“A fool and his money are soon parted” – Thomas Tusser.
Fraud culture is so endemic within our society, and thanks to the internet, tropes like the “Nigerian Prince” and the “wealthy widow benefactor” have been established. These days, our governments try to shield us from scammers by enforcing restrictions on activities and platforms that might be utilised by scammers. You also have various government webpages dedicated to educating us on scams and how we can identify them.
Although we have lived through many evolutionary stages of fraud, a look into its history tells us that the model doesn’t change. It was a game of trust and illusion, still is…
Let’s take a look at 5 Historical scams that are pivotal to the area of financial fraud:
The bottomry scam
The earliest recorded attempted fraud occurred in the year 300 BC in Greece. A sea merchant named Hegestratos took out an insurance policy against his ship and cargo which was pretty standard at the time.
This policy was known as Bottomry, referring to the ship’s bottom or keel; it is a form of maritime insurance, where the owner of a vessel borrows money and uses the ship itself as collateral. However, if an accident should happen during the voyage, the creditor will lose out on the loan because the guaranteed security no longer exists, or exists in a damaged fashion. Should the vessel survive the journey intact and whole, then the lender will receive the return of the loaned principal plus interest.
And if the ship arrives safely and the loan is not repaid, the boat and its cargo can be repossessed.
Hegestratos was shipping corn and planned to sink his ship, sell the corn and keep the loan. However, he was caught trying to sink the ship by his own crew and was chased off the ship, he drowned trying to escape them.
This is the earliest known attempt at first-party fraud.
Selling the Empire
In 193AD, in the Roman Empire, we have the first-ever recorded incident of financial fraud. The Praetorian Guard, an elite group of soldiers who were supposed to protect the Emperor but ended up becoming kingmakers, assassinated Emperor Pertinax and announced that the throne would go to the highest bidder.
A man named Julianus paid 250 pieces of gold to each soldier in the army, approximately 1 Billion USD today. However, Julianus was never recognised as emperor and was killed by a soldier in the 3rd month of his “reign”
In 1911, Eduardo de Valfierno, an art counterfeiter, had an employee of the Louvre steal the Mona Lisa. He wanted people to know it was missing so that he could sell his fakes to underground collectors. It worked.
The First Property Scam
In 1821, Gregory McGregor, a general in the British army, began to tell people that he had conquered an Island called Poyais and had been crowned prince or “Cazique”. People flocked to him en masse, paying him for homes that didn’t exist. Some even exchanged their Sterling for his fabricated currency. Eventually, it was revealed to be a scam.
The Original Ponzi Scheme
In 1920, Charles Ponzi discovered that he could purchase postal vouchers from the US and ship them abroad for a 5% profit. However, he exaggerated the margin when selling to investors, promising a 50% return. Investors jumped at the opportunity, queuing up to give him their money. Ponzi began to pay old investors with the funds from new investors, eventually, the operation went belly up and he fled the country with $10 million dollars. Today similar scams are named after him.
Scams are nothing new. As long as money is involved, there will always be unscrupulous people looking to obtain it through less than honest means.
It’s our duty to be steadily vigilant against these bad actors and recognize them for what they are when they try to approach us with their scams.
Check Realsights for our post on some common property investment scams.