Classic Financial and Corporate Scandals
| "Bankers who hire money hungry
geniuses should not always express surprise and amazement when some of
them turn around with brilliant, creative, and illegal means of making
money."
Linda Davies
The quotation is from a speech on the Psychology of
Risk, Speculation and Fraud, at a conference on EMU in
Amsterdam. |
Part 1
[ John
Rusnak and Allied Irish Banks | Banco
Ambrosiano and the Vatican Bank |
| Bank of
Credit and Commerce International | Nick
Leeson and Barings Bank |
| Bre-X and
Canadian Mining Scandals | The
Butcher Brothers and the United American Bank |
| Cendant
Corp. | Credit
Lyonnais | Toshihide
Iguchi and Daiwa Bank |
| The
Dot-Com Bubble and Investment Banks | Enron
Corp. and Arthur Andersen |
| The
Flaming Ferraris | Jardine
Fleming | Martin
Frankel |
| Griffin
Trading Co. | Joseph Jett
and Kidder, Peabody & Co. ]
Continued in
Part
2
John Rusnak and Allied Irish Banks
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Although this series of scandals first came to light in the early 1980s the
controversy is not over yet.
- ' God's
banker' death case reopened Judiciary sources in Rome said that the
results of the autopsy will be reviewed by two judges who will decide whether
to order a murder trial. CNN, October 25, 2002.
- New
clue turns up in 'God's banker' death Italian investigators have
discovered a safety deposit box belonging to Roberto Calvi some 20 years after
"God's banker" was found hanging from scaffolding under Blackfriars Bridge in
London. The Guardian, October 14, 2002.
- New
look at 'God's banker' case Italian magistrates are to reopen a murder
investigation into the death of Roberto Calvi, the banker at the heart of a
scandal involving the Vatican, freemasonry and the Mafia, who was found
hanging from Blackfriars Bridge in London in June 1982. New Zealand Herald, 2
October 2002.
- New tests
'say Calvi was murdered' Long-awaited forensic tests into the death of
Vatican banker Roberto Calvi - found hanging from a bridge in London in 1982 -
are reported to show he was murdered. BBC, 19 April 2002.
- Ban
looms over Vatican bank movie The film God's Bankers (I Banchieri Di Dio)
based on the death of financier Roberto Calvi, could be pulled from cinemas
over claims it slanders Flavio Carbonim an Italian businessman. BBC, 27 March
2002.
- Who Killed
Calvi? An essay by Edward Jay Epstein.
- Operation
Gladio by David Guyatt. Claims that there were links between the Calvi
affair and Operation Gladio, a joint project of the US and British secret
services to set up a Europe-wide network of anti-communist guerrillas who
would fight behind the lines in the event of a Soviet invasion.
- Exhumation of
Italian banker's body The remains of the prominent Italian banker, Roberto
Calvi, were exhumed on 16 December 1998, 16 years after his death, to try and
determine whether or not he had been murdered. BBC, 16 December 1998.
- DNA
May Solve Banker's Murder The latest investigation into the death of
Roberto Calvi has produced evidence that could prove the Italian banker was
murdered, and possibly even identify his assassin. The Guardian, December 30,
1998.
- Gelli Arrest is
Another Chapter in Sordid Vatican Bank Scandal Licio Gelli, the fugitive
financier dubbed the Puppet Master who played a key role in one of
Italy's biggest postwar scandals was arrested in Cannes in September 1998.
- Vatican Bank Claims
Allegations concerning the Role of the Vatican Bank in WWII. Among the
allegations is the claim that the Vatican, through its banking system,
laundered loot valued at hundreds of millions of dollars taken from Serb,
Jewish, Ukrainian, and other victims of the Nazis and their Croatian
supporters.
- Nazi-Era
Victims Demand Army, CIA Release Documents on Vatican This is in
connection with the class action lawsuit against the Vatican Bank and the
monastic Franciscan Order. CNS, September 04, 2000.
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Bank of Credit and Commerce International (BCCI)
- BCCI
settlement costs top $1.2bn
Creditors
of Bank of Credit and Commerce International are to receive another $1bn
(£600m). The cost of the 11-year liquidation has topped $1.2bn. The Guardian,
May 15, 2003.
- Treasury
in the dock over BCCI Treasury officials are bracing themselves ahead of a
High Court decision which could force them to release secret papers about the
Government's role in the collapse of BCCI. The Observer, May 12, 2002.
(According to a report in the Mail on Sunday, 5 May, that is not available on
the web, the authorities turned a blind eye to fraud at the BCCI for political
and intelligence gathering reasons).
- Breaking the
Bank Why didn't the Bank of England shut down BCCI sooner? For the first
time in its 307-year history, the Bank of England will answer a civil lawsuit
about its duties. The Wall Street Journal Europe, August 3, 2001.
- Bank faces £1bn
law suit The Bank of England is to be sued for up to £1bn by the
liquidators of the collapsed Bank of Credit and Commerce International (BCCI).
The BBC, 23 March, 2001.
- The Sandstorm
Report This is the report of an official investigation into the BCCI
affair that the British government refused to publish. Along with other
material on BCCI, the Sandstone Report is made available on the web site of
AABA, the Association for
Accountancy & Business Affairs.
- BCCI
Liquidators Sue Sheikh for £289m Liquidators are suing the Sheikh of
Sharjah for a debt they claim he owes the failed bank. The Guardian Wednesday
August 11, 1999.
- Key
Player in BCCI Fraud Loses Appeal History's biggest convicted commercial
fraudster, Abbas Gokal, lost his appeal against his April 1997 conviction on
charges involving £750 million. Friday March 12, 1999.
- Accountants
in BCCI Net The role of accountants Price Waterhouse in auditing for four
years the books of scandal-hit Bank of Credit and Commerce International is
under investigation.
- Bank
of Crooks and Criminals International An outline of the main allegations
that led to the bank being closed down.
- The Media and the
Savings and Loan and BCCI Crises Why the news media took so long to focus
on the Savings and Loan and BCCI crises by David McKean.
- Congressional
Report on the BCCI Affair A Report to the Committee on Foreign Relations,
United States Senate by Senator John Kerry and Senator Hank Brown, December
1992.
- Crooked
Banks Allegations of CIA involvement with BCCI and other banks.
- BCCI, money laundering,
and the nuclear weapons programs of Pakistan and Israel An essay by Orlin
Grabbe.
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Nick Leeson and Barings Bank
The collapse of Barings Bank was probably the most discussed financial
scandal of recent years. The bank was subsequently taken over by the Dutch-based
ING Bank.
Bank of England
Singaporean Authorities
- Executive Summary of the Report of
the Inspectors of Barings Futures
The full report is only available in print. The reference is -
Lim, Michael Choo San Barings Futures (Singapore) Pte Ltd :
investigation pursuant to section 231 of the Companies Act (Chapter 50) : the
report of the Inspectors appointed by the Minister for Finance / Michael Lim
Choo San, Nicky Tan Ng Kuang. Singapore : Singapore Ministry of Finance, 1995.
- xi, 183p. -
The review by Maximilian Hall may also be of interest.
Hall, Maximilian Review of the Singapore Inspectors' Report on Baring
Futures (Singapore) Pte Ltd. Loughborough University Banking Centre, Jan 96. -
30cm.i,17... - (Loughborough University Banking Centre Research Paper
S.,No.92/96). ISBN - 1-899275-15-0
IFCI Risk Institute
- Not Just One Man - Barings
A detailed case study by the IFCI Risk Institute. It includes data on the
positions taken by Nick Leeson, and a discussion of the lessons that can be
drawn from the case.
Numa Financial Systems
US Commodity Futures Trading Commission Response
Other Articles on Barings
- Deloitte
& Touche negligent in Barings audit, rules judge
The high court has ruled that accountancy firm Deloitte & Touche was
negligent in its auditing of Barings, the London merchant bank brought down by
rogue trader Nick Leeson in 1995. Guardian, June 12, 2003.
- Coopers fined in
Barings disciplinary case An appeal tribunal for the profession's senior
watchdog today upheld its findings against Coopers & Lybrand for the
firm's role as auditor in the collapse of Barings. Accountancy Age, 20 April
2002.
- Auditor row
over Leeson Pricewaterhouse-Coopers, the accountancy group that acted as
auditor to Barings, has been found guilty of professional failings. 16 July
2000.
- Barings: A Random
Walk to Self-Destruction This article argues that regulators and human
nature do not always coincide in their objectives. In the old days,
speculators were protected by the twin devils of fear and greed - the
gambler's emotions. Computers do not know fear or greed, they do not have any
common sense, either. Anyone trading off a screen soon loses touch with
reality and common sense. The article appeared in Scandals in Justice which regularly
publishes online articles attacking the British legal system.
- Billion-Dollar
Man Rogue trader Nick Leeson astonished the world when his derivatives
deals brought down Barings - and forced reforms on financial markets.
- Leeson
Scandal 'could happen again' A report from the BBC following the premier
of the film Rogue Trader.
- Leeson
paid £61,000 for speech The former Barings trader was paid $100,000
(£61,000) to speak at a business conference in the Netherlands, BBC Friday 29
October 1999.
The central figure in the debacle has written a book about the Barings
affair.
Rogue
trader by Nick Leeson. London : Warner, 1997. ISBN 0-7515-1708-9. US edition
published by Little Brown & Company, 1996 ISBN 0-316-51856-5.
Locking the Stable Door After the Horse has Bolted
Whenever a scandal like the Barings debacle is uncovered there is a demand
that legislators and regulators should ensure that nothing similar occurs again.
All too often such action is merely a case of locking the stable door after the
horse has bolted. Could frauds on a massive scale be foreseen? Regulators are
hardly likely to answer yes because that would undermine their excuses
for their failures.
However, immediately after the news of the Barings affair broke, Allan
Fotheringham writing in the leading Canadian news and current affairs magazine
Maclean's made the following points.
Author Linda Davies has
proven a point made years ago by Marshall McLuhan, who said that artists can
warn us of future disasters. Three years ago, Davies wrote the
novel, Nest of
Vipers, about a computer whiz-kid who decides to exploit the system
and make tons of money while being employed as a mole by the Bank of England.
She wrote what 28-year-old Nick Leeson accomplished in Singapore last week.
Leeson has been able to upset world economies more than J. P. Morgan, the
Vanderbilts, or the Rothschilds ever could.
See also the Psychology of Risk,
Speculation and Fraud the text of a speech by Linda Davies at the European
Research Center's annual Financial Panel, Amsterdam, 11 June 1997.
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Bre-X and Canadian Mining Scandals
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The Butcher Brothers and the United American Bank
- Schledwitz v.
United States This ruling from the Court of Appeals in 1999 has background
information about the Butcher brothers and the collapse in 1983 of the United
American Bank of Knoxville, the fourth-largest bank failure in U.S. history.
After their banking empire collapsed Jake and C.H. Butcher were convicted of
fraud.
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Cendant Corp.
- Massive Financial
Fraud at CUC and Cendant Corp. The Securities and Exchange Commission
brought civil and administrative fraud and other charges against seven former
officials of CUC International Inc. (CUC) and Cendant Corporation for their
involvement in a massive financial fraud that caused billions of dollars in
losses for investors. June 14, 2000.
- Cendant
pays $3.2 billion to clear fraud settlement Cendant Corp., the marketing
and franchising company battered by accounting problems in 1998, has agreed to
pay $3.2 billion to settle a shareholder lawsuit accusing it of fraud. May 28,
2002.
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Credit Lyonnais
- Credit
Lyonnais' Tangled Tale A timeline of the developments involving Credit
Lyonnais and Executive Life. Business Week, July 30, 2001.
- Credit Lyonnais
probe widens The US financial authorities are considering prosecuting
French bank Credit Lyonnais for conspiracy and money laundering, BBC, 6
September 2001.
- French bank
could lose U.S. license over insurance deal Credit Lyonnais could be
stripped of its U.S. banking licence and some of its top former executives may
face criminal charges for their roles in an illegal deal that cost
policyholders of Executive Life, a now-defunct California insurer billions of
dollars. Los Angeles Times, January 20, 2001.
- A
California Law Suit Makes Paris Tremble An article from Salon
magazine about the legal problems of Credit Lyonnais. February 22, 2000.
- Trichet
trial could halt ECB handover A magistrate in Paris has ruled that
Jean-Claude Trichet, governor of the Bank of France and heir-apparent to
European Central Bank president Wim Duisenberg, must face the courts over
events at the then state-controlled Credit Lyonnais in the early 1990s. The
Guardian, 17 July 2002.
- The Credit
Lyonnais Debacle By Joseph Fitchett International Herald Tribune. Long
France's flagship bank, Credit Lyonnais has now gained another reputation as
the bank whose name is associated with the country's worst financial scandal
this century.
- How an Italian Thug Looted MGM,
Brought Credit Lyonnais to its Knees, and made the Pope Cry An article
about Giancarlo Parretti.
- Credit Lyonnais & L.F.
Rothschild Ready to Topple J. Orlin Grabbe ponders the implications for
the international financial system if Credit Lyonnais were to collapse.
- The
Bank Scandal That Keeps Growing An article from Business 2.0
magazine, July 1997, by David McClintick.
- Financiers
flamboyants, contribuables brules par Ibrahim Warde, Le Monde
Diplomatique, Juillet 1994. Article in French about how deregulation has led
to scandals in various countries, e.g. Credit Lyonnais in France and Banesto
in Spain.
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Daiwa Bank
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The Dot-Com Bubble and Investment Banks
- Swiss
banks reach deal with US regulators Leading Wall Street brokerages,
including the investment arms of Switzerland’s two biggest banks, have reached
a settlement with US regulators over charges of issuing biased stock research.
- Star of
dotcom boom is arrested The first criminal charges were brought yesterday
against a Wall Street banker for actions during the stock market bubble when
Frank Quattrone, formerly of Credit Suisse First Boston, was arrested for
obstruction of justice. Guardian, April 24, 2003.
- Merrill
Lynch investment scandal The role of investment banks in recommending that
investors bought shares in companies which, allegedly, the analysts were
privately describing as junk.
- Wall
Street's Top Cop Time Magazine chose Eliot Spitzer, the New York attorney
general, as its Crusader of the Year 2002.
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Enron Corp. and Arthur Andersen
- Bankers charged
over Enron Four former Merrill Lynch bankers have been charged with taking
part in the securities fraud at the energy giant. BBC, 18 March 2003.
- Enron energy
trader pleads guilty The former head of Enron electricity trading has
pleaded guilty to a charge of conspiracy to commit fraud for his part in
manipulating California's energy market to drive up power prices. BBC, 17
October, 2002.
- The
curse of Enron Enron is the most infamous and mind-boggling financial
scandal ever seen. It has decimated the money markets more effectively than
the best efforts of Osama bin Laden, Saddam Hussein or even Norman Lamont. The
Independent, 25 August 2002.
- Enron
Issues Hearings and news from the Committee on Energy and Commerce of the
U.S. House of Representatives.
- Financial Times Special
Reports on Enron An up-to-date archive of FT articles on the downfall of
Enron.
- Washington
Post Enron Probe Latest information and extensive coverage of the
background
- The End of Enron? A
CNN in-depth special investigation.
- As
Enron scandal spreads, US starts to question cash for influence culture A
report on the political implications of the Enron debacle. The Guardian,
January 16, 2002.
- The Enron Black
Magic The first of a number of articles from Skolnick's Report.
- Enron
Execs Reap $744 Million Top Enron Corp. workers reaped $744 million in
payments and stock in the year leading up to its bankruptcy filing, the
company disclosed on June 17, 2002.
- The
Accounting Industry - Washington Post Special Report A series of articles
with special emphasis on the problems of Arthur Andersen.
- Durant's
Big Scam : The Transcontinental Railroad and Enron In this January 2003
essay, New Yorker financial columnist James Surowiecki investigates the Crédit
Mobilier scandal behind the financing of the Union Pacific railroad, and
compares it to the Enron scandal nearly a century and a half later.
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The Flaming Ferraris
Because of the relatively small sums involved this is unlikely to go down in
history as a classic financial scandal but it is one that in February and March
1999 received plenty of publicity following reports that a member of the team
had been involved in illegal trades in the Swedish stock market.
- Securities and
Futures Authority Disciplinary Action The report on three of the Flaming
Ferraris.
- Archer
son lied to cover his tracks The Securities and Futures Authority found
that Mr Archer, along with Adrian Ezra and David Crisanti, lacked the
integrity to work in the City. Guardian July 28, 2001
- Flaming
Ferraris sacked James Archer, whizz-kid son of Lord Archer, the
millionaire novelist, was sacked along with two of his colleagues by
Credit-Suisse First Boston, the investment bank, for their role in an alleged
attempt to manipulate share prices on the Swedish stock exchange. Guardian,
March 6, 1999.
- How
'Flaming Ferraris' burned their bridges The five 'Flaming Ferraris', the
world's most successful share traders, based their reputation on a simple
publicity stunt. Observer, February 28, 1999.
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Jardine Fleming
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Martin Frankel
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Griffin Trading Company
- Derivatives
firms shut down The UK's Securities and Futures Authority (SFA) forced two
firms to close down after John Ho Park lost at least £6.2m, in the biggest
trading scandal to hit the City of London since Nick Leeson broke Barings
Bank.
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Joseph Jett and Kidder, Peabody & Co.
- Wall Street
Lynching The story of Joseph Jett, the man falsely accused of bringing
down Kidder, Peabody & Co.
- Jett
and Kidder Peabody A series of articles on the Jett-Kidder Peabody bond
trading case by Steven Huddart, Smeal College of Business, Penn State
University.
- GE's
Investment in Kidder Finally Pays Off A Wall Street story that began in
the 1980s concluded in December 2000 with the buyout of PaineWebber by the
Swiss investment bank UBS.
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Go to Part
2 of Classic Financial Scandals
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Roy Davies - last updated
14 July 2003.