A history of financial fraud

Financial crime and fraud has been an ever-present part of society since pretty much the very beginning of organised commerce and trading. Whether you like it or not, there are always going to be people that try and make money by tricking other people – it’s just the way it is.

You know what though? Although you cannot stop these people trying, there are more than enough ways for us all to keep ourselves safe from financial crime. We explored the world of PayPal fraud here [what is PayPal fraud and how to avoid it], for example.

Here at Winzum we love trying to help you lot out, and we’re also always quite keen to learn about the history of various things, because this is a crucial way of getting a more well-rounded appreciation of the subject. So, with that in mind, let’s get into the history of financial fraud.

Ancient Greek attempts at financial fraud

We seriously weren’t joking when we said financial crime has been a thing since almost the beginning of advanced human civilization. Thousands of years ago, for example, during the time of the Ancient Greeks, a merchant called Hegestratos attempted to undertake financial crime via insurance fraud.

He borrowed money that had to be paid back after he had made delivery of his corn cargo, however Hegestratos planned to sink his boat, making off with the loan money and corn too. Unfortunately for him he drowned in the act… Karma came around quick in this instance.

Financial fraud in the initial years of independent America

The late 18th century would have been a fascinating time to be alive in America, mainly because the country had only just gained its independence. American economics was in its infancy here, and the newfound freedom from the British Empire meant that the potential for financial fraud was massively tempting.

As the secretary of the treasury Alexander Hamilton started to restructure the economy, in particular by swapping bonds from colonies with new centralised government bonds, an opportunity for financial crime arose. In fact, it was Hamilton’s assistant, William Duer, who tried to take advantage of all of this…

Duer had the inside scoop, and he would selectively leak information to the public that he new would drive up stock prices. After doing so he could sell stocks easily for way above their actual value. This is the first recorded instance of financial crime centring on the illegitimate manipulation of the stock market.

Gregor McGregor’s audacious 19th century property fraud

In the 19th century a Scottish general started a particularly audacious financial property fraud scheme that centred on a small island called Poyais that he had been crowned prince of (probably by himself).

As it turned out, the island didn’t even exist, but McGregor managed to convince several high-profile investors that we was building properties on the island, managing to sell a few of these make-believe houses before being found out.

The original Ponzi fraud scheme in 1920

Financial fraud in the 20th and 21st centuries has been dominated by investment scams that have come to be colloquially called “Ponzi” schemes due to the originator – Charles Ponzi. In 1920 he found out that he could buy US postal vouchers and sell them abroad for a small profit.

However, he dramatically overstated the profit margins to investors, and ended up with over £10 million dollars of fraudulent capital before being caught. If you want to know more about Ponzi schemes check this article [what is a Ponzi scheme].