Bernard Madoff

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ZZZZ Best from Scams and shams: The biggest frauds in business

Scams and Shams: The Biggest Frauds in Business

These businesses scammed people out of millions
Bernard Madoff

STAN HONDA/AFP via Getty Images

Not everything is always as it seems. On the surface, many of the business ventures featured on this list appeared to be the next big thing. But in reality, the people behind the operations were stealing millions, and sometimes billions, from investors willing to come their way.

Check out some of the biggest business scams in history.

 

ZZZZ Best

ZZZZ Best

Ernest R. Prim/Shutterstock

The business

ZZZZ Best was a rug-cleaning business founded by then-16-year-old Barry Minkow, a California native, in 1982. Still a high school student, Minkow ran the business out of his family’s garage, but by March 1987, ZZZZ Best had made its way to Wall Street with shares worth $64 million. A month later, it was $110 million, according to the New York Times. Minkow’s “success” even earned him a spot on Oprah Winfrey’s talk show.

The sham

Minkow would add illegal charges to customers’ credit cards and take the money from the bank. And when stealing small amounts would no longer cut it, Minkow, together with Tom Padgett, an insurance claims adjuster, founded Interstate Appraisal Services, a fake company that stole millions of dollars from banks and financial institutions. Minkow’s empire came tumbling down in 1987 when the Los Angeles Times released an article claiming ZZZZ Best had illegally been using customers’ credit cards and had racked up at least $72,000 in charges. Minkow’s stocks plummeted and an investigation ensued. By 1988, Minkow was charged with racketeering, money laundering and fraud and was sentenced to 25 years in prison.

 

Centennial Technologies

Centennial Technologies

iStock.com/abalcazar

The business

Centennial Technologies was a company that made personal computer cards and parts. Together with his CFO, James Murphy, CEO and founder Emanuel Pinez listed a personal-computer card called “Flash 98” in the company’s inventory system at a price of $500.

The sham

“Flash 98,” was not real and had never been created. According to invoices released by the company, Centennial grossed more than $2 million in sales thanks to the products. But the documentation was false. Pinez used his own money to convince his workers that the company was financially successful when in fact the company had incurred losses of $28 million. In 2000, Pinez, pleaded guilty to one count of fraud, was sentenced to five years in prison and agreed to pay a fee of $5.3 million to settle a complaint filed against him.

 

Charles Ponzi

Charles Ponzi

Donaldson Collection/Michael Ochs Archives via Getty Images

The business

Charles Ponzi’s story dates back to the 1920s. After receiving correspondence from a potential business partner in Spain, Ponzi realized that a postal reply coupon purchased in Spain could be sold for a higher price in the U.S. As noted in his autobiography, “The Rise of Mr. Ponzi,” Ponzi believed that purchasing a large number of these coupons in overseas countries where things were cheap would result in financial abundance in the U.S. where the currency was stronger. He named his newest venture the Securities Exchange Company and convinced Bostonians he had found the secret to easy wealth. He claimed to know a network of agents in Europe with an abundance of coupons and told his “clients” they would become extremely wealthy. Ponzi collected an estimated $15 million from investors.

The scam

When word spread that Ponzi was actually able to pay investors a lucrative amount, more clients ran his way hoping to make it big. On July 24, 1920, a front-page feature by the Boston Post exclaimed that Ponzi was able to double an investors’ funds in as little as three months. Ponzi basked in his success, purchasing mansions and diamonds for his wife. What clients didn’t know was that Ponzi was using money from old investors to pay new investors and so on. The tides finally turned when rates for international postal reply coupons were changed by the U.S. Post Office Department. He quickly went into debt and owed more than $2 million to clients. After an investigation, Ponzi was sentenced to more than 30 years in jail, and the term “Ponzi scheme” was introduced into the American lexicon.

 

Bre-X Minerals

Bre-X Minerals

Keith Beaty/Toronto Star via Getty Images

The business

Michael de Guzman was a geologist employed by Bre-X Minerals, a Canadian gold exploration company. With an $80,000 investment from Canadian businessman David Walsh, he partnered with another geologist, John Felderhof, to travel to Indonesia and unearth the gold he had supposedly found on a previous trip to Borneo. Guzman took samples from the ground and shipped them off to be analyzed. Upon inspection, it was noted that there was indeed gold in the samples. Bre-X, previously a penny stock, became an overnight success and rose to more than $250 per share. By December 1996, Lehman Brothers Inc. declared that the company had made “the gold discovery of the century” and encouraged people to buy stock.

The sham

The truth was that Guzman had actually filed down small pieces of his gold wedding ring and placed them in the samples, a common fraudulent process called “salting.” When Guzman no longer had any gold left from his ring, he bought $61,000 worth of gold from locals in Indonesia over a span of two years and mixed it with samples. The Indonesian government became suspicious of Bre-X’s exploration in the country and revoked all permits. With an investigation underway, a fire — believed to be started by Guzman — destroyed all files and samples related to the search. After negotiations were made to pay off Indonesian government officials and other mining companies, Guzman mysteriously fell more than 600 feet to his death from a helicopter. Bre-X shares immediately crashed. It was later proven that there was no gold in the ground Bre-X had drilled and samples had been tampered with. Investors who were upset with Lehman Brothers for their financial advice related to the company filed lawsuits to be compensated.

Enron

Enron

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The business
Enron was an energy trading company responsible for one of the largest bankruptcy filings in American history. The total loss was $74 billion. Formed in 1985, Enron was the result of a merger between two natural gas companies, House Natural Gas and Internorth. CEO and chairman Kenneth Lay oversaw the success of the company. By 2000, Enron was featured on Fortune magazine’s top 500 U.S. companies with more than $111 billion in revenue and 20,000 employees.

The sham

By 2001, Enron had taken a turn for the worse. The company lost more than $600 million in third-quarter sales and eventually admitted that it had fabricated its total earnings since 1997. Executives had been including future estimates with current income statements to make the company appear more profitable. Stock prices dropped from more than $90 to less than $1, and, in an attempt to save the company, Lay asked employees to buy stock and invest in the company. Employee funds along with their retirement savings were wiped and more than $2.1 billion in pension plans was liquidated. Enron was placed under investigation by the Securities and Exchange Commission and the U.S. Department of Justice opened a criminal investigation. Lay died before he could be sentenced, but former CEO Jefferey Skilling was sentenced to 24 years in prison.

WorldCom

WorldCom

TIMOTHY A. CLARY/AFP via Getty Images

The business

WorldCom was the nation’s second-largest long-distance telecommunications company. Over a span of five years, WorldCom purchased more than 60 telecommunication companies, including MCI, a $37 billion purchase. WorldCom was believed to be one of the most profitable telecommunication companies when competitors like AT&T were losing money.

The sham

From 1999 to 2002, Bernie Ebbers, the CEO of WorldCom, reported more than $9 billion in false accounting entries to make investors believe the company was more profitable than it was. WorldCom was responsible for one of the biggest accounting scandals and the largest bankruptcy filing in U.S. history. The company had $107 billion in assets when it filed for Chapter 11 bankruptcy. Ebbers was sentenced to 25 years in prison for fraud and violating securities laws.

Tyco International

Tyco International

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The business

Tyco International was a security systems company. In addition to home security systems, Tyco made electronic and medical supplies. At its peak, Tyco International employed more than 270,000 people.

The sham

Beginning in 1995, Tyco’s CEO Dennis Koslowski, Chief Financial Officer Mark Swartz and general counsel Mark Belnick, stole approximately $600 million from the company through unapproved bonuses disguised as “interest-free loans” and fraudulent expense accounts. An accusation against Koslowski claims that he even had the company pay for a multimillion-dollar 40th birthday party for his wife on an island in Italy. Both Koslowski and Swartz were sentenced to up to 25 years in prison and ordered to pay $134 million in restitution.

HealthSouth

HealthSouth

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The business

HealthSouth was a chain of hospitals and health care centers that offered diagnostic services and rehabilitation therapy. It was founded in 1984 by Aaron Beam and Richard Scrushy. By 1990, HealthSouth was a billion-dollar corporation and by 1995 HealthSouth had health centers in every state and more than 40,000 employees.

The sham

When HealthSouth went public in 1996, the company had a market value of more than $12 billion, but Scrushy and his fellow executives had fabricated at least $1.4 billion in earnings. By 2002, assets were overstated by more than $800 million. To make up for losses, Scrushy would overestimate insurance reimbursements and overvalue assets. When HealthSouth’s scandal went public, the stock plummeted to less than $1 a share. Scrushy was ordered to pay $81 million and owed close to $3 billion to shareholders.

Madoff Investment Securities

Madoff Investment Securities

TIMOTHY A. CLARY/AFP via Getty Images

The business

Madoff Investment Securities was an investment firm founded by Bernard Madoff, a Queens, New York, native, using the $5,000 he’d saved from a lifeguarding job in his teens. With an additional $50,000 borrowed from famiiy and a little help from his father-in-law, a retired Certified Public Accountant, Madoff was able to grow his company into a multimillion-dollar firm with clients like acclaimed director Steven Spielberg. By the close of 1980, Madoff Investment Securities was responsible for more than 5% of the trading volume on the New York Stock Exchange. Madoff was the chairman of NASDAQ for three years in the early 1990s.

The sham

In one of the largest Ponzi schemes in U.S. history, it turned out, Madoff was never investing any of his client’s money in stocks. Instead, Madoff would deposit his clients’ funds into a bank account where it would sit. When a client wanted to cash in on their investments, Madoff would take money from the account. With rich and famous clientele and the economy booming, Madoff never had an issue replacing the money and repeating the scam over and over. Things came to a head when his clients requested a total of $7 billion in returns and he had less than $300 million to give back. In 2008, Madoff was charged with 11 counts of fraud, money laundering, perjury and theft. He was sentenced to 150 years in prison at the age of 70.

Fyre Festival

Fyre Festival

John Parra/Getty Images Entertainment via Getty Images

The business

Fyre Festival was a live music festival founded by Billy McFarland in 2017. One of McFarland’s earliest business partners was American rapper Ja Rule. Described as an “immersive festival,” the event was planned to span over two weekends in the Bahamas with tickets priced $1,200 or more. Supermodels were featured in the promotional video for the festival and advertised the event on their social media channels, promising the event of a lifetime.

The sham

Things took a turn for the worse almost immediately after guests arrived in the Bahamas. Promoted “private luxury villas” were actually disaster-relief tents, luggage was dropped out of shipping containers at night in the dark and “gourmet meals” were actually slices of bread with cheese. To raise money for the festival, McFarland fraudulently inflated the financial metrics and success of his company, Fyre Media. And he gave investors a fixed brokerage account that supported his claim of having more than $2.5 million in stocks when, in reality, his shares were worth less than $1,500. In turn, more than 100 investors gave McFarland at least $27.4 million to fund his festival. McFarland was sentenced to six years in prison, three years on probation and ordered to pay restitution of the $27 million stolen from investors.

BitConnect

BitConnect

ROSLAN RAHMAN/AFP via Getty Images

The business

Established in 2016, BitConnect was a platform that allowed users to lend cryptocurrency, or digital cash, in exchange for interest payments. By 2017, BitConnect was one of the world’s best-performing cryptocurrencies.

The scam

BitConnect used a four-tier investment system, meaning the more money you were able to lend out, the larger the profit. Investors were told they could earn up to a 40% return each month and were guaranteed a 1% return on each investment. They also used marketing to heavily pressure old investors to recruit new investors, essentially making it a pyramid scheme. The British Registrar of Companies threatened to shut down BitConnect after realizing the company was potentially a Ponzi scheme. Later, the Texas Securities Board ordered the company to cease and desist. BitConnect was indeed a Ponzi scheme.

Ezubao Finance Firm

Ezubao Finance Firm

GREG BAKER/AFP via Getty Images

The business

Ezubao was a peer-to-peer lending company based in China that used the internet to match investors with potential borrowers. Investors would lend funds and be repaid with interest. Ezubao collected close to $9 billion from more than 900,000 investors.

The scam

Ezubao was marketing fake products to its investors. The money that lenders thought was going to creators and entrepreneurs was used to enrich executives. By November 2016, two years after its creation, the company was spending 800 million yuan — about $113 million — on the payroll. Chinese officials claimed Ezubao was a Ponzi scheme and sentenced Ding Ning, the chairman of Anhui Yucheng Holdings Group, to life in prison and a $15.29 million fine.

Global Information Network (GIN)

Global Information Network (GIN)

Terrence Antonio James/Chicago Tribune/MCT

The business

Founded by American author Kevin Trudeau, Global Information Network (GIN) was described as a “worldwide success club” that gave investors access to expert financial advice. According to an ad created by the company, members were located in more than 120 countries. Trudeau told members they would be entering a “secret society” in which they could network with successful individuals from around the world and become a “money-making machine virtually overnight.”

The scam

GIN wasn’t Trudeau’s first scam. Since 1992, he’d advertised and sold weight loss and health products that were false or misleading in nature. The Federal Trade Commission filed a suit against Trudeau for his behavior. GIN’s 35,000 members paid millions for financial advice that never came to fruition. The more money paid to the network, the more rewards members earned and the higher in status they rose. Trudeau used more than $100 million given to him by customers for his own personal gain. He was sentenced to 10 years in prison.

Transcontinental Airlines Travel Services Inc.

Transcontinental Airlines Travel Services Inc.

Evan Agostini/Getty Images Entertainment via Getty Images

The business

While launching the careers of successful boy bands Backstreet Boys and ‘N Sync, Lou Pearlman was also operating two other companies, Transcontinental Airlines Travel Services Inc. and Transcontinental Airlines Inc. After witnessing the success of his boy bands, investors were quick to throw their money Pearlman’s way.

The sham

Transcontinental Airlines Travel Services Inc. and Transcontinental Airlines Inc. were fake companies. Although neither company existed off of paper, Pearlman was able to swindle more than $300 million from investors. He was sentenced to 25 years in prison and died in a federal correctional institution.

Rothstein Rosenfeldt Adler (RRA)

Rothstein Rosenfeldt Adler (RRA)

Charles Trainor Jr./Miami Herald/MCT

The business

Scott Rothstein founded the law firm Rothstein Rosenfeldt Adler (RRA) in South Florida. The firm specialized in civil rights suits, commercial litigation, personal injury and more. In its heyday, RRA was described as “the most glamorous and talked-about law firm in South Florida.”

The scam

According to the Sun Sentinel, RRA was a $1.4 billion Ponzi scheme. Rothstein would tell investors that he had a very lucrative settlement deal in the works, but that his client needed cash upfront. He would then give the investor the opportunity to “purchase” the settlement. This would give the law firm a cash infusion while promising to pay dividends to the investor in the future as the settlement payments came in. Because the deal was “top secret,” he would swear investors to secrecy, and they would agree with hopes of cashing in. In truth, Rothstein was using the money to pay for a lavish lifestyle. According to Forbes, Rothstein spent more than $50,000 a month on prostitutes, wore $6,000 suits and had a pair of $1.6 million Bugatti sports cars. The downturn in the economy in 2009 caused Rothstein to run out of funds to pay back investors, resulting in issues with the Florida Bar. Rothstein fled to Morocco to evade capture, but ultimately returned and surrendered. He was arrested in December 2009 and charged with five counts of racketeering, fraud and money laundering. He is currently serving a 50-year sentence.

The Stanford Financial Group

The Stanford Financial Group

SEBASTIEN BOZON/AFP via Getty Images

The business

Stanford Financial Group was an international financial services firm founded in 1993 by Allen Stanford. Though headquartered in Texas, it had 50 offices in different countries and managed more than $8 billion of assets for over 30,000 clients. The business mainly sold certificates of deposits, or CDs.

The scam

Stanford was sentenced to 110 years in prison for misappropriating $7 billion in funds over 20 years. Stanford would sell certificates of deposits, take some of the money for himself and use the rest to invest in personal business ventures and unreliable business deals. More than 3,500 of Stanford’s victims submitted impact letters to the FBI’s Houston Field Office indicting Stanford of all crimes. In total, 29 fraudulent financial accounts located abroad had approximately $330 million.

Reed Slatkin

Reed Slatkin

Getty Images/Getty Images News via Getty Images

The business

Reed Slatkin was an ordained Scientology minister and co-founder of the internet service provider EarthLink. Slatkin made the transition from minister to a full-time, self-employed investor in the early 1980s. From 1985 to 2001, Slatkin ran an unregistered investment advisory business that had over 500 clients and managed millions in funds. His client list included filmmakers and corporate leaders hoping to invest in a new company supposedly on the rise.

The scam

On May 11, 2001, the Securities and Exchange Commission froze all of Slatkin’s assets. According to the Commission, Slatkin had been running one of the nation’s largest Ponzi schemes. He solicited close to $600 million from more than 800 investors over a 15-year period. It was alleged in February 2001 that he used $10 million in client funds to pay off other clients and personal expenses. Slatkin pleaded guilty to 15 felony charges and was sentenced to 14 years in prison.

Petters Company Inc.

Petters Company Inc.

Ethan Miller/Getty Images Entertainment via Getty Images

The business

Petters Company Inc. was an international holdings company that convinced investors to provide money to the company to purchase electronics. The electronics would then be sold to retailers like Costco and Sam’s Club.

The scam

Petters was operating a $3.65 billion Ponzi scheme disguised as a business. Petters would provide fabricated documents to investors that listed vendors and goods purchased by the company. He falsified and inflated purchase orders and when he was unable to pay investors back, he promised future payments. Over five years, Petters laundered approximately $24 billion. He was sentenced to 50 years in prison, the “longest term of imprisonment for a financial fraud case in Minnesota history,” according to the state.

‘It’s God’s Money’

‘It’s God’s Money’

Courtesy of Hillsborough County Sheriff's Office

The business

“It’s God’s Money” was a Tampa Bay-area Saturday morning Christian radio show hosted by Gary Gauthier. Listeners sent funds to Gauthier after being told by the host that there was a plenitude of real estate investment opportunities.

The scam

Gauthier was running a Ponzi scheme. Money from later investors was paid to early investors. Gauthier and his business partner, David Dreslin, stole approximately $6 million from Tampa Bay residents. In 2014, Gauthier and Dreslin were charged with fraud, racketeering and selling unregistered securities. They could face up to 30 years in prison.

Allied Crude Vegetable Oil Refining Co.

Allied Crude Vegetable Oil Refining Co.

Express Newspapers/Hulton Archive via Getty Images

The business

Created by Anthony “Tino” De Angelis in 1955, the Allied Crude Vegetable Oil Refining Co. was a company that sold shortening and vegetable oil products to Europe. Eventually, the company expanded to sell cotton and soybeans as well.

The scam

De Angelis became a major player in the oil industry by 1962. After realizing investing in the soybean market would raise the price of vegetable oil holdings, he fabricated the amount of vegetable oil he had in an attempt to get loans from Wall Street banks and finance companies. After visiting his warehouse where a copious amount of oil was reportedly stored, American Express gave De Angelis loans. Little did they know, most of De Angelis’ oil containers were partially filled with water. De Angelis had so greatly fabricated the amount of oil he had that his total was more than the entire U.S. inventory reported by the Department of Agriculture. De Angelis was eventually caught after taking loans from more than 50 companies and the reveal of his swindle nearly crippled the New York Stock Exchange.

Theranos

Theranos

Mike Windle/Getty Images Entertainment via Getty Images

The business

Founded in 2003 by 19-year-old Elizabeth Holmes, Theranos was a Silicon Valley blood-testing startup company that purported to use technology to screen patients for infections and release antibiotics that would treat the condition. Holmes was able to raise close to $700 million for Theranos thanks to her connections, even signing deals with Walgreens and Safeway to have her newest invention tested and used in the general public. By 2014, Theranos had a value of $9 billion and Holmes was worth close to $5 billion. Holmes was even featured on the cover of Fortune magazine.

The scam

Speculation about Holmes’ capabilities and the company itself had been swirling almost since the start. While Holmes boasted that her product could perform more than 200 health tests with one drop of blood and would revolutionize the blood-testing industry, Theranos’ analyzer could only perform a small number of tests. A tip to the Wall Street Journal led to the reveal that results sent to patients after using Theranos technology were often fabricated. Theranos’ work environment was unsafe, and documents submitted by the FDA claimed the company was shipping “uncleared medical devices.” After an investigation by the SEC, Holmes was barred from serving as the director of a company for 10 years, agreed to pay a $500,000 penalty and was asked to return the 18.9 million shares she obtained.

NYC VIP Access

NYC VIP Access

Robin Marchant/WireImage via Getty Images

The business

Fyre Festival wasn’t Billy McFarland’s only business venture. NYC VIP Access was a company founded by McFarland that sold tickets to elite events like the Met Gala and the Grammy Awards.

The scam

McFarland didn’t have tickets or access to the events he promised customers. The Met Gala, for example, was an event only accessible by invitation from its host, Anna Wintour. McFarland was able to steal an estimated $100,000 from 15 customers by selling fraudulent tickets. Already on trial for his involvement in Fyre Fest at the time of this discovery, more time was added to McFarland’s sentence.

Ivan Boesky and Company

Ivan Boesky and Company

Michael Brennan/Hulton Archive via Getty Images

The business

In 1975, Ivan Boesky, a Detroit-native, founded Ivan F. Boesky and Company, a stock brokerage company. Boesky engaged in arbitrage, which is when someone simultaneously buys and sells an asset and profits from the difference. By 1986, Forbes reported Boesky and his wife were worth more than $200 million and were placed on the publication’s 400 wealthiest Americans list.

The scam

In May 1986, the U.S. Securities and Exchange Commission began a probe into the “largest insider trading case ever uncovered.” Illegal insider trading is a practice in which one uses non-public information to trade stock, usually resulting in a greater profit for the broker. After being accused of accumulating $12.6 million in profits by using insider trading information, Dennis Levine, the managing director of the investment banking firm Drexel Burnham Lambert became an informant for the government and gave up Boesky’s name. Using confidential information, Boesky made large profits in stocks from notable companies like Nabisco Brands Inc. and General Foods Corp. Boesky was sentenced to three years in prison and forced to pay $100 million for civil insider trading charges.

Hospital Corporation of America

Hospital Corporation of America

Rusty Russell/Getty Images News via Getty Images

The business

The Hospital Corporation of America (HCA) was one of the largest health care facility operators in the nation, at one time managing more than 100 hospitals and surgery centers across the country.

The scam

In 1993, it was revealed that HCA was submitting fraudulent documents to Medicare. According to The New York Times, the company would submit inflated bills and expenses to the government for reimbursement, strike illegal deals with home care agencies and pay kickbacks to doctors for patient referrals. The investigation against HCA was “the most comprehensive health care fraud case ever undertaken by the Justice Department,” according to the Department of Justice, and HCA agreed to pay the U.S. more than $600 million.

Carrian Group

Carrian Group

iStock.com/RSMcLeod

The business

Carrian Group was a property company operating in Hong Kong lead by George Tan. The company had stakes in insurance, hotels, restaurants and more in the U.S., Asia and Australia. Tan was one of the biggest success stories in Hong Kong due to his ability to strike back-to-back property deals.

The scam

Tan had borrowed money from close to 40 banks in the U.S., Asia and Europe to fund his company. By 1983, he was unable to pay back the $1.5 billion in debt he had accumulated. Tan would lie about the success of his companies to attain loans from companies across multiple countries. Affected the most was Malaysia’s Bank Bumiputra, which loaned Tan close to $600 million for his failing company. In a shocking twist, it was alleged that Tan was also linked to the deaths of two men: a Bank Bumiputra official who tried to block a loan to Tan and another man who served as a legal advisor and partner to the Carrian Group. Tan was sentenced to three years in prison.

Windsor Village United Methodist Church

Windsor Village United Methodist Church

STEPHEN JAFFE/AFP via Getty Images

The business

While Windsor Village United Methodist Church was not technically a business, the fraudulent behavior of its leaders is similar to many others on this list. Kirbyjon Caldwell was the senior pastor at Windsor Village, one of the largest Protestant churches in the nation at the time. He was also a spiritual advisor to Presidents George W. Bush and Barack Obama. Together, Caldwell and his financial planner, Gregory Alan Smith, sold Chinese bonds to more than 20 investors, many of them elderly.

The sham

Caldwell and Smith collected and used $1.8 million of investor funds for personal gains like expensive cars and mortgage payments. The Chinese bonds the duo claimed to sell had no investment value due to the Republic of China being overthrown in 1949. The pair was charged with 13 criminal counts by the U.S. Attorney’s Office of the Western District of Louisiana and face up to 20 years in jail. Caldwell still claims his innocence.

WrkRiot

WrkRiot

Dreamframer/Shutterstock

The business

Isaac Choi founded WrkRiot in California’s Silicon Valley, a location where tech giants commonly find their start. WrkRiot was created to help people find jobs online. Choi told employees and his co-founder, Al Brown, that private investors with high net worths “believed in the company” and would help fund the business venture.

The sham

Using four different names, Choi lied about his educational background, his employment history and his wealth to recruit employees. Choi had never attended business school nor was he ever employed by any financial institution, and he frequently created documents that contained false information to convince employees to work for his failing company. In a letter penned to the website Medium, Choi’s fraudulent activity was made public by a former employee, Penny Kim. Choi pleaded guilty to defrauding employees, and as of May 2018, he faces 20 years in prison and a $250,000 fine.

Stratton Oakmont

Stratton Oakmont

ROBIN VAN LONKHUIJSEN/AFP via Getty Images

The business

Stratton Oakmont was a brokerage firm founded in Long Island by Jordan Belfort. His company had more than 1,000 employees and made $1 billion worth of sales. It was the largest over-the-counter firm in the nation in the 1990s.

The sham

Stratton Oakmont used a “pump-and-dump scheme” to get rich quick and swindle investors. They would use falsified statements to encourage buyers to invest in stocks that were worth little to nothing. The stock prices would then rise, and Belfort would sell its holding in the stocks at a high price. While customers lost money, Belfort and his employees enjoyed lavish lifestyles. Belfort was “barred from association with any broker, dealer and investment company,” and sentenced to four years in prison with a fine of $110 million. The film “The Wolf of Wall Street” starring Leonardo DiCaprio is based on Belfort’s life.

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