The history of fraud: a timeline

The history of fraud is the history of one mechanism in different disguises. From the South Sea Bubble, which in 1720 sent a share from £128 to £1,050 in London, to the collapse of FTX in 2022, with about $8 billion of customer money gone, the great scams repeat three pieces: a promise nobody checks, borrowed prestige and new investors' money paying the old ones. This timeline covers three centuries of cases, each with its date and its source, so you can see what changes in each era and what doesn't.

The four pieces that never change

Before the timeline, the pattern. If you read the cases one after another, the same pieces always show up, in a different order:

1. A promise nobody checks. A country in Central America, a monument for sale, a machine that analyzes blood from a single drop, a revolutionary cryptocurrency. The bigger and more detailed it is, the fewer people ask.
2. Borrowed prestige. A chieftain's title, a famous surname, the chairmanship of Nasdaq, an official registration, a celebrity in an ad. The con artist almost never vouches for himself.
3. New money pays the old. It's the engine of almost every great investment fraud: the first investors are paid on time with what the next ones put in, and the first become the best salespeople.
4. A system that arrives late. Regulators, auditors and the press have warning signs for years and don't act until the money is gone.

MATERIUM sums up these pieces in sixteen rules, one per case: The Laws of Deception.

The 18th and 19th centuries: shares, bonds and savings funds

The first great financial frauds on record were born with the first stock markets. In 1720 the South Sea Company in London and John Law's Mississippi Company in Paris promised riches from colonial trade. The euphoria sent their shares far above any real profit, and when the bubble burst it ruined thousands of investors. They weren't pyramids in the strict sense, but bubbles fed by promises no one in Europe could check. We tell the British one in full in the South Sea Bubble of 1720.

A century later, in 1822, the Scotsman Gregor MacGregor took that same distance to the extreme: in London he sold bonds of Poyais, a Central American country he had invented, with maps, guidebooks and its own currency. The disguise was a state; the mechanism, that nobody could go and check before paying. We tell it in the case of Gregor MacGregor.

In 1876 the mechanism appeared in Madrid in its purest form. Baldomera Larra, daughter of the writer Mariano José de Larra, promised 30% a month and paid the first investors with the money of those who came later. It is one of the first well-documented schemes of its kind in the world, 44 years before Ponzi: the case of Baldomera Larra.

The 20th century: the mechanism gets a name

In 1920 Charles Ponzi promised Bostonians 50% in 45 days on a supposed trade in international postal reply coupons. He raised between $15 and $20 million from about 40,000 people in eight months. He didn't invent the trick, but his surname became its name: the Ponzi scheme. Five years later, in 1925, Victor Lustig showed in Paris that the disguise could be anything, even the Eiffel Tower, if the victim was in a hurry and greedy.

For the rest of the century, the disguise became financial and respectable. In Florida, Lou Pearlman, the manager of the Backstreet Boys, spent more than 20 years selling investments and savings accounts in Trans Continental Airlines, a company that existed only on paper, until his scheme fell apart in 2007. On Long Island, Jordan Belfort used a licensed brokerage between 1989 and 1996 to pump up cheap stocks. And in the Russia of 1994, Sergei Mavrodi's MMM pyramid reached millions of people with TV ads, in a country that had just discovered the stock market.

2001-2009: scams in a suit, with an auditor

The turn of the century brought the most effective disguise of all: the large listed company, with auditors and analysts. Enron (2001), WorldCom (2002) and Parmalat (2003) didn't steal from their customers through a fund; they inflated their accounts to hold up their share price. That's accounting fraud, and its rule is Enron's: if the numbers always add up, someone is making them add up.

The 2008 crisis exposed those who depended on not everyone asking for their money at once. In September 2008 Tom Petters resigned as head of his Minnesota company amid criminal investigations; a jury would convict him of running a $3.65 billion Ponzi scheme. In December, Bernie Madoff, a former chairman of Nasdaq, confessed to the largest known Ponzi scheme. Two months later Allen Stanford fell; he sold certificates of deposit from a bank in Antigua, mostly to Latin American savers. In 2009 it was the turn of Scott Rothstein, a Fort Lauderdale lawyer whose $1.2 billion Ponzi scheme earned him 50 years in prison. The disguise was Wall Street prestige, a law firm and the safety of a deposit; the mechanism, Baldomera's.

2014-2022: the technological revolution as a disguise

In the last decade the disguise has been the future. OneCoin, launched in 2014, sold a cryptocurrency that had no real blockchain. Theranos promised hundreds of tests from a drop of blood until the SEC charged Elizabeth Holmes in 2018. FTX, Sam Bankman-Fried's exchange, used its customers' money and went bankrupt in November 2022. In between, two New York stories showed that the image itself could be the product: Billy McFarland's Fyre Festival, sold with models and influencers, collapsed in 2017, and that same year police arrested Anna Sorokin, who had spent years posing as Anna Delvey, a German heiress: the case of Anna Sorokin.

Technology didn't change the mechanism: it sped it up. What took Ponzi eight months takes an online recruiting network a few weeks, and the promise no longer needs an office. If you want the details, they're in our guide to crypto scams.

Today: the same trick, with artificial intelligence

The latest disguise is fake ads with the faces and voices of celebrities, created with artificial intelligence, that lead to investment platforms that don't exist. They combine the usual four pieces: the promise (guaranteed returns), the borrowed prestige (a celebrity who never said that), the early investors' money (some see gains at first, so they put in more) and a system that arrives late. We explain how to recognize them in fake celebrity investment ads.

The disguise of each era, in one table

What history teaches so you don't fall for it today

If the mechanism doesn't change, neither do the questions. Before you hand over your money, ask yourself the same ones that would have saved the clients of Baldomera, Madoff or FTX:

• Can I check with an independent third party that what I'm being sold exists?
• Who holds my money, and can I see it in an account in my name?
• Is the firm registered? In the US, check FINRA BrokerCheck and the SEC's Investor.gov; in the UK, the FCA Register.
• Where exactly does the return come from, and why is it so steady?

You'll find the full list of signs in how to spot a scam, the list by fame in the biggest scams in history and the list by money, with adjusted figures, in the largest frauds by amount. And the cases told on screen, one per episode, in the MATERIUM series.