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3 Financial Frauds to Not Forget! Author: Lakshya | Date: April 20, 2021 | Read 3 min.

The happening or conduct of a fraud/scam/deceit (whatever you want to call it) has the power to invoke multiple emotions like regret, anger, sympathy, etc. at once and it’s totally justified. We believe that the biggest by-product of any scam is the “lessons” once it comes to light.
Around the world, the occurrence of scams has resulted in wiser laws/regulations, better awareness among individuals, the emergence of more secure financial products, etc.

Undoubtedly, any financial fraud irrespective of size, duration, origin, etc. is absolutely undesirable but the occurrence of such frauds only exposes loopholes in the system or makes people aware of the indispensable significance of “money sense” so that you don’t end up like Master Atmaram Tukaram Bhide after he got scammed. 😛






In this post, we examine 3 Non-Indian financial frauds that left the world in a state of shock and gave us immense food for thought.

First on the list – December 2001 – Enron Scandal $74 billion

Brief background – Founded in 1985 as a high-flying energy services company Enron Corp was a name to reckon with in those days. The company’s CEO Kenneth Lay, COO Jeff Skilling, and CFO Andrew Fastow however used a wide range of dubious accounting practices to inflate revenue and hide debt obligations. 

What happened – The company was shown as a profitable entity when in reality, the Balance Sheet was highly leveraged (so much so that it could put the existence of the company at risk). Between the late 1990s and early 2000s, Jeff Skilling stepped up the insanity by exaggerating the asset values and revenues by altering the accounting policy. Over some quarters, billions of dollars of debt were deceitfully moved from the balance sheet and onto shell companies in the Cayman Islands. This activity further sped up once Skilling took over as CEO from Kenneth Lay.  After Enron collapsed in 2001, Skilling served 12 years, Fastow served 6 years, and Kenneth Lay passed away before being sentenced. 

Lessons learned – As Warren Buffet says, “Accounting is the language of business” and hence, whether you like it or not, it is indispensable to understand the basic nuances of this language to understand the operations & financial health of the company. 

As potential investors, it is critical for everyone to understand the significance of financial statements because this is the only window shareholders have to understand the performance of the company and its management. And if you do not understand something, Investopedia zindabad (P.s. not a paid advert). 

Second and more gruesome – December 2008 – Bernie Madoff – $65 billion

Brief background – Very recently, an article on the demise of Bernie Madoff read “ Bernie Madoff Left Behind Only Misery and Heartache ”. This mother of Ponzi schemes probably left more than thousands of families devasted, regretful & created long-term financial repercussions. 

What happened – The Madoff run scandal was deemed as the largest Ponzi scheme of all time, which began sometime between 1987 and 1992, emanating from investing in penny stocks (rings a bell – Wolf of Wall Street depicting the story of Jordan Belfort).

On the premise of returning steady double-digit returns to his investors, Madoff was using the money from new investors to repay the older ones who wanted to cash out. Proper Ponzi scheme, innit? 

He maintained a bank account at Chase Manhattan Bank or JP Morgan Chase & Co. as it became in 2000, where he would deposit the funds, and use it to repay old investors, by duping new ones to earning between 18% to 20% returns.  

On the flip side though, as of 14/04/2021, Irving Picard, the attorney overlooking the Madoff Recovery Initiative, has recovered $14.417 billion. 

Lessons learned – Very simply put, the under-mentioned points –

  1. As an investor, it is extremely important that you understand the nuances behind the delivery of 18-20% returns on a consistent basis. Not that it is impossible to do, but it is prudent to understand the basis.
  2. Be in touch with fellow investors if possible and understand their returns, invested stocks (as in which stocks has the fund manager invested in), and any misalignment that they see!
  3. Diversify your holdings so that even if a mishap like this strikes, you can absorb the hit because of a diversified asset base.

And now, the third & the most recent February 2021 – Ng Yu Zhi – $740 million

Brief Background – The 33-year-old Singapore-based Wunderkind, raised SG$1 billion, or $740 million, to finance nickel trading activities (one of the main ingredients for EV batteries, as well as stimulus and global economic recovery related to the Covid-19 pandemic, fuelled rallies in nickel price), on the promise of 15% returns in 3 months, however, the trades did NOT take place. 

What happened – Ng Yu Zhi, a director in 2 companies – Envy Asset Management (EAM) and Envy Global Trading (EGT) – 

  1. EAM is alleged to have borrowed money from investors to purchase nickel from one Poseidon Nickel (an Australian company) when in fact the company made no purchase of nickel.
  2. EGT, meanwhile, is alleged to have deceived investors to purchase a portion of receivables from its purported sale of nickel to BNP Paribas through forward contracts when there was no such sale. 

Lessons learned – While the investigation is underway in this case, the most significant lesson to learn from here is to be diligent and especially when it comes to money! There is no substitute for extensive diligence and understanding the mechanism of transaction/investment structure and you got to remember that! Granted derivative trading isn’t for your average Joe, however, it is OUR money, so the least we can do is study the opportunity before going all in. 

That’s All Folks! 

But, if I have missed out on a fraud that deserves to be on the list, please leave a comment and I will try to cover it in a post and would love to hear from you on what were your learnings from any of the financial frauds. Please do share because “Har Ek learning zaruri hota hai!” 


Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of any agency, organization, employer, or any company. Fintuned Co. LLP shall not be held responsible in any manner whatsover, for any decision/action taken by readers on the basis of the content mentioned in the article. Readers are requested to exercise their best judgement before taking any decision/action. Fintuned Co. LLP shall also not be held responsible for any copyright infringement committed by the author in the process of writing and/or publishing this article and in the event any such offence is found, cooperate with necessary authorities to take remedial action


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