Crazy Tales of Financial Fraud (That Didn’t Make It Into My Book)

One of the hardest parts about writing my book on financial scams, frauds, charlatans, and hucksters was figuring out what to include and what to leave out. Every time I read a book or story about a ridiculous financial scheme it would be topped by the next one I read.

Here are some straight from the cutting room floor than didn’t make it into the book:

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There was a pyramid scheme in China that literally sold pyramids (they called them “energy” pyramids). These pyramids were sold under the guise of having “healing” and “energy-absorbing” powers and cost upwards of nearly $15,000. And of course, people were recruited to sell them through a multilevel marketing sales program.

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Albania was a communist country for decades but was freed from central planning in the early-1990s. The country’s unfamiliarity with capitalism and financial markets created one of the largest pyramid schemes per capita ever concocted.

Funds and companies were setting up standard Ponzi schemes where they would promise high returns on capital and payout early investors using money from later investors. And to keep up the fundraising these funds would continue raising their fake interest rates.

The surprising aspect of this scam was the sheer scale of it all. The amount promised to investors at its peak reached nearly half of Albania’s GDP. And two-thirds of the country’s citizens invested in these rackets.

When they finally blew up, economic output fell by 7%, imports fell by 25% and inflation rose to more than 40%!

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The book¬†Chasing Phil¬†(sounds like it’s being made into a movie by Robert Downey Jr.) tells the story of hustler, fraudster and provocateur Phil Kitzer and the two FBI agents who went undercover to take down his massive financial scam syndicate.

The craziest part to me about this tale was not just how many fake business deals Kitzer was able to get away with but the behind the scenes of the undercover FBI investigation that brought him down. Jim Wedick and Jack Brennan went on a months-long undercover operation to infiltrate Kitzer’s group of con artists by be-friending the thief and getting to know how he operated.

But undercover work was still relatively new in the late-1970s so Wedick and Brennan used their real names with Kitzer.

The first time the two approached Kitzer in a cocktail lounge to set things in motion, Kitzer looked at the two of them and said, “Christ, you guys look like a couple of feds.”

And they still ended up becoming part of his inner circle to get enough information to take him and his pals down.

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Richard Harley claimed he owned 10 billion barrels of oil worth a cool $1 billion along with a fine art collection. The basic pitch was, “Look how rich I am. Invest with me and you too can be rich!”

Harley failed to mention he was living on $500/month of social security benefits and that’s about all he had. “Investors” still handed over nearly $325,000 before realizing there was no investment strategy at all.

Nor did they realized Harley had encountered the law before, duping AIDS patients out of thousands of dollars by claiming he had a cure for the disease in the 1990s.

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Three card monte is an old con artist game where the dealer has basically no chance of losing. One of the early pioneers of this scam was William Jones, better known as “Canada Bill.” In the 1850s Bill was playing in a game of three-card monte but he wasn’t a dealer but a player.

When another con artist saw Bill at the table he pulled him aside and asked, “Don’t you know this game’s crooked?”

To which Bill shrugged his shoulders and replied, “I know, but it’s the only game in town.”

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The Spanish prisoner game was an early version of the Nigerian prince email scam. In the early-1900s thousands of people would receive the same letter detailing that the writer of the letter was a banker who had been jailed in Mexico. But before going to jail he tried to send hundreds of thousands of dollars over the border into the United States in a hidden compartment of a trunk.

The trunk, these marks were told, was sent to the man’s beautiful daughter, who just needed $10,000 to get the trunk back from the Mexican courts, who had impounded it. These people were promised $150,000 out of the trunk and a $50,000 cashier’s check for their troubles.

Doctors were the biggest marks in this con and many of them ended up traveling all the way to Mexico in search of a beautiful woman and six-figures in return for a $10,000 “investment.”

Obviously, none of this was true and the Mexican con artists running this operation duped many a hopeful American out of their time and money. There was no beautiful daughter waiting, the cashier’s checks were fakes, and there was no money hidden in a truck somewhere.

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In the 1920s Joseph “Kid” Weil would set up fake brokerage houses to take advantage of the greed inflicted by the roaring 20s stock market boom. He told unsuspecting investors looking to make a quick buck that he could sell stock certificates worth $1 for $5.

To prove hit sales pitch he would make a fake sale at his fake brokerage house for a handful of the stock certificates. The marks would then buy up the remaining certificates assuming they could make an easy profit. When they returned the next day to make their sale the entire operation would be gone, only to be re-opened a few weeks later somewhere else.

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The Kid was known as one of the great confidence men of his era but even con artists can fall prey to scams. Weil met a pretty woman on a cruise across the Atlantic who claimed she needed $10,000 to pay off her father’s debts, offering a pearl necklace as collateral for the funds.

When the ship docked she told him to wait for her while she paid off the debts and worked on getting him his money back by other means. She never returned and the pearls were fakes.

After realizing he had been taken, the Kid later said, “What a team we would have made!”

It’s hard to believe how many stories I read like this about con artists who got conned.

My book gets into much bigger financial fraud and scams than these but I couldn’t believe how many wild stories I came across where people were so frivolous with their money because of a good story.

I go into many of the reasons why that’s the case including the psychology behind many of the biggest financial scams in history throughout the book:

Don’t Fall For It: A Short History of Financial Scams

 
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