Although technology has certainly made committing fraud easier for criminals, fraudsters have found ways throughout history to pull off their schemes. Ancient Greece and Rome, Victorian England, and the modern age have their fair share of famous fraud examples. The processes used to build a fraud scheme may have been slightly different 2000 years ago, but the basic principles are the same. These famous fraud cases prove classic fraud schemes are not new, and that individuals and businesses have always been, and always will be, vulnerable to opportunistic fraudsters.
Maritime Insurance Fraud in Greece
Insurance fraud – a well-known problem in the 21st century – was already plaguing lenders almost 2500 years ago in Ancient Greece.
The ancient version of modern maritime insurance was called bottomry. A captain of a boat would borrow money from a lender using the ship as collateral. These loans could be used to fund whole expeditions for Captains who could not afford it. But they were most common when captains who had not yet reached their destinations needed funds to make emergency repairs. They would borrow the money to make the repairs and finish their journey, using the profits they received from trading at the ports to pay back their loans.
Once the boat arrived at the destination, they would pay the money back to the lender, plus interest. If they could not afford to pay, the lender became the owner of the ship. However, giving loans came with a high risk – if the ship sank along the journey, the lender would never get their money back. With high risk came high interest rates – often around 30% according to official records (an understandable rate given the prevalence of sinking ships in those times).
And, predictably, with the advent of maritime insurance came maritime insurance fraud. Captains would claim their boat had sunk in transit in order to keep the money, when in fact their ships were still floating unharmed in a hidden harbour somewhere. Other stories, preserved in court speech records of Greek prosecutor Demosthenes (384-322 BCE), show Captains attempted to intentionally sink their ships and claim the loan for themselves.
These fraudsters were not always successful and allegedly had to pay twice the standard rate in interest if they were caught. Today, insurance fraudsters are not fortunate enough to get away that lightly. Hefty fines and jail time are the usual consequences. But, as in Ancient Greece, that didn’t stop opportunistic criminals from trying anyway.
William Chaloner
Imagine any kind of fraud that could be committed in Victorian England, and William Chaloner probably did it. His journey in fraud began with counterfeiting in the 1600s by joining one of the common coining gangs of the time. He was renowned for his quality of work and ability to evade trouble (counterfeiters faced heavy punishments from hanging to burning at the stake). When banknotes were introduced in 1695, he began counterfeiting those too. When he was caught just two months later, he handed over all evidence, gave up his accomplices who were hanged as a result, and received a reward and thanks from the Bank of England, keeping all his profits.
Chaloner was most famous for counterfeiting but dabbled in other forms of fraud in his spare time. Working as an Anti-Jacobite scammer, he enticed people to participate in illegal activities and then outed them to the government, receiving the rewards in return. He also forged lottery tickets and worked as a quack doctor, evading arrest and scapegoating fellow fraudsters.
One man was committed to catching Chaloner and ending his crimes for good – Sir Isaac Newton. Newton gathered evidence from spies and informants, charging him with high treason. In 1699, Chaloner was found guilty and hanged, ending his lucrative career as one of the world’s most famous fraudsters.
Gregor MacGregor
Gregor MacGregor was perhaps one of the greatest confidence tricksters of all time. Starting his career in the British army in 1803, MacGregor served in the Peninsular War and the Venezuelan War of Independence. His time in South America bred the idea for his fraud scheme.
Choosing to go big (really big) or go home, upon returning to England Macgregor claimed he had been appointed the Cazique of Poyais, a territory in South America. Both the title of ‘Cazique’ and the country ‘Poyais’ were completely fictitious. Although he was granted 8 million acres of land in the Caribbean Sea by George Frederic Augustus, it was not called ‘Poyais’, nor was it fit for habitation.
With none in Britain aware of the territory, or the truth of his time in South America, Gregor MacGregor was able to pull off one of the largest scams in history. He claimed he came back to London as Cazique (a word similar to those meaning ‘prince’) to search for investors and immigrants to his country. A scam of this size necessitates a matching effort – MacGregor developed a parliament, coat of arms, banking mechanisms, an army uniform, and appointed victims to his false army and government. He forged land certificates, wrote a guidebook to the country’s landscape, and took out advertisements in newspapers encouraging people to immigrate or purchase bonds. This evidence was incredibly convincing and drew the interest of hundreds of people, who set sail for Poyais on two ships sent off by MacGregor himself.
Needless to say, when they arrived, ‘Poyais’ was not at all as described. Assuming there was some kind of misunderstanding, the immigrants remained on the island and searched for help. By the time the scheme was uncovered, half the passengers had died and the others sailed back to Britain ill or injured. MacGregor fled to France, where he was later found not guilty on all charges, and lived the rest of his life free from prosecution and exorbitantly wealthy.
Jeanne de Valois-Saint-Rémy
In 18th century France, at the height of tensions leading up to the French Revolution, Jeanne de Valois-Saint-Remy participated in one of history’s most well-known scams – the Affair of the Diamond Necklace. Trying relentlessly to reach the lifestyles of the French aristocracy, she found an opportunity in one of the most expensive diamond necklaces of the time. The necklace was originally designed for Louis XIV’s mistress Madame du Barry, but the King had passed by the time the necklace was complete, and the new royalty – Louis XVI and Marie Antoinette – refused to purchase it due to their declining reputations and habits of extravagant spending.
Jeanne eyed the necklace and developed a plan. She befriended Cardinal Prince Louis de Rohan, who wanted more than anything to be close to the Queen. Jeanne and her husband forged letters from Antoinette to the Cardinal, asking him to purchase the necklace on her behalf to avoid damage to her reputation. Jeanne convinced Rohan she was close friends with the Queen and would be a ‘middleman’ in the transaction. The necklace was purchase and passed to Jeanne, who promptly sold off the individual diamonds in Paris.
The perpetrators were revealed when the Cardinal was arrested, and Jeanne and her husband faced trial. Although she was charged and jailed, Jeanne did not face the scrutiny typical of a fraudster. According to the public, she was the victim. The blame was placed on Marie Antoinette, further damaging her reputation. Beginning as a simple scam, the Affair of the Diamond Necklace became a contributing factor in the French Revolution and the death of Antoinette. Jeanne remained in jail in France for only a year when she escaped and fled to London.
Charles Ponzi
No list of infamous fraudsters is complete without the addition of Charles Ponzi. This confidence trickster developed a method of fraud, named after him, that remains incredibly popular today – the Ponzi Scheme.
It all began with a simple post office coupon – the International Reply Coupon (IRC). The holder of this coupon could purchase stamps at the expense of the sender. Ponzi realized that the price of postage dropped in Europe after WW1, so IRC’s were far cheaper to purchase overseas and exchange for stamps in the United States to be sold for a profit. Confident in the potential success of this process, Ponzi reached out to investors, promising astronomical returns and a doubled investment within two months. He set up his Securities Exchange Company and received 18 investments in the first month.
Ponzi discovered a problem once he began receiving investments – the amount of IRC’s that needed to be bought, and the number of stamps that would have to be sold off before receiving a cash return, was far too large to be feasible. Instead, Ponzi paid his first investors timeously with money from new investors, and the Ponzi scheme was born.
His net worth grew massively (at one point, Ponzi was making $250,000 a day). Suspicious of his rapid rise, financial journalist Clarence Barron investigated the scheme and found that no IRC’s had been bought in large amounts overseas or at home. The revelation caused a panic, and Ponzi was forced to pay out millions to panicked investors, collapsing the scheme and his company. He was charged with 86 counts of mail fraud and sentenced to life in prison. Although he was ultimately caught out, Ponzi inspired a system that remains incredibly prevalent today – reaching the highest levels ever in 2020.
These historical examples of fraud are long passed but hold key lessons for businesses and individuals today despite the wildly different contexts. One of those lessons is that anyone – even a Queen of France – can be a victim of fraud.