10 Greatest Swindles in United States History

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If something sounds too good to be true, it usually is. But throughout history, there have been many charismatic figures touting get-rich-quick schemes that have seemed so legitimate, they’ve fooled even Wall Street experts and other smart investors. But when the schemes fall apart, many investors are left financially ruined and mentally devastated knowing they fell for such a foolish idea. With apologies to victims of Enron, WorldCom, Adelphia, and other recent corporate scandals — which is a list in itself — here are the 10 most famous financial swindles in United States history.

10. Mining Gold From Seawater

A Baptist minister claiming he could salvage gold from seawater bilked many investors in Maine in the 1890s.

Maine coastline in Acadia National Park; Dshadoe

Gold has captured the imagination of man for thousands of years, so when a Baptist minister named Prescott Jernegan announced in 1897 that he’d found a way to mine gold from seawater, people rushed to stake a claim in his operation. Jernegan renovated a former gristmill in Lubec, Maine, into a “gold extraction factory” and sold thousands of shares to investors throughout New England. To “prove” his operation actually found gold, Jernegan’s accomplice, Charles Fisher, would dive underwater and place gold nuggets in some of the cast-iron collection pots. If nothing else, the scheme was a huge boost to business in town — Jernegan attracted so much money he began work on a new, larger factory, employing some 700 construction workers. When the swindle collapsed, Fisher disappeared and Jernegan had already set sail for Europe with the illegal earnings. He actually repaid investors about one-third of the money he’d received.

 

9. Bookkeeper Bilks Thousands of Investors

A New York bookkeeper is credited with creating the first widespread Ponzi scheme in U.S. history in 1899.

New York City’s Bowery, late 1890s.

If you had an investor today nicknamed “520 Percent,” based on his promised annual rate of return on investments, even financial fools would shy away. The year 1899 was a much more innocent time, obviously, and thousands of investors gave a Brooklyn bookkeeper, William Miller, and his company, the Franklin Syndicate, money after he guaranteed returns of 10 percent a week. Fights actually broke out among people eager to invest with the company. The short-lived deception was uncovered later that year, and Miller served five years in prison for his role in what is regarded as the first widespread Ponzi scheme in U.S. history. In all, the swindle netted about $1 million (more than $25 million in 2012 funds).

 

8. Salad Oil Scandal

The Salad Oil Scandal of 1963 decimated several banks.

Photo credit: © Jvdwolf/Dreamstime.com

There’s a tendency among some to think that only the foolish fall prey to financial scams, but that’s not always true. Case in point: the Salad Oil Scandal in 1963. Several major financial firms, including Bank of America and American Express, provided millions in financing to a New Jersey businessman, Tino De Angelis, who ran a vegetable oil refinery. The banks accepted the refinery’s huge tanks full of vegetable oil as collateral. The problem? The tanks contained mostly water, although inspectors always found oil floating on top. When the scam fell apart, it caused the collapse of at least one financial firm and cost investors some $150 million. De Angelis served seven years in prison, but the incident had a positive impact on at least one person; when American Express shares plummeted in the wake of the scandal, a young Nebraska investor named Warren Buffet bought a major stake in the company.

 

7. Texas Businessman Nets $7 Billion in Fraud Case

Allen Stanford ran a legitimate investment firm before starting a Ponzi scheme.

Allen Stanford defrauded investors out of $7 billion.

Allen Stanford ran a legitimate Texas financial firm in the 1990s, before greed got the best of him. By the time Stanford was arrested in 2009, he had run a Ponzi scheme that defrauded tens of thousands of investors out of more than $7 billion. Found guilty on multiple felony accounts on March 6, 2012, he is awaiting sentencing.

 

6. Florida Land Schemes

Florida land swindles were very common in the early 20th century, but continue to this day.

A group of tour buses sponsored by real estate developers in Hialeah, Florida, 1921

These schemes have been so pervasive and famous, they’ve entered our everyday lexicon. If someone tells you something outrageously unbelievable, they may add, “And if you believe that, I have some land in Florida I want to sell you.” Untold thousands of people fell victim to schemes involving the purchase of Florida swampland that was unsuitable for habitation. Others bought land that was fine for building, but was grossly overvalued. The land boom in Florida in the early 20th century perhaps made such schemes inevitable, with con men preying on people eager to live in this exotic new land. The swindles became so common that in the 1960s several states passed laws restricting such sales, but that’s not the end of the story. Swindlers now are selling Florida land on the Internet, targeting recent immigrants who visit their new property to find … a swamp.

 

5. Yazoo Land Fraud

The Yazoo Land Fraud took years to resolve.

Areas involved in the Yazoo Land Fraud.

Most of the swindles on this list were perpetrated by financial wannabes, ordinary men who would do anything, no matter how illegal, to achieve wealth and fame. Then we have the infamous Yazoo Land Fraud, in which men of wealth and power conspired to gain even more wealth and power. In the mid-1790s, land speculators gave Georgia state lawmakers money, gifts and promised them land in return for the right to purchase territory in far western Georgia — what is now Alabama and Mississippi. Georgia Gov. George Mathews signed the Yazoo Act in 1795, selling four companies 35 million acres of land for $500,000. Citizens were outraged, and Georgia politicians uncorrupted by the scandal set about overturning the agreement. The sale was nullified the following year, but the matter eventually found its way to the U.S. Supreme Court and Congress before being resolved.

 

4. The Credit Mobilier Of America Swindle

The Credit Mobilier Swindle reached all the way to the top levels of the U.S. government.

The Union Pacific Railroad in 1866.

Railroads were vital to the settlement of the American West, and many businessmen made fortunes in the industry in the mid-to-late 19th century. With that much money floating around, railroad-based swindles were not uncommon. The boldest swindle of all targeted the investor with the deepest pockets — the United States government. The government founded the Union Pacific Railroad in 1862 to finish a transcontinental rail line through the Western U.S., providing $100 million in initial capital (the equivalent of $1.4 billion in today’s money). A couple of Union Pacific executives set up a company, Credit Mobilier, to serve as lead contractor for the railroad construction. Credit Mobilier spent some of the money it received from Union Pacific actually building a railway, but the company took a large percentage of the money and bought and sold shares of Union Pacific stock, with executives pocketing the profits.

The genius of the swindle was its multi-faceted approach. Credit Mobilier began offering U.S. congressmen discount shares in its own stock, which was soaring because of the contracts with Union Pacific. In turn, congressmen were naturally inclined to approve more funding for Credit Mobilier. The New York Sun finally uncovered the scheme in 1872, with an investigation that led to some of the highest levels of power in the federal government, including U.S. Vice President Schuyler Colfax.

 

3. Internet Scams

Internet fraud has become more pervasive in recent years.

Photo credit: © Chachas/Dreamstime.com

These have progressed in recent years from the basic “Make $3,000 per week stuffing envelopes at home!” to more sophisticated Internet-based scams that have preyed on millions of hapless people. Among the many scams circulating are online investment newsletters, that tout amazing returns offered by penny stocks; “pump and dump” scams, in which promoters boost a stock’s price through rave reviews, then dump the stock when investors buy in; and phishing, where cyber-criminals send out official-looking emails in an attempt to collect your personal information. When in doubt, bear in mind the first sentence in this story — if something sounds too good to be true, it probably is.

 

2. The Original Ponzi Scheme

Charles Ponzi ran a swindle so famous, they named it the Ponzi scheme in his honor.

Charles Ponzi in 1920.

Charles Ponzi’s swindle became so famous that the term “Ponzi scheme” came to define all other similar schemes that followed. The Italian native spent time in prison for forging a check before embarking on an even more ill-conceived scheme. Ponzi seized on the notion of trading to take advantage of different international postage rates, which was not illegal. Ponzi’s plan fell afoul of the law when he began promising investors extravagant returns and paying those returns using the money from new investors. By the time the scheme was uncovered in late 1920, Ponzi had defrauded investors of around $20 million (roughly $225 million at 2012 rates). Six banks even failed in the wake of the swindle. Ponzi went on to serve more than a dozen years in prison before being deported to Italy. According to one account of Ponzi’s post-American life, he talked his way into a government finance job in Italy, and later embezzled funds before fleeing to South America during World War II.

 

1. Bernie Madoff

Bernie Madoff ran the largest Ponzi scheme in U.S. history, defrauding investors of up to $20 billion.

Bernie Madoff’s mugshot, 2009.

Today, Bernie Madoff is Prisoner No. 61727-054, a 73-year-old felon serving time in a federal penitentiary in Butner, North Carolina. A few short years ago, he was one of the stars of Wall Street, founder of Bernard L. Madoff Investment Securities LLC, which promised spectacular gains to investors. In the classic example of a Ponzi scheme’s progression, his promises worked as long as new investors continued enrolling. But by late 2008, following the stock market plunge, Madoff’s scam fell apart. Madoff confessed to his two sons, in business with him, that he had been operating a “Ponzi scheme.” The sons notified federal authorities. Madoff pled guilty to 11 felony counts and was sentenced to 150 years in prison. Madoff claimed his illegal activities date to the early 1990s, but investigators believe they started many years earlier. In all, Madoff’s illegal activities defrauded investors of as much as $20 billion.

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The author is a longtime professional journalist who has interviewed everyone from presidential contenders to hall of fame athletes to rock 'n' roll legends while covering politics, sports, and other topics for both local and national publications and websites. His latest passions are history, geography and travel. He's traveled extensively around the United States seeking out the hidden wonders of the country.