Our obsession with money is limited only by our ability to accumulate it. For most of us, the 9-5 grind is how we get by, but sadly, financial scams are increasingly common and sophisticated, forcing us to become more vigilant and aware. Yet, at the same time, our interest in financial crime has never been greater. So if Madoff podcasts or Money Heist-style Netflix mini-series are your bag, here are five of the strangest financial scams you’ve never heard of.
The £300million London Street Mugging
On May 2nd, 1990, what must rank as the most expensive mugging in history occurred in the City of London when a bank Messenger was robbed in broad daylight of £292 million in bearer bonds.
A bearer bond is a deposit certificate that doesn’t indicate who the bondholder is, nor does the bond issuer keep a record of the holders. They pay a coupon (interest) and can be redeemed at face value without any identification, just like cash, or so the robbers assumed.
Given their diminishing legal use cases and obvious appeal to criminals, bearer bonds are considered an anachronism.
The haul comprised certificates of deposit valued at £121.9 million and treasury bills worth £ 170 million, but despite the enormous sums involved, this crime didn’t pay.
Of 301 stolen certificates, 297 were recovered when attempts to redeem them in Cyprus, Scotland and London City Airport immediately tipped off authorities leading to arrests.
Though a £ 300 million bearer bond mugging in broad daylight is a fairly chunky theft, it is dwarfed by a bizarre incident that was uncovered near the Swiss-Italian border in June 2009.
$134.5bn smuggled in a suitcase
On June 3rd 2009, the Guardia di Finanza, Italy’s financial police, arrested two Japanese men in their 50’s near a provincial town called Ponte Chiasso.
The pair stood out travelling on a local train of mainly working-class commuters rather than the express option used by tourists and businessmen heading north to Switzerland.
In a suitcase carried by one of the suspects, the police discovered a false bottom that was hiding 249 bearer bonds, each with a face value of $ 500 million. The total value of the stash, $134.5bn, was equivalent to 1% of the US GDP at the time.
What already sounds like a plot straight out of James Bonds becomes even stranger considering what happened next.
The Italian authorities may have been dragging their feet in taking two weeks to determine the authenticity of the bearer certificates.
Under Italian law, a 40% fine could be applied to any physical cross-border money transfers over 10,000 euros. In this edge case, that penalty would have amounted to $58.3bn or 10% of the national budget – quite a considerable potential windfall for the Italian government.
[They were] carrying the gross domestic product of New Zealand or enough for three Beijing Olympics. If economies were for sale, the men could buy Slovakia and Croatia and have plenty left over for Mongolia or Cambodia Bloomberg’s William Pesek
Seeking the help of the US Securities and Exchange Commission, the bonds were eventually confirmed to be counterfeit, with the value of the bonds in the suitcase exceeding the known circulating supply of a form of bond that stopped being issued in 1982. But many questions were left unanswered.
Why would anyone try and perpetrate a scam on this scale? How would they expect to offload the bonds? You can’t exactly break a $ 500 million bearer bond at the local supermarket.
Some suggested it may have been a rogue state behind it, like North Korea, but perhaps the question that, more than any, kept conspiracy theorists occupied was what happened to the two Japanese men in question.
Italian authorities said they had no grounds to charge them and given their passports were valid, they simply slipped over the border and disappeared, leaving behind one of the strangest financial crimes in history.
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The Metaverse Ponzi Scheme
The ubiquity of digital finance means that bank robbers have been replaced by hackers stealing anonymously from behind a keyboard, a VPN or Tor.
But as we move into the Metaverse, crime will become entirely virtualised, and Second Life has already given us a glimpse of what might be to come with a Metaverse Ponzi Scheme, which happened back in 2007.
Approaching its second decade, Second Life is regarded as the original Metaverse, an open-ended virtual experience with its own currency (Linden Dollars) and functioning economy.
Second Life may not have seen any user growth since 2013, but with millions of users at its peak, SL illustrates that the tragedy of the commons applies to virtual reality too.
Sex and gambling were the most popular activities, and the money being made could be exchanged into real-world dollars via an exchange called LindEx at a rate of 270:1 as well as ploughed into yield-generating services that opportunistically emerged, including one called Ginkofinance.
The tell-tale sign of a Ponzi Scheme is a yield that is too good to be true and has no demonstrable means of generating it other than using new customer deposits to pay existing customer returns. And so it was with Ginko, offering an APR of 61% on Linden Dollars.
Reality might be different in Second Life, but financial gravity still applies, so when the game clamped down on all the sex and gambling, it prompted users to withdraw funds from Ginko, with the inevitable collapse quickly following.
In a bizarre twist, game avatars picketed the Ginkfinance plot demanding their money back, with estimates suggesting around $700,000 of real money was lost, but it seems justice wasn’t served. No one was ever charged for the Second Life Ponzi, and for all we know, they’re walking around Second Life virtually Scot-free.
Stealing $250k with only magnetic ink
Sometimes it isn’t the scale of a financial scam that makes it stand out but the ingenuity. Thomas Whiteside did a fantastic job gathering a collection of ‘tales of electronic thievery’ in his book Computer Capers, published in 1979, one of which stands out for that reason.
In the 1970s, a new bank customer in the Washington DC area deposited several thousand dollars into their new account and received the standard complement of chequebook and deposit slips bearing his account number, printed in magnetic ink.
The crafty villain visited his bank branch, headed to the section containing blank deposit slips for customers who had forgotten their own and secretly removed a stack.
He then visited a printing shop that offered magnetic ink typewriters. You may now see where this is going.
Our anti-hero printed his bank account details in magnetic ink on the standard blank bank deposit slips, then returned them to the stack in the self-service section of his bank and waited for his scam to bear fruit.
Unwitting customers started using the doctored slips to deposit their funds without realising the ploy to divert them. Once submitted to the bank teller, the slips were fed into a machine to read the magnetic strip and credit the funds to the perpetrator’s account rather than the handwritten instructions.
Enough time elapsed while customers waited for the funds to hit their account, for $250k to go astray, $100,000 of which the assailant withdrew. Whiteside said the same scam was repeated at least twice more at US banks in the 1970s.
The Ponzis that crippled Albania
A Metaverse Ponzi is an intriguing curiosity, but what about a Ponzi scheme that came close to crippling an entire country? This is what happened to Albania from 1996-97, with several schemes eventually collapsing with a combined value equal to half the nation’s GDP and impacting two-thirds of its 3 million population.
The country was brought to its knees financially and to the brink of civil war, with 2,000 people dying in the resulting anarchy.
To understand how Albania was gripped by unsustainable nationwide financial scams, you must examine its history.
Albania was ruled by a Communist Dictator, Enver Hoxha, for forty years until his death in 1985.
Though Hoxha raised literacy to 90%, electrified most of the country and wiped out malaria and syphilis, the items in the negative column far outweighed those achievements.
Toward the end of his increasingly authoritarian rule, the country was a police state, had no trading partners or allies and was in almost total isolation, with foreign travel forbidden along with owning property.
Following the fall of the Berlin Wall in 1989, Albania’s Communist regime quickly lost its grip on power, and in 1991 free elections were held.
The transition to democracy and capitalism was painful for Albanians, who were understandably distrustful of authority. There were few banks, and credit was difficult to get, so Albanians became reliant on informal financial services, which were a mix of pure Ponzi and illegal operations making high returns from smuggling to neighbouring Yugoslavia (during the Balkan conflict).
When the UN lifted sanctions on Yugoslavia in 1995, the smuggling revenue stream dried up, while the uncertainty from elections in 1996 drove up the returns on offer.
Schemes went from offering annual returns of around 60% to out-competing each other with ever more ridiculous offers, doubling deposits in three, then two months, desperate to maintain the flow of new depositors the Ponzis needed to survive.
[two schemes] Xhafferi and Populli between them attracted nearly 2 million depositors—in a country with a population of 3.5 million Imf.org
A kind of mania descended on the country, with people selling everything they could, houses, cars and livestock, but by the start of 1997, the pyramid began to collapse. Though the government took measures to mitigate the impact, the liabilities of two of the schemes amounted to 20% of the national GDP.
In the fall of 1996, Tirana smelled and sounded like a slaughterhouse, as farmers drove their animals to market to invest the proceeds in the pyramid schemes.”
Imf.org
The government lost control of the south of the country, there were mass desertions from the Army and Police, and 1 million weapons flooded a nation of angry Albanians, resulting in 2,000 deaths and emigration en-masse.
Sources
£300million bond mugging
The Guardian, January 1991 (Archive)
$134.5bn in a suitcase
New York Times – June, 2009
Financial Times – June 2009
Chapel Hill Herald – June 2009 (Archive)
Metaverse Ponzi
Medium – How a $700,000 Ponzi Scheme Happened In A Videogame – December, 2021
New World Notes ; The digital ruins of a forgotten future – The Atlantic (2017)
Stealing $250k with only magnetic ink
Computer Capers – Thomas Whiteside
The Ponzis that crippled Albania
Finance & Development, A Quarterly Magazine of the IMF, March 2000, Volume 37, Issue 1