Stories of Unbelievable Fraud for Fraud Awareness Week

I’ve written a lot about fraud, as I’ve dealt with millions and millions of dollars and merchandise being stolen from companies I’ve worked with. This week, November 16-22, is Fraud Awareness Week, a good time to review your fraud policies as they can cost your company a lot in lost money and time.

To celebrate the occasion, here are a few get-rich schemes that didn’t work out exactly the way they were planned.

This first story starts in 1993, when a con man convinced investors that he had found gold in Borneo. Michael de Guzman, a Filipino geologist, fooled investors and his employer, Bre-X Minerals, by filing down his wedding ring to “salt” the gold samples sent to a lab. At the discovery of “gold” the value of Bre-X, a penny stock, soared on the Alberta Stock Exchange. He and his partners eventually sold off a portion of their options for $100 million.

Enter the Indonesian government, which wanted a piece of the action. Concerned about his fraud being uncovered, de Guzman did the logical thing: he set fire to his office to destroy the files.

But it wasn’t over yet. The Indonesian government took over 55% of the mine to be run by Freeport McMoran, and Bre-X’s market cap went down a billion dollars. Ever resilient, de Guzman just added more gold flake to the samples, which he bought from local miners. The stock soared again.

Gregor MacGregor, winner of the Creative Fraud Award. He invented an entire country.

Gregor MacGregor, winner of the Creative Fraud Award. He invented an entire country.

Not surprisingly, the miners from the other company couldn’t find any gold and asked de Guzman for an explanation. So he hopped on a helicopter to travel to the site to talk with them. He never made it. According to the pilot, he turned around at one point and de Guzman was gone. It was assumed he had jumped and days later the Indonesian army found a body, eaten by animals, which they identified as his.

The stock plunged to zero. Many people think de Guzman is still alive somewhere, having paid a small sum for a body to be identified as his.

The Antar family committed fraud for almost 20 years, from 1969 to 1987 at the retail store chain ironically called Crazy Eddie. The company underreported taxable income by skimming cash sales, reported fake insurance claims and avoided payroll taxes by paying employees with cash.

This story involves another disappearing act. After the company went public in 1984, it initially scaled back the fraud to get a higher valuation. But motivated by a desire to increase stock prices, it devised other schemes to infuse cash like moving funds from secret bank accounts into the company.

After a hostile takeover, the fraud was discovered. Eddie Antar, the CEO, went into hiding for three years but was caught and convicted, along with two other family members.

But the Creative Fraud Award goes to Gregor MacGregor. He created an entire fictional country in Central America in the 1800s. While serving in the British army, he visited the areas now known as Honduras and Belize. After returning to London, he said he had received a land grant and announced the nation of the Republic of Poyais.

After getting the requisite flag, currency and yes, even a coat of arms for his new country, MacGregor began to sell land, issued debt and attracted settlers by regaling them with stories of the wonderful capital city and the quality of the soil.

Imagine the surprise of those first settlers when after a long ocean voyage, they found just jungle and old wooden shacks. MacGregor was arrested, but fled to France where he tried the scheme all over again. I guess that was easier in the pre-Internet days.

He then made his way to Venezuela, ending up with a pension and the title of general after he helped the country in its fight for independence.

While some stories of fraud like these are entertaining, fraud is a serious business. It’s a good idea to review your fraud policies. For tips on how to prevent fraud in your company, please see some of my previous posts


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