To inform my forecasting around FTX events, I looked at the Wikipedia list of fraudsters and selected those I subjectively found similar—you can see a spreadsheet with my selection here. For each of the similar fraudsters, I present some common basic details below together with some notes.

My main takeaway is that many salient aspects of FTX have precedents: the incestuous relationship between an exchange and a trading house (Bernie Madoff, Richard Whitney), a philosophical or philanthropic component (Enric Duran, Tom Petters, etc.), embroiling friends and families in the scheme (Charles Ponzi), or multi-billion fraud not getting found out for years (Elizabeth Holmes, many others).

Fraud with a philosophical, philanthropic or religious component

Bernard Ebbers

  • Prison: Yes
  • Jurisdiction: US 
  • Amount: $18B (all amounts are approximate and inflation-adjusted using in2013dollars.com)

I find the section on his faith most informative:

While CEO of WorldCom, he was a member of the Easthaven Baptist Church in Brookhaven, Mississippi. As a high-profile member of the congregation, Ebbers regularly taught Sunday school and attended the morning church service with his family. His faith was overt, and he often started corporate meetings with prayer. When the allegations of conspiracy and fraud were first brought to light in 2002, Ebbers addressed the congregation and insisted on his innocence. "I just want you to know you aren't going to church with a crook," he said. "No one will find me to have knowingly committed fraud."

Also note that eventually, $8B was restored to investors.

Enric Durán

  • Prison: No, life in hiding
  • Jurisdiction: Spain
  • Amount: ~$700k 

During the 2008 crisis, he robbed Spanish banks by taking out spurious loans, and donated the amounts to anticapitalist causes. He wrote a guide about how to do this, and widely distributed it: an online version in Spanish and English can be found here.

Personal takeaway: Stealing money for altruistic causes is not unprecedented. And if you are going to cross that line, it can be done with much more style. It will also be viewed much more sympathetically if you steal from organizations perceived to be corrupt.

Tom Petters

  • Prison: Yes
  • Jurisdiction: US 
  • Amount: ~$5B

Some of his donations were later returned (bold emphasis my own):

Petters was appointed to the board of trustees for the College of St. Benedict in 2002; his mother had attended the school. In 2006 he gave $2 million for improvements to St. John's Abbey on the campus of adjacent Saint John's University. In light of the criminal prosecution, St. John's Abbey arranged to return the $2 million gift to the court-appointed receiver for the Petters bankruptcy. In October 2007, Petters made a $5.3 million gift to the College of St. Benedict to create the Thomas J. Petters Center for Global Education. In 2006, he served as a co-chairman of a capital campaign at his high school, Cathedral High School, and offered to match donations up to $750,000.

 

Petters formed the John T. Petters Foundation to provide gifts and endowments at select universities to benefit future college students. The foundation was formed to honor his son, John Thomas Petters, who was killed on a visit in 2004 to Florence, Italy. The college student inadvertently wandered onto private property where the owner, Alfio Raugei, mistook him for an intruder and stabbed him to death." In response, in September 2004, Tom Petters pledged $10 million to his late son's college, Miami University. He later promised an additional $4 million, with the total to support two professorships and the John T. Petters Center for Leadership, Ethics and Skills Development within the Farmer School of Business. Miami University has since returned Petters' donation following his conviction. Petters also donated $12 million to Rollins College in Winter Park, Florida, where he was a member of the Board of Trustees, to create two new faculty chairs in International Business.

Allen Stanford

  • Prison: Yes
  • Jurisdiction: British Overseas Territory 
  • Amount: $20B

This case is interesting because it also occurred overseas. Uninterestingly, Allen Stanford was caught in Virginia while visiting his girlfriend.

A leaked cable message from the U.S. Embassy in the Bahamas reported as early as 2006 that companies under Stanford's control were "rumoured to engage in bribery, money laundering, and political manipulation". The U.S. Ambassador to the Bahamas at the time was reported to have "managed to stay out of any one-on-one photos with Stanford" during a charity breakfast event.

 

A February 2009 Houston Chronicle article described Stanford as "the leading benefactor, promoter, employer and public persona" of Antigua and Barbuda. On November 1, 2006, Stanford was appointed Knight Commander of the Order of the Nation (KCN) of Antigua and Barbuda by the Antiguan government. Prince Edward, Earl of Wessex, joined the then Governor-General of Antigua and Barbuda, Sir James Carlisle, to make this announcement during the Silver Jubilee Independence Day Celebration. After being knighted, Stanford used the awarded title "Sir Allen" often; he was generally referred to as such both by Antiguans and internationally.

 

In October 2009, the National Honours Committee of Antigua and Barbuda voted unanimously to strip Stanford of his knighthood.

Fraud on top of a legitimate business

Marc Dreier

  • Prison: Yes
  • Jurisdiction: US  
  • Amount: $1B

Dreier seems to have been a very smart guy who initially didn't attain success. "I recall only that I was desperate for some measure of the success that I felt had eluded me. I lost my perspective and my moral grounding, and really, in a sense, I just lost my mind."

Marc Dreier's only television interview aired in 2009 on 60 Minutes titled, “The Swindler,” which was hosted by Steve Kroft. Dreier notes that he thought he would be featured on 60 minutes for something good that he had done, not for something bad. Kroft asks Dreier a question that was asked of Bernie Madoff, who many people find similarities with, about how someone could have kept up a scam for so long. Dreier noted that he had multiple stressors simultaneously that kept up his focus: the scam, a legitimate law business (funded by the scam), and his work as a practicing attorney.

Richard Whitney

  • Prison: Yes
  • Jurisdiction: US 
  • Amount: $50M

This case is remarkable because he previously was the director of the New York Exchange, borrowed from his brother, and ultimately went bankrupt:

Richard Whitney (August 1, 1888 – December 5, 1974) was an American financier, president of the New York Stock Exchange from 1930 to 1935. He was later convicted of embezzlement and imprisoned.

 

At the same time that Richard Whitney was achieving great success, his brother George had also prospered at Morgan bank and by 1930 had been anointed as the likely successor to bank president, Thomas W. Lamont. While Richard Whitney was assumed to be a brilliant financier, he in fact had personally been involved with speculative investments in a variety of businesses and had sustained considerable losses. To stay afloat, he began borrowing heavily from his brother George as well as other wealthy friends, and after obtaining loans from as many people as he could, turned to embezzlement to cover his mounting business losses and maintain his extravagant lifestyle. He stole funds from the New York Stock Exchange Gratuity Fund, the New York Yacht Club (where he served as the Treasurer), and $800,000 worth of bonds from his father-in-law's estate.

Barry Minkow

  • Prison: Yes
  • Jurisdiction: US 
  • Amount: $500M

" While most Ponzi schemes are based on non-existent businesses, ZZZZ Best's carpet-cleaning division was very real and won high marks for its quality"

The Wikipedia page just keeps on going:

" … the Los Angeles Police Department raided ZZZZ Best's headquarters and Minkow's home, and found evidence that the company was being used to launder drug profits for organized crime"

 

After being released from jail, Minkow became a pastor and fraud investigator in San Diego, and spoke at churches and schools about ethics. This came to an end in 2011, when he admitted to helping deliberately drive down the stock price of homebuilder Lennar and was ordered back to prison for five years. Three years later, Minkow admitted to defrauding his own church and was sentenced to an additional five years in prison. He is subject to restitution requirements totaling $612 million.

Bernie Madoff

  • Prison: Yes
  • Jurisdiction: US 
  • Amount: $24B

There was a similar structure of having a trading house and a hedge fund. However, industry insiders suspected it. Most of the money was eventually returned.

Lou Pearlman

  • Prison: Yes
  • Jurisdiction: US 
  • Amount: $500M

Pearlman used income from the Backstreet Boys and other bands which he either created or managed, to prop up an almost nonexistent aviation company.

Crazy Eddie

  • Prison: Yes
  • Jurisdiction: US
  • Amount: ~$100M

Shares a similar pattern of having fraud on top of a legitimate business.

Samuel D. Waksal

  • Prison: Yes
  • Jurisdiction: US 
  • Amount: $10M to $10B

The Wikipedia page is unclear on whether the medicaments he pioneered were fraudulent, or whether the fraud was adjacent but unrelated.

Other somehow subjectively similar cases

Charles Ponzi

  • Prison: Yes 
  • Jurisdiction: US 
  • Amount: $200M

Ponzi's investors even included those closest to him, like his chauffeur John Collins and his own brother-in-law. Ponzi was indiscriminate about whom he allowed to invest, from young newspaper boys investing a few dollars to high-net-worth individuals, like a banker from Lawrence, Kansas, who invested $10,000

Tino De Angelis

  • Prison: Yes
  • Jurisdiction: US
  • Amount: $2B

Also borrowed based on faulty collateral. After his prison term, he went on to scam further.

Alves dos Reis

  • Prison: Yes
  • Jurisdiction: Portugal, Angola 
  • Amount: Absurd. “0.88% of Portugal's nominal GDP at the time”, which would be ~$2B today.

Complicated plot to forge Portuguese banknotes in Angola, which was brought down when rivals accused it of being a front for the Germans, stopping a plan to become legitimate by acquiring the Bank of Portugal and hush away the fraudulent origins of the con.

Jordan Belfort

  • Prison: Yes
  • Jurisdiction: US 
  • Amount: $400M

Fictionalized in the Wolf of Wall Street film. Belfort ended up paying 50% of his future income towards restitution, and giving somewhat scammy motivational and training seminars. 

EDIT h/t Greg Colbourn: The above is incorrect. Belfort was initially supposed to pay 50% of his salary, but sneaked out of it. See here for more details.

Elizabeth Holmes

  • Prison: Yes
  • Jurisdiction: US 
  • Amount: $7B

Homes seems to have been a similarly charismatic funder. Though in this case, it seems like the enterprise was a fraud from the beginning.

A takeaway for me: Fraud is surprisingly common, and investors probably price it in. 

Kenneth Lay and Jeffrey Skilling (Enron scandal)

  • Prison: No (died before), yes
  • Jurisdiction: US
  • Amount: $40B

James Paul Lewis Jr.

  • Prison: Yes
  • Jurisdiction: US 
  • Amount: $500M

Around half of his fortune was mandated to be returned, but only $11M was ultimately returned.

Harshad Mehta

  • Prison: No (died before)
  • Jurisdiction: India 
  • Amount: $2B 

Also financed market speculation with worthless securities which he himself created.

John Rigas

  • Prison: Yes
  • Jurisdiction: US 
  • Amount: $5B

The executives were accused of looting the corporation by concealing $2.3 billion in liabilities from corporate investors and of using corporation funds as their personal funds

Ferdinand Ward

  • Prison: Yes
  • Jurisdiction: US  
  • Amount: $200M

Ward ran the company as a Ponzi scheme, claiming that he had inside access to government contracts, a claim which gained further credence when the president later joined the firm as a full partner.

Whitaker Wright

  • Prison: No (suicide)
  • Jurisdiction: US
  • Amount: Unknown

At this point Wright made his criminal error. To maintain an image of solvency and success, Wright kept pushing thousands of pounds from one of his companies to another in a series of "loans". This led to some misrepresentations on balance sheets. But when he announced that, despite the apparent prosperity of his group, there would be no dividends, people became suspicious. In December 1900, the companies collapsed. Wright fled, but was brought back to stand trial. The shock waves led to a panic in London's exchange. There were other losses. The humiliated Marquess of Dufferin and Ava died in 1902 in the midst of the investigation.


 

114

New Comment
11 comments, sorted by Click to highlight new comments since: Today at 1:13 AM

Belfort ended up paying 50% of his future income towards restitution

No he didn't! From Wikipedia [my emphasis in bold]:

Restitution

Belfort's restitution agreement required him to pay 50% of his income towards restitution to the 1,513 clients he defrauded until 2009, with a total of $110 million in restitution further mandated. About $10 million of the $110 million that had been recovered by Belfort's victims as of 2013 was the result of the sale of forfeited properties.[32]

In October 2013, federal prosecutors filed a complaint against Belfort. Several days later, the U.S. government withdrew its motion to find Belfort in default of his payments, after his lawyers argued that he had only been responsible for paying 50% of his salary to restitution up until 2009, and not since. The restitution he paid during his parole period (after leaving prison) amounted to $382,910 in 2007, $148,799 in 2008, and $170,000 in 2009. Following this period, Belfort began negotiating a restitution payment plan with the U.S. government.[33] The final deal that Belfort made with the government was to pay a minimum of $10,000 per month for life towards the restitution, after a judge ruled that Belfort was not required to pay 50% of his income past the end of his parole. Belfort has claimed that he is additionally putting the profits from his U.S. public speaking engagements and media royalties towards the restitution, in addition to the $10,000 per month.[34]

Prosecutors also said that he had fled to Australia to avoid taxes and conceal his assets from his victims,[35] but later recanted their statement, which had been given to The Wall Street Journal,[36] by issuing Belfort an official apology and requesting that The Wall Street Journal print a retraction.[37] Belfort also claimed on his website and elsewhere that he intended to request that "100% of the royalties" from his books and The Wolf of Wall Street film be turned over to victims. But in June 2014, spokesmen for the U.S. attorney said that Belfort's claim was "not factual",[38] and that he had received money from the initial sale of the movie rights that was not entirely put towards his restitution repayment.[36] BusinessWeek reported that Belfort had paid only $21,000 toward his restitution obligations out of approximately $1.2 million paid to him in connection with the film before its release.[39] Belfort has stated that the government refused his offer to put 100% of his book deal money towards his restitution.[39][40]

I think this is pretty outrageous (he's paid only ~11% of what he owes, and will likely only ever pay ~12% max), and sends completely the wrong message. i.e. basically he's still a rich celebrity making lots of money off the stories of his wrongdoing; he only served 22 months in prison; this could easily be interpreted by a lot of people in terms of "financial crime pays off"(!). Who knows, maybe FTX/Alameda were even inspired by it!?

Wow, thanks, corrected.

length of prison term (sentenced? served?) seems like a useful column in the spreadsheet. 

Why? What decisions would change depending on the various values?

I was commenting because I've been curious about it and it seemed like info that would often be present alongside whether or not there was a prison sentence at all, so it seems like it wouldn't have been much marginal work to collect it on your first pass (though obviously much more work now, unless you were going back through the list for some other reason). 

There do exist questions about how long people will be sentenced to prison around this (like this Metaculus one), but it also wasn't obvious to me that you were going for exclusively decision relevant info - how is jurisdiction of crimes decision relevant? 

Though maybe I should have just said interesting rather than useful. 

FWIW: I also would that info interesting, mainly to see if they got a jail sentence that seems appropriate to their frauds, but it's not essential indeed. 

Great post, thank you for writing. Definitely makes me re-evaluate my own priors on fraud, and also think about structural risks inherent in companies where:

  • there is a trading house and fund owned by the same person (as in Bernie Madoff's case)
  • the nature of the business and / or investments may not be a ponzi scheme by nature or have multi-level marketing built in, but where it's growth model in effect looks a bit like that; i.e. growth seems highly driven by enthusiasm, is activated through social networks / word of mouth, and the intrinsic value of the business / commodity is subject to a lot of debate (in contrast with e.g. stock prices of minerals necessary in electronics manufacturing)

Cheers. For what it's worth, I'm not sure how much one should update one's priors based on this list, because it's not clear how many people in finance there are in total  (though maybe one could quickly do a back of the envelope calculation here). So I think that this kind of thing is more useful when thinking about what happens once you know there is fraud.

Yeah I had the same thought too. Though when I said priors I personally did not mean updating quantifiably (i.e. 0.05 --> 0.1); more in the folk sense of priors, or base rates.  

Also the examples I gave are more about certain features of a business / company that I should be more sceptical about.

Right, what I meant is that you probably shouldn't update all that much about the frequency of fraud within finance, the same way that you shouldn't update on how often redheads are evil are after reading a list of evil redheads.