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Wirecard’s $2B Fraud and 22 More Shocking Money Scandals

Joel Anderson

The amount of legal leeway the rich and powerful have in terms of making huge sums of money is already impressive. In spite of this, plenty of people living in the lap of luxury come to the conclusion that their legal earnings are just not enough, so they start cutting corners — much like Xerox did and, most recently, Wirecard. Even in the world of publicly traded companies where earnings are reported in detail every three months, a little bit of now-you-see-it, now-you-don’t magic on the part of company accountants can still manage to slip by regulators and investors.

This can also backfire in a big way. Particularly when the accounting shenanigans of a failing company that can no longer cover up its crimes  end up getting exposed. And when the rubber hits the road, some of the biggest corporate criminals have ultimately managed to fabricate billions of dollars and get away with it for years.

Here’s a closer look at some of the biggest money scandals from corporations over the last century.

Last updated: June 24, 2020

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 modernized to use oil instead of coal, special oil reserves on federal government land were set aside to be controlled by the Navy and tapped only in the event of a national emergency.

One such reserve was on land in Wyoming with a rock formation that looked like a teapot. Albert Fall, the secretary of the interior under President Warren G. Harding, convinced Harding to put the land under the Department of the Interior’s control, and then subsequently granted leases to his oil-drilling buddies in exchange for several hundred thousand dollars of monetary bribes.

After the corruption was uncovered, 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 valid when first brought to trial. But ultimately, the U.S. Supreme Court found them invalid.

Pictured: Albert B. Fall taking the oath of office of Secretary of the Interior for the Warren Harding

McKesson & Robbins Fraud

McKesson & Robbins was a legitimate company selling milk of magnesia, cough syrup and quinine when it was bought by Philip Musica (then operating under the alias F. Donald Coster to conceal his past fraud convictions) in 1925. Though the company was successful, Musica wasn’t satisfied and created a fake company to process fake inventory and sales contracts to skim even more money into his own pocket.

In 1938, the company’s treasurer became suspicious of the large payments and found that credit reports relating to the fake company had been 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, including observing inventory and confirming accounts receivable.

General Electric, Westinghouse and Others

One of the largest price-fixing schemes occurred in the late 1950s and was brought to light in the 1960s when General Electric, Westinghouse and 27 other companies were convicted of price-fixing with transformers and other related products. The bid-rigging system was designed to be hard to discover. Using the phase of the moon as a signal to shuffle low bids among the companies, it gave the appearance of competition when there actually was none.

Prior to the scheme, violating antitrust laws had been viewed as a “gentleman’s misdemeanor” and no “gentleman” was sent to jail. However, 30 individuals were sentenced to jail for this crime, though only seven served time — the rest of the sentences were suspended. GE agreed to pay a $7.47 million fine ($60.3 million today), then a record-setting amount for an antitrust case, for its role in the scheme in 1962.

Pictured: Mounted police clashing with strikers, outside an electrical plant in Philadelphia. Workers were among 200,000 striking against General Electric and Westinghouse.

The Vegetable Oil Scandal

There’s money to be made — and financial scandals to be played — in every industry. Even vegetable oil. In 1955, Anthony “Tino” De Angelis created the Allied Crude Vegetable Oil Refining Corporation, selling vegetable oil and eventually cotton and soybeans. De Angelis thought 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 inventory. His claimed inventory of $150 million of vegetable oil exceeded all of the vegetable oil in the entire country, but he only actually had $6 million of inventory. By the time his financial scandal collapsed, he had obtained loans from 51 companies.

De Angelis did succeed in buying 90% of the futures contracts for soybean oil, but then the market collapsed, forcing Allied Crude into bankruptcy. Two large brokerage houses nearly ended up in bankruptcy because of the unpaid loans, and De Angelis spent seven years in prison for the fraud that ended up costing the lenders $175 million — or about $1.4 billion today.

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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 betting on the depreciation of the dollar. When 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 into the bank from its European customers, but because of the time difference, the money expected from Chase Manhattan Bank in New York had not arrived. When Chase learned of the revoked license, it stopped all payments, leaving over 30 U.S. and European banks holding almost $500 million in combined losses.

The collapse resulted in more stringent oversight of currency trading and to limit the amount of risk that a bank could take on through foreign currency. The bank’s president and its chief currency officer were judged unfit to stand trial for health reasons, but several others received jail sentences up to 7 1/2 years.

Pictured: Former offices of Herstatt Bank, Cologne.

The Savings and Loan Debacle

The savings and loan industry collapsed in the late 1980s and early 1990s after the problem of insolvent organizations became simply too large to ignore. S&Ls operated by accepting deposit accounts and then using those proceeds to issue mortgages — something commercial banks generally didn’t do at the time.

However, in the late 1970s and early 1980s, high inflation caused the interest paid on new deposits to greatly exceed the income generated by the existing mortgages, which caused many savings and loans to become insolvent. By 1983, it was estimated that it would cost about $25 billion to cover the losses, but the insurance fund held only $6 billion. Regulators allowed the firms to continue to operate, hoping that the losses would rectify themselves, but they only got worse.

Finally, in 1989, Congress acted to address the problems. Oversight was transferred to the Federal Deposit Insurance Corporation. A reserve fund was created to protect depositors at failed S&Ls, and over $160 billion was spent to close the insolvent S&Ls. The debacle also showed the importance of closing insolvent entities quickly rather than allowing them to make additional risky bets that only worsened the situation.

The Bre-X Mining Scandal

The Bre-X Mining Scandal is a cautionary tale of how a penny stock can ride a web of lies and a lot of heavy speculation to a wildly unsupported valuation. The small mining company, started by David Walsh, came to prominence when geologist Michael De Guzman claimed to have soil samples from a site in Indonesia indicating the potential for more than 70 million ounces of gold — the largest such deposit ever.

Investors and large mining companies partnered with Bre-X and the stock price soared. More than two years after the initial reports, one of the partners conducted its own study and found no gold, and further inquiries found De Guzman was shaving gold from his wedding ring into the samples.

De Guzman is said to have fallen from a helicopter in 1997 and, though a body partially eaten by wild boars was found, it is uncertain whether it was suicide, murder or a clever escape. Thousands of investors lost everything they had invested when the company went bankrupt. No one went to jail and no money was ever recovered for investors. Bre-X is a cautionary tale — only invest in penny stocks if you love risk and can handle losses. A better option is investing in legal free stocks.

Bernie Madoff’s Ponzi Scheme

Bernie Madoff opened the doors to his own investing company with $5,000 in 1960, and by 1970 had already begun engaging in misconduct that would eventually become the largest pyramid scheme in history. As money flowed in, Madoff would use it to fund his lavish lifestyle and to pay any previous investors who needed withdrawals. In addition, he and his employees would doctor reports — or even create them from nothing — for customers and regulators who inquired.

Madoff’s scheme came crashing down in December 2008, when he told his sons about it and asked for a week to tie up loose ends. His sons went straight to authorities, but not before Madoff had stolen $17.5 billion from 4,000 individual investors, plus more through all of the feeder funds.

Madoff was sentenced to 150 years in prison. Other companies associated with Madoff were fined for failing to report suspicions of fraud, including J.P. Morgan, which agreed to pay $2.6 billion in 2014.

Also See: 14 Top Companies That Lost Big Money in Lawsuits

The Enron Fraud

Before becoming a one-word synonym for corporate greed and cooking the books, Enron was a natural gas company created during a merger in 1985. It began energy trading, and as deregulation became more widespread in the 1990s, became an industry leader. In 2000, it ranked No. 7 on the Fortune 500 list, and by 2001 it executed about $2.5 billion in daily trades. However, it had been shuffling its debts into offshore partnerships and inaccurately recording revenue.

In October 2001, Enron shocked investors when it announced a $618 million loss, and shortly thereafter, accounting firm Arthur Andersen began shredding documents related to the accounting work it had performed for Enron. Arthur Andersen would be found guilty of obstructing justice, though the conviction would later be overturned. Enron’s former CEO Ken Lay was found guilty, but he died prior to his appeal being heard.

Jeffrey Skilling, another former CEO, was found guilty and sentenced to over 24 years in prison and was prohibited from ever serving as an officer or director of a publicly traded company again. Investors lost everything — including thousands of employees whose retirement plans had owned Enron stock. The stock plunged from a market value of $66 billion to worthless, making investing in Enron a terrible investment decision.

Volkswagen’s Emissions Scandal

To avoid emissions regulations, Volkswagen created a complex computer program that could tell when a car was being tested and would minimize emissions accordingly. When not in testing mode, the cars would emit almost 40 times the emissions limit. The German auto company had been cheating the system as early as 2009, but it wasn’t until researchers at West Virginia University tested emissions on the open road in May 2014 that the discrepancies were discovered.

The company was forced to admit that about 11 million of its cars worldwide — one of the largest recalls ever — were equipped with the cheating software to fake low emissions. To rectify the situation, VW will be repurchasing some of its cars from customers and installing modifications on others to bring them into compliance with emissions regulations. In addition, VW agreed to pay $4.3 billion in civil and criminal fines, and six VW employees were charged for their roles in the conspiracy, according to the U.S. Department of Justice.

Theranos

The world of venture capitalism is filled with companies still a couple of major pieces away from getting their core product to work. It’s the nature of the business. To raise the necessary money to finish your first prototype, you have to sell people on how it will work when it’s finished — even if there is a chance your revolutionary design won’t come to fruition.

That’s essentially how Elizabeth Holmes managed to turn her company Theranos — which was realistically never actually worth much of anything — into a $9 billion unicorn. Her core concept of a machine that could revolutionize the process of blood testing would have been a massive leap forward — if it had worked. However, while some entrepreneurs are ready to let the dream die when it’s clear they missed the mark, Holmes was just a little too caught up with her own press.

Holmes’ carefully constructed house of cards would eventually collapse after a series of whistleblowers led to a Wall Street Journal story that aired the company’s dirty laundry for everyone to see. The company would collapse and Holmes, along with company president Ramesh “Sunny” Balwani, would be indicted on 11 counts, including wire fraud.

E.F. Hutton

E.F. Hutton was at one time the fifth-largest brokerage firm in the country, this being before the advent of online trading when brokerages played a much larger role in the investing process. The firm even had its own famous catch phrase — “When E.F. Hutton talks, people listen.” Fair enough. But it turns out that there was a lot that E.F. Hutton was not talking about.

Most notably, the system by which it moved money around in the late 1970s and 1980s to overdraw its accounts and earn extra interest income. To the layman, it’s what’s known as check kiting — drawing the same money from both the account it’s being transferred into and out of to double your money. In Hutton’s case, the goal was just to use the accounting quirk to earn some extra interest income, but even that would eventually come to light — resulting in the company having to plead guilty and pay heavy fines.

If you’re thinking that mostly sounds like a clever way to game banks, you should also know that the company was involved in another scandal when it got caught laundering money for the famous Patriarca Crime Family of New England. E.F. Hutton would eventually get absorbed by other financial firms as it teetered on collapse following the 1987 stock market crash.

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WorldCom

WorldCom doesn’t have quite the same notoriety as its contemporary Enron, but the two scandals played out along a pretty similar time frame — a period that ultimately led to the Sarbanes-Oxley Act that would tighten accounting requirements for public companies.

WorldCom was one of the leading long distance phone companies (to any Generation Z readers, ask your parents) in the early aughts, reaching a market capitalization of $175 billion during its heyday. However, after the dot-com crash, CEO Bernie Ebbers went broke and lost his job after it was revealed he had used his WorldCom shares as collateral on a $400 million loan to cover margin calls. But that was just the tip of the iceberg.

The bigger scandal was that WorldCom had started cooking the books to cover up the fact that it was losing profitability. It wasn’t exactly a sophisticated scam, accountants simply listed expenses as investments to juice their income on paper, but it’s just the sort of fraud that will draw in a lot of unwitting investors in the process. And, of course, it doesn’t hurt when your accountancy firm is Arthur Andersen. The company would eventually file for bankruptcy in 2001, prompting a collapse that wiped out investments from a lot of people’s nest eggs.

Pictured: Bernie Ebbers, chief executive of WorldCom Inc., speaks in Jackson, Mississippi, in 1996.

Adelphia Communications

Trying to sneak something into your company expense account isn’t exactly a massive, company-ending scandal for most people. Even if you do get caught trying to convince Harry in accounts payable that your business trip to the Bahamas is completely legitimate, worst-case scenario is usually you getting fired and prosecuted for fraud. But then, your trip to the Bahamas probably costs less than $2.3 billion. Or, if it didn’t, you need a new travel agent.

That’s essentially what happened at Adelphia Communications, what was once the sixth-largest cable company in the country. The company was founded by John Rigas in 1952 and grew rapidly from its humble start. However, Rigas and his family appeared to misunderstand that a public company is owned by its shareholders, regardless of who founded it. The Rigases had a deal with the company that would allow the family’s private trust to borrow against company assets with the understanding that the family would cover any shortfalls.

This arrangement broke down when it was ultimately revealed that Adelphia had some $2.3 billion in debt sitting on its balance sheet, debt run up largely just to buy personal luxuries for the Rigas family. Had the Rigases had the $2.3 billion to pay the company back, it would have been one thing, but they did not. The fraud would eventually send the company spinning into Chapter 11 and cost investors some $60 billion.

Pictured: Satellite dishes point skyward at the Adelphia Communications offices in Berlin, Vermont, in this April 27, 1999, photo.

Refco

A company’s IPO is supposed to be the beginning of a bold new chapter in the firm’s story. With a fresh injection of cash and status as a publicly traded company, it usually marks the beginning of a period of major growth — sustainable growth, if investors are lucky. However, brokerage Refco didn’t really give anyone excited about their IPO all that much time to bask in its aftermath. That’s because the company would go public in August 2005 and file for bankruptcy in… October. Of 2005.

The company’s rapid unraveling was prompted by the revelation that CEO Phillip Bennett owed the company some $430 million — or more specifically, a company he controlled owed the money. Bennett had gone to great lengths to hide the fraud, but things had fallen apart and resulted in the company having to admit that its previous financial reporting might have been inaccurate — something that is almost never good news for investors. The rapid collapse of the firm that followed would eventually lead to the uncovering of some $525 million in fake bonds held in offshore accounts.

Pictured: Refco commodity traders buy and sell November oil futures on the floor of the New York Mercantile Exchange, New York City, Monday, Oct. 17, 2005.

Bank of Credit and Commerce International

The Bank of Credit and Commerce International was initially founded as a way to avoid the potential nationalization of the Pakistani banking industry. However, plenty of people will probably feel that the company’s desire to avoid that sort of state control was understandable — maybe even admirable. Ironically, though, the bank’s ultimate fate makes a very strong case for more government scrutiny of the financial sector.

The financial institution would essentially become a private slush fund for its uber-wealthy clientele — doing things like laundering money for Panamanian dictator/avid drug trafficker Manuel Noriega, among others. Some would even rework its name into “the bank of crooks and criminals.”

However, what really sank the bank was a series of fraudulent loans — freely advancing millions from its average depositors to its top clients, sometimes without any sort of documentation. Unfortunately, a business model of making large unsecured loans without documentation backfired. Who knew?

As losses mounted, BCCI would even start using money from some depositors to pay interest to others, not to mention propping up its stock price by making loans to people who would then use the money to buy more company stock. The bank ultimately collapsed, costing millions of average depositors their hard-earned cash.

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Olympus

The collapse of Enron and WorldCom had some major ripple effects, notably the aforementioned Sarbanes-Oxley Act that raised the standards for corporate accounting to make fraud harder. That, in turn, wound up putting Japanese camera maker Olympus in some pretty hot water. Or rather, exposed Olympus for having been in hot water for a very long time.

The issues started with the massive investment/real estate bubble in Japan in the late 1980s. It led the company to start pursuing speculative investments as part of its strategy. And, as is the case with bubbles, it worked really great until the floor fell out from under it. The dollar would weaken and the market in Japan exploded, leading to major losses for the company. However, instead of biting the bullet and getting back to cameras, the firm would then try to make up for the mistake by making even riskier investments — almost never a great idea.

Even then, Olympus managed to avoid facing the music for a while. It hid the losses for years, then created shell companies and sold the investments to them at their original cost. However, as the laws surrounding corporate accounting continued to tighten, Olympus would have a harder and harder time hiding its mistake, not to mention the mistakes it made trying to cover up that initial mistake. However, by 2011 the company was out of options and had to cop to the multiple decades of fraud and deception, ultimately resulting in several executives paying massive fines, going to jail or both.

Housing Meltdown

The 2008 collapse of the housing market and, well, pretty much everything else is still an open wound for much of America. In this case, the examples of fraud and mismanagement weren’t isolated to just one firm, though. This time around, almost every major institution on Wall Street participated in the same massive miscalculation en masse — resulting in an epic collapse that very nearly destroyed the American economy as we know it.

The basic problem was too many companies speculating on the American housing market by way of mortgage-backed securities — bonds that would take thousands of mortgages and package them together in a single, investable product. For decades, these had been among the most reliable investments. However, that started to unravel as the demand for mortgage-backed securities among investors rose faster than American homeowners could take out mortgages.

Pressure from investment banks to write more mortgages led mortgage lenders to begin lowering standards and writing more subprime loans, even while it also pushed credit-rating agencies to rubber-stamp them with AAA ratings without checking on the actual mortgages that were getting packaged. That was further exacerbated by an unregulated derivatives market that allowed some companies to write unlimited amounts of credit default swaps — essentially insurance against your MBS defaulting — that they didn’t have the cash to honor.

While it took some time for the cracks in the underlying foundation to show, things unraveled quickly once they did. Virtually the entire economy collapsed and the banking industry as we know it might have vanished for a period save for a timely bailout from the federal government.

Tyco

Tyco was a major cybersecurity company that rocketed from a research laboratory founded in 1960 into a company valued at more than $120 billion. And the man behind that astonishing rise? One L. Dennis Kozlowski. Unfortunately, engineering that sort of expansion can go to your head, and that’s exactly what happened here. Kozlowski was among the highest-paid CEOs in the world, legally, but that didn’t stop him from also plundering over a half-billion dollars from his company to fund an exceedingly lavish lifestyle.

And while that sort of massive fraud is normally more than enough to grab headlines, stories of just how Kozlowski spent all that money ended up being among the wildest out there. Kozlowski once threw a $2 million Roman orgy-style party on the Italian island of Sardinia that included an appearance by Jimmy Buffett and an ice sculpture of Michelangelo’s David that dispensed vodka from the, ahem, groin.

It was all part of the process that ultimately landed Kozlowski in jail and sent Tyco into a tailspin.

Freddie Mac

While getting caught up in the industry-wide disaster of 2008 is one thing, the fraud that was exposed in 2003 was much more specific to Freddie Mac. In this case, some Freddie Mac executives understated earnings by roughly $5 billion. Now, clearly lying to say you earned less money is inherently less destructive than the other way around, but in this case it was still part of a plot to deceive investors. Namely, it was meant to smooth out volatility and make the business look more consistent — something that investors were looking for at the time.

The scandal ultimately led to the company paying a fine of $50 million and four executives shelling out some $515,000 to try to make things right.

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Xerox

If there’s one company that probably nailed printing up its financial reports in the late 1990s, one would bet it would be Xerox. Unfortunately, the content of those reports was falsified. The company was engaging in fraud in a few different ways in an effort to make its earnings more appealing to investors.

One method was to simply store some revenue off the books so that it could be used to cover future shortfalls and avoid having to report bad news. The other, more serious, accusation involved reporting revenue from short-term rentals as coming in faster than it actually was. All told, the company falsified almost $2 billion worth of revenue over a four-year period, requiring it to go back and file amended earnings reports once they were caught in addition to paying a $10 million fine.

Halliburton

When it comes to Halliburton, you have the sort of corporation where its accounting scandal might actually be one of the least objectionable acts of malfeasance to concern yourself with. But, it’s true: Aside from all of the bribery and corruption that stand out most prominently, Halliburton also decided to cook the books for good measure.

The issue came down to how and when the company was reporting revenue, always a sticky issue in accounting. Essentially, with investors combing over corporate income statements, the ability to continue reporting that revenues and/or profits are holding steady or increasing can have a major impact on share price, even if it’s largely irrelevant to the company’s operations. So, when accountant Tony Melendez reported that the company was violating some basic rules in how it reported revenue, even the company’s chief accounting officer agreed that he was right. They just didn’t take any action as long as it might hurt their share value.

All told, Melendez ended up getting outed by the company and spent years dealing with the fallout. However, his actions in reporting the crime to the SEC would eventually force Halliburton to correct the mistake and pay a fine.

Wirecard

An external audit of the online payments company Wirecard found that there was 1.9 billion euros (about $2.1 billion) missing from its accounts — likely because the “missing” money never existed in the first place, the New York Post reported. German prosecutors accused former Wirecard CEO Markus Braun of using fake income from transactions with nonexistent “third-party acquirers” to falsely boost Wirecard’s assets and sales volume, and make the fintech company more attractive to investors. Braun left the company after the scandal broke and was arrested soon after. He turned himself into authorities on June 22.

Since the scandal, Wirecard share prices have dropped by 80%. And it’s possible that more arrests will be made, including the arrest of the company’s former chief operating officer, Jan Marsalek.

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Gabrielle Olya contributed to the reporting for this article.

Photos are for illustrative purposes only. As a result, some of the images may not reflect the companies and/or events listed in this article.

This article originally appeared on GOBankingRates.com: Wirecard’s $2B Fraud and 22 More Shocking Money Scandals