Fraud

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As a strictly legal matter, being a commercial fellow, the JC is only really interested in fraud as a part of the civil law. Not criminal fraud. Should fraud aggravate the damages available as a result of a breach of contract? No. And this isn’t just my view. According to arguments aired in Hadley v Baxendale:

It is difficult, however, to see what the ground of such principle is, and how the ingredient of fraud can affect the question. For instance, if the defendants had maliciously and fraudulently kept the shaft, it is not easy to see why they should have been liable for these damages, if they are not to be held so where the delay is occasioned by their negligence only.

Roll of honour

But as a commercial matter, being a commercial fellow, the JC is very interested iun how fraud happens, and how apparently gormless we are in preventing it happening right under our noses.

For this there is the JC’s roll of honour.

See also

• The dog in the night-time
• Contractual negligence
• Gross negligence

Roll of Honour, financial disasters edition

Scandal	Date	Where	Loss	Reason	Firings	Jail-Time?
Post Office Horizon IT scandal	UK	Unjustified prosecution and conviction of hundreds of subpostmasters across the UK	Unaccountability, groupthink, astonishing collective amnesia, widespread incompetence, stupidity.	Conviction, imprisonment, suicide and bankruptcy of hundreds of perfectly innocent and quite nice people.	Loss of public honours (CBE). No firings yet: many candidates for defenestration jumped before they could be fired.	Excoriating public humiliation in front of public enquiry. Increasingly likely some criminal prosecutions may follow.
Credit Suisse	Switzerland	Gradual decline into entropy with a 92% decline in share price since 2015.	Hubris, widespread incompetence, stupidity, spying, uselessness.	Billions and billions over a series of avoidable cockups.	Like the old man in Monty Python and the Holy Grail, “I’m not dead. I think I’m going for a walk. I feel happy.” Market (to SNB): “Isn’t there anything you can do?”	It is not, yet, a crime to make a series of howling cockups over a credulity-defying period any more than it is a crime to not read an AT1 prospectus. Reputations damaged for ever, but alas no porridge, however richly deserved it may seem.
Silicon Valley Bank memeplex	2023	US	$80bn or more	Dopey bank management, regulator asleep at switch, Peter Thiel panicking	Bank insolvent. Bondholders and shareholders wiped out. Other banks levied. Triggered other moral panics such as First National, Signature bank and others (poor old lucky Credit Suisse)	None yet. Lots of arguments about the presence or absence of moral hazard. Moral panic more like.
Frank	2023	US	$175m	Fraud, unfeasible gullibility	Javice got fired. Surely more to come	Not yet clear
FTX/Sam Bankman-Fried	2022	US, Bahamas	$32bn (so far) so some claims that everything has now been recovered and returned to its rightful owner	Hubris, stupidity, fraud	Fired: Gary Wang, Caroline Ellison, SBF. Bankruptcies: Alameda, Genesis, Blockfi. Suspensions of trading: Gemini Reported Losses: Crypto.com, Tiger Global Management, the Ontario Teachers' Pension Plan, SoftBank Group, BlackRock, Lightspeed Venture Partners, Temasek, and Sequoia Capital reported losses of $1bn	Charged with wire fraud, conspiracy to commit securities fraud, money laundering, conspiracy to defraud the U.S., violation of campaign finance laws.
Barclays MTN Programme Limit	2022	US	£1.3bn	Internal Operations	None reported but you have to fear for those poor folk in ops. I beg your pardon? What poor folk in ops? Oh, Right.	No-one goes to jail for forgetting to monitor a programme limit.
LME Nickel short squeeze	2022	London	“Billions”	LME	None reported ... yet	No
Evergrande	2021	China	$300bn		Who knows?	No
Archegos	2021	US	$10bn+	UMR Internal operations	100+ across brokers plus several senior executives and one CEO	Eyes peeled, Mr Huang
Greensill	2021	UK	$4.6bn
Melvin Capital Management LP	2021	US	$7bn	Hubris detector failed	Everyone! The fund shut down shortlay after	Talk of regulators, outrageously, going after the outsider traders, but nothing as yet.
Citigroup v Brigade	2021	US	$500m	Outsourcing, Operations, IT	Not reported but wouldn’t fancy being head of the team in Bangalore	No
Nikola	2020	US	About 80% share drop	CEO misrep	Must have been plenty	CEO indicted on charges of securities fraud
Wirecard	2020	Germany	$4bn	CEO misrep	All of them	Three charged with fraud including CEO
WeWork	2019	US	$11bn over three years	CEO yogababble	Nothing to see here folks! Got a new venture to start up	Jail? Dude hasn’t even been kicked off Marc Andreesen’s Xmas Card list.
Carillion	2018	UK	£7bn	Auditors	3,000 jobs	No but litigation a-plenty
Patisserie Valerie	2018	UK	£94m	Auditors	900 jobs	No but PWC fined 2.3m
Abraaj	2017	Saudi	$1bn	Fraud, Virtue signalling	Some, not clear how many.	Naqvi extradited and charged in US, many many gatekeepers fined
Fyre festival	2017	US
Mozambique tuna bonds	2012-2016	Mozambique, Russia and Switzerland	£1.5-2bn Credit Suisse fined £350m and required to forgive its loans ouch	Fraud, corruption, money laundering	Plenty, including three Credit Suisse bankers and the minister in Mozambique	Three Credit Suisse bankers done on money laundering charges
1MDB	2016	Malaysia, but tentacles stretching all over the world: USA, Saudi Arabia, Singapore, Switzerland, China	Somewhere between $4.5bn and $8bn	Colossal fraud, corruption, money laundering and hip-hop	Hell yeah. Prime Ministers, Goldman Sachs Partners, and one dude — Jho Low — on the lam in rural china	You betcha: Australia, Hong Kong, Indonesia, Luxembourg, Seychelles, Singapore, Switzerland, UAE, UK and US are all actively pursuing action. The two Goldman partners pled or were found guilty; one sentenced to 10 years, one awaiting sentencing. Malaysian PM and wife convicted and sentenced to 10+ years with money laundering. If anyone catches Jho Low he’s for the high jump too.
Mossack Fonseca	2016	Panama
Theranos	2016	US	peak valuation 10bn	Fraud, delusion	everyone at the firm	Founders in jail for hundreds of years.
Wells Fargo accounts fraud	2016	US	$2.7bn in fines and civil suits	fraud, out-of-control rampant bad appledom	Plenty	SEC civil suits vs two senior executives
Volkswagen emissions	2015	Germany and US
AIG	2008	US	US$61bn	Misunderstanding mortgages	Not reported	Some irritation that bonuses were still paid
Olympus	2012	Asia	US$4.9	Accounting shenanigans, fraud	2700 jobs	Kikugawa and Mori sentenced to 3 years in prison, 5 years suspended. Auditor sentenced to 2.5 years in prison, 4 years suspended. Olympus was fined 700 million yen ($7 million USD). In April 2014, six banks filed a civil suit against Olympus over the fraud, seeking an additional 28 billion yen in damages.
LIBOR rigging	2009	Worldwide	“If your mortgage or car-loan was pinned to Libor then perhaps you were disadvantaged by the manipulation of the rate. But it is also possible that you benefited from it.” To date, no one has been able to prove any loss.	Bad apples	Lots of firings of mid-level traders and rate submitters. Strange absence of exits from the Executive Suite, though you could say it contributed to Bob Diamond’s defenestration	Tom Hayes and Carlo Palombo were among 37 City traders prosecuted for manipulating benchmarks Libor and Euribor. Both men spent time in prison before being released in 2021. Matt Connolly and Gavin Black were convicted in the US then their convictions were overturned in 2023.
London Whale	2012	UK	£6.2b	Rogue trader	Bruno Iskill was fired; an external lawfirm did a deep dive but unclear anyone else was directly whacked	No
Kweku Abodoli	2011	UK	$4.5bn	Rogue trader	Abodoli and his line management	Abodoli
Jérôme Kerviel	2008	UK	$6.7bn	Rogue trader	Kerviel and his line management	Kerviel
Bernie Madoff	2008	US	US$65bn	Fraud/Ponzi	Whole firm, many subsidiaries and feeders	Madoff imprisoned. Several implicated enablers topped themselves.
Amaranth	2007	US	US$9.2	Hubris, Markets misbehaving	Whole firm	Charges settled on payment of 750,000 fine.
Tyco	2002	US	US$3bn	Accounting shenanigans	Unclear	Kozlowski did a stretch.
Parmalat	2003	Italy	EUR14bn	Accounting shenanigans		Lots of settlements, fines and red faces
Freddie Mac and Fannie Mae	2008	US	US$14.9bn	Failure to understand the concentrated risk of subprime home loans	No it was everyone else’s fault	No it was everyone else’s fault
Global Crossing	2002	US	US$47bn if you believed the company0146s valuations	accounting shenanigans	Whole firm	Gary Winnick and other ex-executives settled lawsuits filed by investors and former employees accusing the executives of committing securities fraud by using improper accounting to inflate the company's revenue
WorldCom	2002	US	US$11bn	Accounting shenanigans	Whole firm	Ebbers convicted of fraud, conspiracy, and filing false documents with regulators and sentenced to 25 years.
Enron	2001	US	US$63.4bn	Accounting shenanigans, hubris, mismanagement	Whole firm, plus Arthur Anderson collapsed, which was nice, oh and the Sarbanes Oxley Act	Skilling, Lay and Fastow jailed, for fraud, money laundering, insider trading, and conspiracy among other things.
LTCM	1998	US	$3.6 bn bailout orchestrated by the Fed	Black-Scholes option pricing model attacked them from nowhere	Everyone out of a job, Master of the Universe-sized reputations (John Meriwether, Myron Scholes, Robert C. Merton) cut to ribbons	No, though fourteen bank CEOs were locked in a room by the Federal Reserve for a weekend so that is something.
Yasuo Hamanaka	1996	Asia	US$1.8bn	Rogue Trader	Fired	Hamanaka convicted on four counts of forgery and fraud and sentenced to eight years in jail. Sumitomo paid fines of US$150 million to CFTC and US$8 million to the SIB to settle charges of copper price manipulations.
Nick Leeson	1992	UK Singapore	US$1.4	Rogue trader	Whole firm	Leeson jailed.
Lehman	2008	Worldwide	US$613bn	Bankruptcy	Hundreds of thousands	Noone.