Investment history has witnessed a long list of devastating frauds. From high-profile Ponzi schemes to concealed acts of corporate deception, these scams have left unwitting investors seeking lucrative opportunities into financial ruin instead.
In this article, InvestmentNews lists the biggest investment frauds that shook the financial world. By examining these cases, you can gain valuable insights into how fraudulent schemes work, so you can avoid becoming a victim.
These scams also highlight the inherent risks of the financial market and the importance of due diligence in protecting your investments. Let’s delve deeper into the 10 biggest investment scandals that have made headlines recently.
The worst investment frauds in history didn’t just steal billions in investor money. They also shattered lives and prompted major changes in government regulations. These are the biggest investment frauds in the past few decades that rocked the financial market. The rankings are based on estimated losses inflation-adjusted to 2024 values, arranged from smallest to largest.
Main actors: Elizabeth Holmes, Ramesh “Sunny” Balwani
Estimated losses: $600 million ($753 million in 2024)
Sentence: 11 years in prison for Holmes, 13 years for Balwani; $452 million in restitution
In 2003, then 19-year-old Elizabeth Holmes founded Theranos, a healthcare tech startup set out to make blood testing faster and more accurate and efficient. In 2009, Holmes partnered with Sunny Balwani, who guaranteed a $10 million loan to the startup.
Under Holmes’ and Balwani’s leadership, Theranos grew at breakneck speed, achieving decacorn status – $10-billion-dollar valuation – in 2014. However, the situation unraveled quickly when a year later, medical experts found that the startup’s highly touted “Edison” testing machine was unreliable. This led to patients being misdiagnosed with various conditions, from diabetes to cancer. Holmes also promised investors a much bigger profit than the company actually made.
Soon after, regulators filed wire fraud and conspiracy charges against Theranos. The company eventually dissolved in 2018. In 2022, Holmes and Balwani were found guilty of defrauding investors. Holmes was sentenced to 11 years and three months in prison, while Balwani was sentenced to 12 years and nine months. Holmes’ sentence was later reduced to two years. The pair was also ordered to pay $425 million in restitution.
Main actor: James Paul Lewis, Jr.
Estimated losses: $800 million ($1.3 billion in 2024)
Sentence: 30 years in prison; $156 million in restitution
James Paul Lewis Jr., operating under the name Financial Advisory Consultants, orchestrated one of the biggest investment frauds in recent history. Lewis ran an elaborate Ponzi scheme, which he used to cheat investors for more than 20 years. During the period, he stole around $814 million in investor money.
A charismatic figure, Lewis lured investors by assuring them of lucrative returns through foreign currency trading. But he never invested any of the funds. Instead, he used the money to fund his lavish lifestyle. To maintain an illusion of profitability, he paid early investors with money from new investors.
The scheme ultimately collapsed, unable to sustain the promised returns with the influx of new investors. In 2005, Lewis pleaded guilty to federal mail fraud and money laundering charges. A year later, he was sentenced to 30 years in prison and ordered to pay $156 million in restitution.
Main actors: Dennis Kozlowski, Mark Swartz
Estimated losses: $2 billion ($3.2 billion in 2024)
Sentence: 25 years in prison; $134 million in restitution
Tyco was considered a blue-chip investment as the company was involved in the manufacturing of electronic components, and healthcare and security equipment. But in 2002, it was flagged by the Securities and Exchange Commission (SEC) for questionable accounting practices.
Eventually, CEO Dennis Kozlowski was found to have siphoned significant money from the company in the form of unapproved loans and fraudulent stock sales. Along with chief financial officer Mark Swartz, Kozlowski netted $170 million in low-to-no-interest loans without shareholder approval. Kozlowski and general counsel Mark Belnick also arranged to sell 7.5 million shares of unauthorized Tyco stock for $430 million. The funds were then smuggled out of the company disguised as executive bonuses and benefits.
Although they escaped their first hearing because of a mistrial, Kozlowski and Swartz were later sentenced to 25 years in prison. Belnick was acquitted on all charges.
Main actor: Michael de Guzman
Estimated losses: $3 billion ($4.8 billion in 2024)
Philippine-born Michael de Guzman, chief geologist at Canadian mining firm Bre-X Minerals, claimed to have found gold deposits in the jungles of Indonesia. Between 1993 and 1996, he and his team produced thousands of core samples containing gold. This caused Bre-X’s stocks to skyrocket.
Later investigations, however, revealed the gold findings to be fabricated and were aimed at deceiving investors and stakeholders. One of the biggest investment frauds in history collapsed in 1997 as independent investigations uncovered the fraudulence of the gold deposits. De Guzman was later found dead, supposedly from jumping from a helicopter.
Main actors: Markus Braun, Oliver Bellenhaus, Jan Marsalek
Estimated losses: €5 billion (about $5.45 billion)
Sentence: Trial ongoing
Munich-based financial services firm Wirecard found itself embroiled in one of the biggest investment fraud cases when it declared insolvency in 2020. Regulators found that €1.9 billion (about $2.1 billion) was missing from the firm’s account, while German regulators alleged that the money never existed. This led to the arrest of CEO Markus Braun. Another executive, Jan Marsalek, fled the country.
In December 2022, the company’s executives went on trial for corporate fraud and falsifying financial statements. If convicted, Braun faces multiple years in prison. Marsalek is reportedly hiding in Russia and suspected to be working with Russian intelligence. He is now among Europe’s most wanted.
In September 2024, Braun and two other executives were ordered by a German court to pay €140 million (about $155 million) in legal damages to an Asian business associate. The damages are tied to a Singapore company loan, which the judge deemed illegitimate.
Find out how investment frauds work in this comprehensive guide.
Main actor: Sam Bankman-Fried
Estimated losses: $8 billion
Sentence: 25 years in prison; $11 billion in restitution
Among our list of the biggest investment frauds, this one involving the crypto asset trading platform FTX dominated the headlines. Taking advantage of the popularity of cryptocurrency, Sam Bankman-Fried launched FTX in May 2019. With investments pouring in, Bankman-Fried and other FTX executives were accused of using the funds to purchase luxury homes, invest in new ventures, and support political causes.
In 2022, the SEC found Bankman-Fried to have defrauded investors by diverting money from FTX to Alameda Research, a cryptocurrency trading firm he co-founded. Both startups went bankrupt and Bankman-Fried was arrested on fraud charges. In 2024, he was found guilty on seven counts of fraud and conspiracy, including wire fraud, securities fraud, and money laundering.
Main actors: Dean L. Buntrock, Phillip B. Rooney, Thomas C. Hau, Herbert A. Getz
Estimated losses: $6 billion ($11.6 billion in 2024)
Sentence: N/A; settlement reached
In 2002, the SEC charged Waste Management (WM) with reporting $1.7 billion in fake earnings and falsely reporting plant, property and equipment depreciation figures. The agency alleged that the fraud had been going on for more than five years and was perpetrated by the company’s executives. The environmental services firm was later charged with defrauding investors of about $6 billion.
WM resolved the case by settling a shareholder class-action suit for $457 million. The accounting firm Arthur Andersen was also fined $7 million for its involvement in the false reporting.
After WM’s participation in one of the biggest investment frauds, the firm’s new CEO – whose team caught the discrepancy – created an anonymous hotline where employees can report dishonesty.
Main actor: Bernie Madoff
Estimated losses: $65 billion ($95.2 billion in 2024)
Sentence: 150 years in prison; 170 billion in restitution
Featured in the 2023 Netflix documentary “The Monster of Wall Street,” Bernie Madoff is infamously known in the financial world as the mastermind behind the biggest Ponzi scheme ever recorded.
Madoff used his influence as a Wall Street legend and former Nasdaq chair to run a massive Ponzi scheme promising huge returns behind his eponymous investment company. With the help of company managers and back-office staff, he fabricated stock trades and brokerage accounts, then pocketed the money.
His luck run out in 2008 at the height of the Great Recession when markets and investors began pulling out. Investigations revealed that Madoff’s Ponzi scheme tricked investors out of $65 billion.
Madoff was charged with 11 counts of fraud. In 2009, he was found guilty and sentenced to 150 years in prison and ordered to pay $170 billion in restitution. He died while serving his sentence in April 2021.
Get some tips on how to avoid Social Security scams in this guide.
Main actors: Kenneth Lay, Jeffrey Skilling
Estimated losses: $74 billion ($131.8 billion in 2024)
Sentence: 24 years in prison for Skilling; $42 million in restitution; Lay died before sentencing
Established in the mid-80s, former dot-com juggernaut Enron made a fortune trading natural gas and other commodities. In 1999, the company launched its own digital commodity trading platform. At the height of its success, Enron’s shares reached a high of $90. But behind these remarkable achievements was a complex web of corporate deceit.
Through unscrupulous accounting practices, Enron was able to keep hundreds of millions worth of debt off its books. These involved shell companies owned by Enron executives that recorded fake revenues. Eventually, one of the biggest investment frauds unraveled and the SEC got involved.
Enron admitted it overstated profits by almost $600 million. The company’s stock plummeted to less than $1. It then laid off around 4,000 employees, many of whom saw their life savings drained. CEO Jeffrey Skilling was convicted on 19 counts of securities and wire fraud. He was sentenced to 24 years and 4 months in prison and fined $45 million. Chairman and CEO Kenneth Lay died while on vacation before sentencing.
Main actor: Bernard Ebbers
Estimated losses: $175 billion ($306.7 billion in 2024)
Sentence: 25 years in prison
With the financial market still reeling from the impact of the Enron scandal, the biggest investment fraud in terms of investor losses exploded in the US. Telecommunications behemoth WorldCom came under intense scrutiny for accounting fraud. SEC investigations revealed that the company reported operating expenses as investments for several years. Overall, WorldCom treated $3.8 billion worth of operating expenses as investments for the fiscal year.
CEO Bernie Ebbers was held primarily responsible for the fraudulent accounting. He was sentenced to 25 years for fraud, conspiracy, and issuing false documents to government regulators.
WorldCom shares plunged because of the incident, costing investors more than $175 billion in losses, almost thrice those of Enron’s implosion. Eventually, WorldCom filed for bankruptcy. In 2006, Verizon Communications purchased the company’s dwindling assets.
Investment scams aren’t always easy to spot because many hide behind legitimate operations. But there are certain steps you can take to avoid falling victim to one. Here are some practical tips from the Federal Trade Commission (FTC).
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