and drugs? But which one?

"Earth 2381: The hordes of humanity have withdrawn into isolated 1000-story Urbmons, comfortably controlled multicity-buildings which perpetuate an open culture of free sex and unrestricted population growth. Nearly all of Earth's 75 billion live in the hundreds of monolithic structures scattered across the globe, with the exception of the small agricultural communes that supply the Urbmons with food."

65:

Many Americans are surprised when they learn that Europe is less free than the US. Canada too (I'm looking at you, Canadian Human Rights Commission).

66:

I'm trying to think of an sf story where the government fraudulently promised prospective colonists untold riches should they immigrate. The actuality was bleak, few amenities, lots of hard work, and tyrannical oversight by the colonial authorities. It turns out that there was some sort of Looming Catastrophe, but it was decades in the future, and getting the civilian populace to evacuate in an orderly fashion was impossible. So the government had to do some under-cover-of law press-ganging to make sure that New Earth would be able to accommodate the teeming hordes when said Looming Catastrophe was only six months in the future.

I may have conflated stories, or gotten some details wrong, but please, no one mention "The Marching Morons" :-)

Of course, in real-life, we see the U.S. government lying to the citizens to get them involved in a war(s) 'for their own good,' but I'd like something a bit less pedestrian - 'the _real_ reason water is floridated is that the alien parasites can't live in a human host so treated. But the American people would never believe this . . .'

67:

Leaving aside the issue of fraud for the moment, am I the only one who doesn't see anything wrong with building a bunker under one's house in which one sits around petting one's cat while watching a troupe of exotic prostitutes cavort in a drug-laden haze through one's gold-rimmed monocle?

I mean, I'm just saying. It seemed to me like there's this whole unstated assumption here that such antics are in some way bad. In fact, considering the financial maneuvers involved, I'd be willing to wager that the times when said people were engaging in unfettered hedonism were also the rare occasions when they were not actively harming others. So if anything, this is the sort of behavior we should be encouraging.

68:

Charlie @59

You know that some Australian courts have logically sound but hard to enforce views on libel and how things are published on the internet? And Oz libel laws are harsh?

End result, don't acquire assets that an Oz court might be in a position to seize.

Sorry, can't help with the massive fraud collection.

69:

I'm a British-born Canadian who's spent a fair bit of time in the US, and one thing I've noticed, especially in the English-speaking world is how people miss the differences between the countries because of the superficial similarities.

US law is not Canadian law is not English law-- but sometimes it's hard to notice on the surface.

I want Charlie to write books for me to read: not fight legal battles which are guaranteed to have boring transcripts if they're even available.

70:

As to "good frauds", well depending on how you squint, that could cover about half the US technology industry at any one time. (Probably other countries too, but I have no experience with them.) A lot of creatively sketchy accounting goes on at small companies trying to get off the ground, and often only the good intent and hope to actually produce something differentiates this from the more clearcut fraud.

The chief accountant at one company I once worked for said once, reminiscing, "If you're a small company trying to borrow money to expand manufacturing and production, you've either got to have a lot of money in the first place, or use mirrors. We used mirrors."

"Mirrors" was pretty much the story of Ivar Krueger and Enron too, though this particular story had good intentions and ended up much more happily.

71:

A recent Wired article on an interesting electric car distribution company can be found
here.

(Note to lawyers: all opinions and research are courtesy of Wired and its USAian journalists, not Charlie's blog...)

While we're on the subject of cars and the environment, I've noticed all the "miracle fuel treatment" and "run your car on water!" scams from the '30s, '70s, etc. are back in circulation this spring.

72:

Okay, I had to figure out how to add a link without having the address showing. I looked at the source for this page and I think I figured it out.

So to keep on topic here's a link to Wikipedia's entry on Charles Ponzi.

73:

Charlie;

Your stance on libel isn't what I'm told applies from actually asking a lawyer - "justification", telling the truth, is a defence (One you must actively exercise, but a defence). Your pro-active editing, frankly, has negated the other defences which should hold.

Your insistance otherwise...bluntly...I think I need to pack your books off to the charity shop and stop reading your blog. I can't be a party to censorship of this nature. Shame.

74:

Oh come on now, 73. I think his main point is that it's *expensive*. That hill's not worth dying on.

The issue of English vs. American definitions of libel
does crop up now and again
, tho.

I wonder what happens to the notion that legal jurisdiction is determined by a server's physical location when server virtualization and replication makes location indeterminate? Or when your blog is hosted on your 4g phone and you could be anywhere?

75:

Actually, I'm now downright concerned. The case Charlie has cited in a previous thread, an incorrect cite, is one which is known to have been spread by a scientologist sockpuppet.

(Truth *is* a defence against libel, but is not commonly invoked, in the case cited there was a major error of fact by the paper.)

Um. Charlie, you may wish another opinion on the matter.

76:

"...hiring strippers to party at a private warehouse stocked with cocaine, methamphetamine and ecstasy..." I believe these dens of inequity have a name. I think they call them "clubs", and they are not particularly shocking.

77:

During the latter years of my many succesful cons I cracked the art of reducing the cost of books by moving the removable stickers on discouted books to a new release book I wished to obtain. So far I have netted a saving of £8.45 Ha Ha Ha. A Ha Ha Ha [Back to the bunker]

78:

Andrew Crystall- if you could actually cite the legal gubbins in the relevant cases, that would help.

Otherwise I havn't got a clue what you are on about.
As stated above, the legal stuff in this country can get complex and rather messy, and Charlie doesn't want the hassle. Even completely unimportant and backwater websites like the re-enactors board I post and mod on, have policies on potentially libellous stuff. Until we get the law sorted out (Probably some time next century), its not worth arguing.

79:

Back to the matter at hand:

There was a fruad case that came to light in Oakland CA over the dealings of the 'Your Black Muslin Bakery' and its leader/owner Yusef Bey. He got loans from political leaders due to his local leader status and set up his own business/cult that imploded after his death. He also allegedly ran a welfare scam involving his wifes/employess (its messy and complicated). The ending is still unravelling in the courts, and it was violent at the end. And yes, he was part of the Black Muslin movement but split off years ago. Some of the details are listed thru the link below.


http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/10/08/MN6ASE0QN.DTL&hw=Your+Black+Muslim+Bakery&sn=002&sc=767

80:

guthrie @ #78:

I suspect this is the case in question, but I am not ENTIRELY sure.

81:

Or, possibly, this (the former seems to be a later ruling on the same case).

82:

I don't want to see any more discussion on the topic of libel here, or any mention of the particular case Ingvar just referenced.

I've explained my position, and I'm not going to argue it -- I'm simply going to delete posts about it.

Andrew, you may very well be right, but my problem is, if you're wrong I'm the schmuck who's going to end up throwing thousands or tens of thousands of pounds at lawyers, not you. So I'm going to err wildly in the direction of caution.

83:

Charlie, are you looking specifically for examples of fraud, or will you take corruption and insider trading?

84:

In the course of researching my last book (which involves a long con), I picked up a couple of great old books from the '50s edited by Alexander Klein: Grand Deception and The Double Dealers. Both are essentially anthologies of essays about actual frauds, hoaxes, con artists, forgers, and miscellaneous flim-flammers, from the famous to the obscure. There's some wonderful stuff in them -- I wound up basing the con in my novel on a scam from the Cold War where some unscrupulous gentlemen claiming to work for the French gov't convinced a Baron to help them buy a load of radioactive material from the Germans to sell to Franco in Spain for purposes of blowing up communists. Of course, what he actually bought were crates of sand, but for about two years the Baron was convinced he was living in a spy novel... There are used copies for not too much online, and a lot of the frauds detailed therein don't seem to show up online at all (at least, I was frequently frustrated when googling for further details).

85:

The name is Bond. Alan Bond.

http://en.wikipedia.org/wiki/Alan_Bond_(businessman)

86:

Robert @83: I'm not terribly interested in corruption and insider trading in this context.

87:

@64 I think you mean , "The World Inside".

88:

I'm a bit surprised no one has mentioned the Stavisky affair (France, 1934) yet.

Stavisky was not only a phenomenal fraudster, but he also happened to be an Ukrainian Jew; in a France where anti-semitism was a major political force, and where the Dreyfus affair was still a recent memory, this was a free gift to the Bad Guys.

http://en.wikipedia.org/wiki/Stavisky_Affair

Not only did l'affaire Stavisky have a major effect on French politics, it's ripples spread outward from 'l'hexagone'.

Years ago I had to look up the Dail (Irish parliament) debates on the Aliens Act of 1935. Lo and behold, one of the provisions of the Act which exercised the minds of the deputies was a provision that would have allowed aliens to change their names on arrival in Ireland. This was viewed with some suspicion by the Irish people's representatives: 'would you know a man better as O'Donnell than Stavisky' being one immortal phrase.

The idea being, I suppose, that if the Jews were excluded, Ireland would be saved from corruption. Which is the sort of claim that anyone with knowledge of what really drives Irish political life can only respond with bitter, mocking laughter.

89:

You might also like to have a look at David Maurer's book, The Big Con. He was a 1930s linguist who started studying the language used by con men and then realised that explanation was useless without context, so the book is filled with examples of long cons and the men who worked them astold to him by the grifters themselves. Nothing huge in terms of modern corporate stuff, but it's a fantastic study of the people and how they related to their work.

Of course, getting a bunch of con men to tell you about the cons they've pulled might not yield entirely accurate results, but it's a fun read nonetheless.

90:

The Irish back in the 1990s had some fantastic frauds and political bribery reaching into the highest offices of the state, which could be interesting if you want a political angle to your fraud plot. A good place to start is the Moriarty Tribunal, which investigated the affair, and the doings of a certain minister: the gentleman in question even faked the official documents of his own department to help out a group of businessmen he was in financial collusion with so as to fraudulently grant valuable state assets to his mates.

91:

Man, I've got to buy some of these books. I've had a long interest in the topic too.

On the "harmless frauds" side of things, are you familiar with the American humorist H. Allen Smith's The Compleat Practical Joker? It's essentially a collection of anecdotes of elaborate pranks, mostly pulled by people he knew - but evidently he knew quite a collection of people. Haven't read it in a long time, but very funny.

Back to the swindlers...

As I recall, the last King of Tonga, the late Tupou IV was a sucker for virtually every get-rich-quick scheme, crazy business scheme, and con-game to come his way. He got taken over and over again for fairly substantial chunks of government money. There were a couple numismatic/philatelic schemes, I think, several questionable manufacturing companies, and one involving sale of Tongan passports to Hong Kong citizens during the panicky period before the PRC took over - this raised quite a bit of money, which was eventually all lost in bogus investments by the King's advisor, the court jester. (I am so not kidding.) If you ask Karen Lofstrom, she might remember more specific details than I do.

92:

tp1024@53: I thought the South Sea Company managed to send over 100-odd (96?) ships in a few decades. (They were restricted to three voyages a year by the Spanish when the UK wasn't actually at war with Spain, so the number couldn't have been much higher.)

93:

In Spain there were recently a couple of cases of relatively big fraud. One case was philatelic, two companies (IIRC) made wild promises of huge interest returns if people invested in their portfolio of stamps. As you can imagine, it was a pyramid scheme. A bit earlier there was the Gescartera case, in which an investment fund was instead a slush fund for the executives to jet about and a pyramid scheme too. This latter one even fooled some pretty big institutional investors, like parts of the Catholic Church and the ONCE, a semi-public organization which is the rough equivalent of RNIB in the UK.

94:


Sorry I don't have a hard link but when I worked at a large international bank in Boston (it was bought but guessing the name should be trivial ;-) in the early 80's the (failed) conversion project had me around long term back office bankers. Very nice folks. One mentioned a shipping deal a number of years prior that was so large it was funded by several very large banks, and would create the largest fleet to cross the pacific. Many billions invested. You got it, there were never any boats!

I'm sure this has been written of extensively in some nook of the financial industry, but being a programmer it would be a research project...

95:

So there I am reading all the above stuff and thinking how little of it I'd had experienced.......and then had one of those "Oh Crap" moments, because this stuff has probably affected me personally in my formative years more than most people.

My father was a director in one of Robert Maxwell's Companys. I remember him getting calls at 3am from Captain Bob (and his subsequent nervous breakdown).

When my father died one of things I inherited was his bugging kit, sadly 1970's tech but the fact that he had one speaks volumes.

This whole area can be very tricky to talk about. Maxwell was notorious for suing anyone who tried blowing the whistle on him and civil law sometimes seems like the plaything of the rich and corrupt.

TBH it's a bit weird having stuff in my head I daren't talk about (for instance, the real reason Maxwell wrote those books praising Eastern European dictators like Ceau�escu) going back decades, but possibly more sensitive than the stuff I later worked on that required me to sign the Official Secrets Act.

In the end money is indeed the root of all evil given the lengths twisted and corrupt men will go to to get it. With Maxwell it was all about the money, even when he was involved in politics at both a local and international level.

These days the stuff rubbing itself in my face is much more prosaic corruption. It's amazing how many mysterious fires the historic buildings in my home town seem to suffer from, as well as the hilarious "whoops" moment a local developer had when repairing a local grade II listed theater. I hasten to add that these may be all totally accidental - although nobody I know believes that for a moment.

Now that I think about it corruption and fraud really does hit me more than I like to think about.We seem to be spending an inordinate amount of time opposing planning applications by developers to build a 160 house estate on land formerly occupied by 3 houses (they were big houses, but not that big!).

In the end I guess you were right - SPECTRE won!

96:

I think your headline is right, Charlie - the Golden Age of Fraud is the present.

97:

The BBC is estimating $23 billion US lost or stolen in Iraq: http://news.bbc.co.uk/2/hi/middle_east/7444083.stm

That's not all one scam or scammer of course, that's a whole bunch of American and Iraqi crooks piling into it. According to the BBC, "A US gagging order is preventing discussion of the allegations." I would imagine that suits certain politicians just fine.

98:

All that money and not one single deathray.

I am so disappointed...

99:

alan @98, will this do?

100:

The "Salad Oil Fraud" (check Wikipedia) was a particularly fun one-- it actually involved the use of fake inventory as collateral for loans.

102:

Fuel Cell Today: Genepax unveils water energy fuel cell system

To preserve Charlie's lawyers' blood pressure: No comment.

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