The biggest financial frauds in US history

The biggest financial frauds in US history run from Charles Ponzi, who in 1920 raised an estimated $15 to $20 million in Boston, to Bernie Madoff, whose clients lost about $17.5 billion in principal before he confessed in December 2008. Along the way come the accounting frauds at Enron (2001) and WorldCom (2002), Allen Stanford's offshore bank (2009) and, more recently, Theranos (2018) and FTX (2022). Here is each case with what the courts decided, the sentence and what the victims got back, plus two famous stories that don't belong in the table and why.

The biggest US frauds, in one table

The figures aren't comparable with each other: some measure money raised, others money lost or inflated value. Ranked by size and adjusted for inflation, with the method explained, they're in the largest frauds by amount.

Charles Ponzi (1920): the man who gave the fraud its name

An Italian immigrant in Boston, Ponzi promised 50% interest in 45 days. His story was that he bought international postal reply coupons cheaply abroad and redeemed them in the United States for more. In reality he paid the first investors with the money of those who came next. According to Smithsonian Magazine, he raked in an estimated $15 million in eight months, and about 40,000 people joined in; other sources put the total at $20 million. He was quickly arrested and convicted of fraud. His surname became the name of the trick: what is a Ponzi scheme. The full story is in the case of Charles Ponzi.

Enron (2001) and WorldCom (2002): fraud with a listed company

Enron, the Houston energy giant, went bankrupt in December 2001. For years its executives had used accounting loopholes, mark-to-market accounting and special-purpose entities to hide billions of dollars in debt from failed deals and projects. Its shareholders filed a $40 billion lawsuit and recovered $7.2 billion. On May 25, 2006, a federal jury in Houston convicted its former chief executives Kenneth Lay and Jeffrey Skilling; Lay died before sentencing, and Skilling was finally resentenced in 2013 to 168 months in prison. The full story is in the Enron scandal.

Months later it was WorldCom's turn. The telecom company had booked line costs, an ordinary operating expense, as capital investments, and investigators found its assets overstated by more than $11 billion, the largest accounting fraud in American history at the time. It filed for bankruptcy in July 2002, and in 2005 its CEO, Bernard Ebbers, was sentenced to 25 years. Both cases are the purest examples of accounting fraud.

Bernie Madoff (2008): the biggest Ponzi scheme ever uncovered

A former chairman of Nasdaq, Madoff promised his clients modest but steady returns, year after year. In December 2008 he confessed that his investment business was a Ponzi scheme. His clients' statements showed about $64.8 billion, most of it invented profit; the trustee puts the principal actually lost at about $17.5 billion. On June 29, 2009, Judge Denny Chin sentenced him to 150 years and said that “no other white collar case is comparable in terms of the scope, duration and enormity of the fraud and the degree of the betrayal.” The full story is in the case of Bernie Madoff.

The crisis that exposed the rest: Petters, Stanford and Rothstein

The 2008 crisis brought down the schemes that depended on nobody asking for their money back at once. In Minnesota, Tom Petters resigned as CEO of his company in September 2008 amid criminal investigations; a jury convicted him in December 2009, and in April 2010 he was sentenced to 50 years for running a $3.65 billion Ponzi scheme.

In February 2009 the SEC charged Allen Stanford over an $8 billion certificate-of-deposit program sold through Stanford International Bank, in Antigua, much of it to Latin American savers. In 2012 he was sentenced to 110 years for a 20-year scheme in which, according to the Department of Justice, he misappropriated $7 billion. The full story is in the case of Allen Stanford.

That same year, Scott Rothstein, a Fort Lauderdale lawyer, was exposed for selling investors “discounted confidential settlement agreements” in lawsuits he said his firm handled: in reality, a $1.2 billion Ponzi scheme that earned him 50 years in prison in June 2010.

Lou Pearlman (2007): the boy-band manager's savings plan

The man who launched the Backstreet Boys and NSYNC spent more than 20 years attracting individuals and banks to invest in Trans Continental Airlines, a company that existed only on paper, and in an “Employee Investment Savings Account” backed by forged insurance documents. In February 2007 Florida regulators declared the savings program a massive fraud. Pearlman fled, was arrested in Bali in June 2007 and in 2008 was sentenced to 25 years. According to the Tampa Bay Times, his sales of worthless stock and bogus savings accounts amounted to more than $300 million; he died in prison in 2016. The full story is in the case of Lou Pearlman.

Jordan Belfort, the Fyre Festival and the fraud of the image

Not every great American fraud was a Ponzi scheme. Jordan Belfort used his Long Island brokerage, Stratton Oakmont, to pump up cheap stocks and dump them on his clients; investor losses came to about $200 million, and in 2003 he was sentenced to four years, of which he served 22 months: the true story of the Wolf of Wall Street.

In 2017 the Fyre Festival, promoted by models and influencers as a luxury party in the Bahamas, collapsed before it could really begin. Its founder, Billy McFarland, was sentenced to six years in 2018; according to federal prosecutors, his schemes cost investors and customers more than $26 million: the case of the Fyre Festival.

Theranos (2018) and FTX (2022): the future as a disguise

Elizabeth Holmes promised hundreds of tests from a drop of blood. In March 2018 the SEC charged her, Theranos and its former president Ramesh Balwani with raising more than $700 million through a years-long fraud. In 2022 she was sentenced to 135 months, 11 years and 3 months: the case of Elizabeth Holmes.

FTX, Sam Bankman-Fried's crypto exchange, went bankrupt in November 2022. According to federal prosecutors, he stole more than $8 billion of his customers' money; in March 2024 he was sentenced to 25 years and ordered to forfeit $11 billion: the case of Sam Bankman-Fried.

Famous stories that aren't in the table

• Frank Abagnale. The con man of Catch Me If You Can is a legend, but his legend is the problem. Journalistic investigations since 1978 and a 2020 book by Alan C. Logan found no evidence for most of his claims; his documented federal Pan Am check case involved ten forged checks totaling less than $1,500. We tell what holds up in the true story of Frank Abagnale.
• Lehman Brothers. Its 2008 bankruptcy became the symbol of the financial crisis, but it wasn't prosecuted as a fraud: none of its executives were criminally convicted of fraud.
• Anna Sorokin. Her sums were small next to Madoff's, but her case is one of the best-known American frauds of the century: posing as a German heiress, she conned banks, hotels and friends in New York until her 2019 conviction. We tell it in the case of Anna Sorokin.

Long before any of them, across the Atlantic, Britain had already lived through the founding crash of financial speculation: the South Sea Bubble of 1720.

What do America's great frauds have in common?

The disguise changes, from postal coupons to blockchains, but the same pieces return:

1. Borrowed prestige. The chairmanship of Nasdaq, a private bank in Antigua, a listed company with big-name auditors, the Backstreet Boys. Investors trusted the name and stopped checking the numbers. That's Madoff's Law of Deception: “Prestige is the perfect alibi.”
2. Returns that never fail. Madoff's steady gains, Stanford's high-yield CDs, Enron's quarter-after-quarter growth. Consistency, which should have been a warning sign, was the selling point.
3. New money paying the old. Ponzi, Pearlman, Madoff, Petters, Rothstein and Stanford all relied on it. It works until withdrawals outpace deposits, which is why a crisis like 2008 brings so many down at once.
4. A system that arrives late. Auditors, regulators and the press took years to see what, in hindsight, was in plain sight.

How to protect yourself today in the US

• Check the registration yourself. Look up the person and the firm on FINRA BrokerCheck and on the SEC's Investor.gov. If they don't show up, don't invest. Don't rely on the company's own website or certificates.
• Be wary of returns that never miss. Real investments go up and down. A steady, above-market return year after year is what Madoff sold.
• Insist that your money is in your name with an independent custodian. If the same firm manages your money, holds it and sends you your statements, nobody independent is checking.
• If you've already been scammed, keep contracts, statements and messages, and report it to the FTC at ReportFraud.ftc.gov, to the FBI's IC3 if it happened online and to the SEC if it involved an investment. Be wary of anyone who offers to recover your money for an upfront fee: that's another scam.

You'll find the full list of signs in how to spot a scam and the steps to take in what to do if you get scammed. And if you want to see the cases told on screen, start with the MATERIUM episodes.