All Financial Wisdom

Top Financial Scandals In Modern History

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The financial collapse of 2008 shook up the world. Although 7 years later, we’re well on the way to recovery with markets booming, it may be useful to recount the biggest financial frauds in recent year.

  1. Enron, the largest energy distributor, hid millions of losses for years until it broke down in December 2001. Its liabilities amounted to more than $30 billion. Audit firm Andersen was suspected of having destroyed compromising documents. The losses from this fraud reached 63.4 billion dollars.
  2. In mid-2002, the Merck laboratory inflated its turnover by $14 billion, despite the fact that the funds belonged to its subsidiary Medco, which was responsible for providing discount medicine to several pharmacy chains. Merck counted in the column of expenses the $14 billion dollars to balance the accounts, and inflate the profits. Although this case is not technically considered a fraud, Merck went though a tense week on Wall Street until he could clarify the situation.
  3. Telephone company Worldcom , the second largest of its kind in the US, falsified profit accounts for a total of $3.85 billion dollars. When the market learned of its actions, its shares fell sharply by more than 94%.
  4. Yasuo Hamanaka was the main copper investor of the Japanese corporation Sumitomo . He was known as “Mr. 5% “because he controls annually about 5% of the world copper supply. In 1996, the company announced losses of $2.6 billion due to unauthorized Hamanaka operations on the London Metal Exchange. They also accused him of forging the signatures of two of his superiors in letters to foreign investors. He was sentenced to eight years in prison and released.
  5. In 1995, stock broker Nick Leeson caused the collapse of British bank Barings, losing more than $1.3 billion by investing in Japan’s Nikkei index. Leeson ran futures trading in Asian markets from Singapore’s bank headquarters and bet on the yen’s fall! The bank lost all its reserves which led to bankruptcy. This case was one of the most spectacular because the Barings had 230 years of history and managed the heritage of Queen Elizabeth of England. He was bankrupt.
  6. In 2005,Liu Qibing, a trader on the London Metal Exchange who allegedly worked for the Chinese government, falsely bet that the price of copper would fall, accumulating losses of more than $800 million dollars. The bureau of the Shanghai State Reserve, where Liu Qibing allegedly works, denied knowing him.
  7. In 2002, US currency trader John Rusnak, an Allied Irish Bank (AIB) employee , was accused of forging documents to cover up bad investments. The bank said that, as a result, it lost $750 million dollars. After a four-month investigation, he was formally charged by a federal jury. Prosecutors said Rusnak did not personally benefit from the losses, which were mostly in transactions between the US dollar and the Japanese yen. He reportedly confessed to the FBI that his debts accumulated as he tried to devise a tactic to recover the lost money without having to admit to his bosses the initial problem.
  8.  Peter Young, a fund manager at the British bank Morgan Grenfell, later acquired by Deutsche Bank, was accused in 1998 of causing losses of more than $220 million pounds in unauthorized investments. According to Morgan Grenfell, Young used money invested in three large European funds of the company to buy very speculative shares. In December 2000, a jury found that he was not mentally fit to go to trial, after he was brought before a London court dressed as a woman.

An interesting survey by The Wall Street Journal in 2005 showed that much of the financial scandal has been carried out by graduates of Harvard University. The bad reputation of this business school marked a stigma: it generates the obsession – the axis of capitalism – to make money by passing over all ethical principles with quick enrichment and greed being the only laws that matter.

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