“Greed is good,” crowed Gordon Gekko from the 1980s film “Wall Street.” But greed hasn’t always proved to be a positive motivator for corporations and the people who run them. Though the titles of Bernie Madoff and Enron might be the freshest in the minds of most people, financial scandals are nothing new in the business world. Continue reading to discover the biggest money scams of the last 100 years.
Teapot Dome Scandal
Government corruption is nothing new, as shown by the Teapot Dome Scandal, which took place in the 1920s. As the U.S. Navy updated to use oil instead of coal on all of its ships, special oil reserves on federal government land were set aside to be controlled by the Navy and tapped only in case of a national crisis.
One such reserve was on land in Wyoming using a rock formation that looked like a teapot. Albert Fall, the secretary of the interior under President Warren G. Harding, convinced Harding to place the land under the Department of the Interior’s control, and then afterwards granted leases to his oil-drilling friends in exchange for a few hundred thousand dollars of monetary bribes.
After the corruption was discovered, Fall was found guilty of accepting bribes and sentenced to a year in prison. He became the first Cabinet-level officer to go to jail for crimes committed while in office. One of the oilmen was found guilty of contempt of court and of Congress, serving over six months in prison. But none were convicted of bribery.
The leases were initially upheld as legitimate when first brought to trial. But ultimately, the U.S. Supreme Court found them invalid.
McKesson & Robbins Fraud
McKesson & Robbins was a legitimate company selling milk of magnesia, cough syrup and quinine when it was purchased by Philip Musica (then operating under the alias F. Donald Coster to hide his past fraud convictions) in 1925. Although the business was successful, Musica was not pleased and created a fake company to process fake inventory and sales contracts to skim even more cash into his own pocket. Today, drug companies are hurting consumers by inflating costs on needed prescription drugs.
In 1938, the company’s treasurer became suspicious of the large payments and found that credit reports relating to the fake company was forged. He notified the Securities and Exchange Commission.
The SEC investigated, arresting Musica, but releasing him on bond. Shortly thereafter, Musica committed suicide. The McKesson & Robbins fraud caused the American Institute of Certified Public Accountants to recommend significant changes to the way that audits are conducted, such as observing confirming and inventory accounts receivable.
General Electric, Westinghouse and Others
One of the biggest price-fixing schemes occurred from the late 1950s and was brought to light in the 1960s when General Electric, Westinghouse and 27 other companies were convicted of price fixing for transformers and other associated products. The bid-rigging system was designed to be hard to discover. Using the phase of the moon for a signal to shuffle low bids one of the firms, it gave the appearance of competition when there actually was none.
Before the plot, violating antitrust laws had been viewed as a “gentleman’s misdemeanor” and no “gentleman” was sent to jail. But, 30 individuals were sentenced to jail for this offense, though only seven served time — the remaining sentences were suspended. GE agreed to pay a $7.47 million fine ($60.3 million today), then a record-setting sum for an antitrust case, for its part in the scheme in 1962. GE has certainly recovered. Today, with a market cap of $256 billion, it is one of the most valuable public companies in the nation.
The Vegetable Oil Scandal
There’s money to be made — and financial scandals to be played — in every market, including the vegetable oil market. In 1955, Anthony De Angelis created the Allied Crude Vegetable Oil Refining Corporation, selling vegetable oil and eventually cotton and soybeans. De Angelis believed he could corner the market on soybean oil futures, which would drive up the price of vegetable oil futures as well.
To do so, he needed cash. So he used tanks full of water with just enough oil floating on top to fool auditors to verify the amount of oil he had in stock. His promised inventory of $150 million of vegetable oil surpassed each of the vegetable oil in the whole country, but he only actually had $6 million of stock. From the time his financial scandal collapsed, he had obtained loans from 51 companies.
De Angelis did succeed in buying 90 percent of the futures contracts for soybean oil, but then the market dropped, forcing Allied Crude into bankruptcy. Two big brokerage houses nearly ended up in bankruptcy due to the unpaid loans, and De Angelis spent seven years in prison for the fraud that ended up costing the lenders $175 million — $1.4 billion today.
The Collapse of Herstatt Bank
When the U.S. took the dollar off the gold standard in the 1970s, it opened the door to currency speculation by investors with little regulatory oversight and, of course, schemes to get rich. Herstatt Bank, the 35th-largest bank in Germany, had been gambling on the depreciation of the dollar. After the dollar appreciated, it left the bank with losses totaling more than four times its assets.
The problem was compounded by the time of day the German government revoked the bank’s license — money had already flowed to the bank from its European customers, but because of the time gap, the money expected from Chase Manhattan Bank in New York had not arrived. When Chase heard of the revoked license, it ceased all payments, leaving over 30 U.S. and European banks holding nearly $500 million in combined losses.
The collapse resulted in more stringent supervision of money trading and to limit the amount of risk that a lender could take on through foreign currency. The bank’s president and its chief money officer were judged unfit to stand trial for health reasons, but several others received jail sentences around 7 and a half years.