Ponzi scheme, fraud, white-collar crime: 6 modern-day swindlers and how they did it

American con artist George C. Parker claimed to have "sold" the newly opened Brooklyn Bridge up to twice a week for 30 years. Police stopped several of his victims from erecting toll booths on their new purchase. Illustrations: Michael Killalea

The only thing more surprising than fraud itself is the level of respect and power perpetrators - Bernie Madoff, Belle Gibson, Martin Shkreli and the like - achieve before being brought to justice.

On the day this story was written, newspaper headlines flagged yet another case of white collar fraud.

“Former Macquarie exec guilty of money laundering, tax evasion”, a Fairfax headline announced. This time, it’s former finance professor and Macquarie Bank executive Dr Tony Castagna, who has been found guilty by a Supreme Court jury. His crimes are tax evasion, money laundering and dealing with the proceeds of crime. 

While “lesser” crimes and relative misdemeanours – petty theft, trespass, disorderly conduct, reckless driving and so on – have entire systems of law and order built around them to ensure they are easily detected and punished, so-called white collar criminals sometimes appear to operate with impunity, their crimes detected only after they have built a mountain of ill-gotten wealth. But is this really the case, or just a perception? 

Douglas Allan, director of financial crime studies at the Australian Graduate School of Policing and Security at Charles Sturt University, says fraudsters are, in most instances, already in a position of trust. They have great access to the tools required to commit crimes such as embezzlement, tax evasion and money laundering.

"Sometimes it is not money they're after but kudos and status." Dr Russell Smith, Australia Institute of Criminology

“Could you, as an outsider, go out today and fraudulently misrepresent the financial standing of BHP? The answer in most instances is no,” says Allan, who has been a law enforcement officer with the New Zealand Police and an investigator of financial crime in the UK. “Most people who commit fraud are already on the inside, in a trusted position. That makes it far more difficult to prevent and often far more difficult to detect.” 

Fraud is typically motivated by greed, says Dr Russell Smith, principal criminologist at the Australian Institute of Criminology. While this is no surprise, the motives driving that greed often are. Sometimes a fraudster might have an altruistic reason, such as trying to save their business and protect the jobs of their employees. Sometimes it’s an expensive addiction, such as drugs or gambling. Other times, the person is overly aspirational, trying to live up to the expectations of those around them. 

“Fraud is often reactive – a reaction to a stimulus, to a fact or a situation, a pressure within your life,” Allan says. 

“There has been quite a lot of research looking at the personality characteristics of fraud offenders and white collar criminals,” Smith adds. “They vary from minor personality defects such as anxiety, to addictive types of characteristics, through to very serious psychopathology, where people have an expanded view of their own importance in the world. Often, they have a desire to succeed that goes beyond their actual ability to create wealth. 

"Most people who commit fraud are already on the inside." Douglas Allan, Charles Sturt University

“Sometimes it’s not money they’re after but kudos or status,” he continues. “People who have a lot of respect from others in the community, such as lawyers and accountants, often do everything they can to maintain and enhance that level of status and respect. Sometimes it is achieved through acquiring possessions, or enhancing the reputation of the organisation they’re working with, bringing in new contracts, bringing more money into the organisation. Sometimes this is done in a fraudulent manner.” 

Perhaps the one real disincentive to commit fraud is the fact that it is very hard work. Unlike spur-of-the-moment, opportunistic crime, fraud typically requires a high degree of organisation and effort. As a fraud stretches over time, it becomes increasingly complex and requires greater management. 

“[Upon being caught], one of the immediate reactions from fraudsters is, ‘Thank god somebody caught me, this has been so stressful!’” Allan says. “They have a real sense of relief that somebody has managed to stop the ball rolling. People will quite often say, ‘If only I put the same amount of energy and effort into legitimate earning opportunities, I’d be an incredibly wealthy person, without the stress.’” 

Front: Belle Gibson. Back, from left to right: Martin Shkrell, Bernie Madoff, Elizabeth Holmes and Kazutsugi Nami.

Bernie Madoff

Taking Ponzi to new levels
Charles Ponzi operated his eponymous scheme 100 years ago. In the ensuing century, we’ve clearly learned nothing. Bernie Madoff took a page from Ponzi’s book and turned it into US$64 billion. A former lifeguard and sprinkler installer, Madoff worked as a stockbroker, investment advisor and chairman of NASDAQ. For several decades, he ran a stockbroking business. Launched in 1960 and staffed mostly by his own family members, Madoff Securities executed orders from retail brokers. 

The business grew to where it was said to be making 10 per cent of daily trades on the New York Stock Exchange. Then, it formed an investment advisory division, returning steady gains. However, Madoff was simply paying older investors with new money from more recent investors in the biggest Ponzi scheme in history. 

Incredibly, Madoff’s business survived several Securities and Exchange Commission (SEC) investigations over a decade, but in December 2008 he was finally arrested. He is currently serving a 150-year prison term after pleading guilty to 11 federal felonies. 

Madoff’s victims have so far received around US$1.2 billion in compensation; a small fraction of what Madoff stole. 

Kazutsugi Nami

One crime, 37,000 Victims
The career of Japanese businessman Kazutsugi Nami was rarely above board. He was vice president of auto equipment business APO Japan Co. in the 1970s, which was involved in a pyramid scheme before going bankrupt. He was imprisoned for fraud in 1978 after Nozakku Co., his business that sold “magic stones”, also went bankrupt. 

After his release in 1987, Nami established a bedding company called L&G, which is alleged to have derived its income from a pyramid scheme. It’s at this point Nami went big with an entirely new offering. He invented a digital currency called Enten, which he marketed to mum-and-dad investors as a financial safe haven. He is said to have defrauded US$1.4 billion from around 37,000 people, before declaring bankruptcy in 2007. 

During the 2010 trial, where he was sentenced to 18 years in prison, Nami told reporters, “You should be aware that high returns come with a high risk”. He doesn’t appear to be heeding his own advice. 

Belle Gibson

Snake oil saleswoman
Such beauty. Such youth. Such innocence. Such a fraud! Australian Belle Gibson rose to fame as an author and blogger. She claimed to have suffered numerous types of cancers, including “terminal brain cancer”, managing her own recovery through diet, exercise and various natural therapies. 

By 2015, it is estimated Gibson had made more than A$1 million from sales of an app and book based on her experience. Both were called The Whole Pantry, as was her blog. 

From these sales and following several fundraising drives in the name of various charities, Gibson claimed a collective A$300,000 had been handed over to charities, but a report in 

The Age newspaper at the time said her donations totalled A$7000. 

Media investigations around Gibson’s lies about her philanthropy led to further digging into the veracity of her many health claims. In 2016, Consumer Affairs Victoria launched a civil case against Gibson and her business for false claims concerning her diagnosis, her treatments and charity donations. The Federal Court in Melbourne concluded that Gibson never had any basis to believe she had cancer. 

Ding Ning and Ding Dian

Peer-to-peer Ponzi
If you’ve done something wrong, burying the evidence might seem a good idea. However, when police bring in two mechanical diggers, the game is up. 

In 2016, police in China raided the offices of peer-to-peer lender Ezubao. Having raised around US$7.6 billion from 900,000 investors, Ezubao was found to be a massive Ponzi scheme. The evidence was in the 1200 account books that had been buried six feet underground, but which were unearthed by the crime-fighting diggers. 

In late 2017, founder and chairman Ding Ning was sentenced to life in prison and fined US$15.3 million. His brother Ding Dian also received a life sentence and a US$10.7 million fine. Another 24 people involved with the business were put behind bars for three to 15 years. 

Elizabeth Holmes

A bloody great lie
The medical promise that US entrepreneur Elizabeth Holmes made was remarkable: an affordable home testing kit and a single drop of blood could be used to detect a wide range of medical ailments. 

Using false information on research and development, Holmes raised over US$700 million from investors, including media mogul Rupert Murdoch. Her business Theranos, launched by the 19-year-old Stanford University dropout in 2003, was estimated to be worth US$9 billion by 2013. Unfortunately, the technology she promised simply didn’t exist. 

In 2015, an investigative reporter from The Wall Street Journal began sniffing around and discovered the shocking truth. Holmes and former Theranos president Ramesh Balwani were charged in 2018 with massive fraud. Holmes has been fined US$500,000 and barred from company directorship for 10 years. 

Martin Shkreli

Prision bro
The self-titled “pharma bro”, former hedge fund manager Martin Shkreli, earned the title of “most hated man in America” when his business, Turing Pharmaceuticals, legally obtained the manufacturing licence to anti-parasitic drug Daraprim and overnight jacked up the price from US$13.50 to US$750 a tablet. He’d made a similar play before with a business called Retrophin, hiking the price of a drug for kidney stones from US$1.50 to US$30. 

In 2015, Shkreli was arrested and charged with securities fraud. Authorities say that at MSMB Capital Management, Shkreli’s business that owned Retrophin, he ran what was essentially a Ponzi scheme, creating a web of lies to ensnare investors. 

He was found guilty of two counts of securities fraud and one count of conspiracy to commit securities fraud, and in 2018 was sentenced to seven years in federal prison. 

Professional Development: Detecting fraud using data analytics. This course covers the role data analytics has in the identification of uncommercial transactions for later review and, if justified, investigation.

Protect yourself from fraud

Dr Russell Smith, principal criminologist at the Australian Institute of Criminology, offers his top three tips for protecting yourself from fraud.

1. Know who you're dealing with.
Don’t assume that someone is representing a particular organisation or carrying out a specific activity just because they say so. Always do your own checks. Verify with other parties who the person is.

2. Don't sign what you don't understand.
Don’t sign until you fully understand everything being proposed in contracts. This means taking steps to conduct research on what you’re dealing with, rather than simply accepting what people tell you. At the same time, once you’ve signed up, do regular checks on bank and credit card statements to see if money is being taken out.

3. Check your own credit score. 
Conduct credit score checks on yourself through organisations such as Equifax. It is an easy way to find out if somebody is compromising your credit rating. If you have always met credit card and mortgage payment obligations, but you’ve suddenly got a dreadful credit score, it may well indicate that you are being defrauded.

Who was Charles Ponzi? 

His name will forever be connected to a widespread type of financial fraud. So, who was Ponzi?

An Italian who lived mostly in the US and Canada, Carlo “Charles” Ponzi did occasional odd jobs, such as washing dishes in restaurants, when he arrived in Boston in 1903. 

After moving to Montreal, he worked as a bank teller, but was left broke and unemployed when his employer went bankrupt. In dire straits, he forged a cheque, got caught and was sentenced to three years in prison. 

Not long after his release, Ponzi was sent back to prison for two years for smuggling Italian immigrants into the US. 

The scheme that made him rich – and really brought him down – originally involved buying discounted international reply coupons (IRCs) from outside the US, exchanging them at face value for stamps in the US, and onselling them. In itself, this was legal. 

However, in order to make more than pocket money from the scheme, Ponzi decided to bring investors in and promised outlandish returns. Each investor was paid using funds from other investors, rather than from profit – at this point, no IRCs were actually being bought or sold. As long as investors continued to pour in, the swindle made a massive profit. 

After The Boston Post newspaper ran an investigation into Ponzi’s scheme in 1920, the Italian was arrested, charged with 86 counts of mail fraud, and sentenced to 14 years in prison. He died in Brazil in 1949, but his name lives on in the fraud he made famous. 

Read next: How to prevent employees from committing expense fraud

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