A history of fraud through the ages and how to avoid being a victim

Ian Cunningham is managing director of ID & fraud at Experian

From first party fraud in Ancient Greece to ponzi schemes in the twentieth century, we look back at some of the most famous cases in the history of fraud. 

Over the centuries, fraud has gone hand in hand with money.  From the smallest of opportunistic scams to bigger, more organized groups working towards the same fraudulent goal. Where there have been opportunities to make money, there have been fraudsters planning their execution.

Starting at the ‘bottomry’ with first party fraud

The earliest recorded attempt of fraud can be found as far back as the year 300 BC in Greece.  A Greek sea merchant named Hegestratos sought to insure his ship and cargo, so took out an insurance policy against them.

At the time, the policy was known as a bottomry and worked on the basis that a merchant borrowed money to the value of his ship and cargo.  As long as the ship arrived safe and sound at its destination with its cargo intact, then the loan was paid back with interest.  Of course, if on safe delivery the loan was not repaid, the boat and its cargo were repossessed.

In the case of Hegestratos, the cargo was corn.  In what is possibly the earliest recorded attempt of first party fraud, Hegestratos planned to sink his empty ship, sell the corn and keep the loan.

Despite well laid plans, Hegestratos was caught in the act of sinking his ship by his own crew.  He was chased off the ship and drowned trying to escape them.

Selling the Roman Empire to the highest bidder

Fast forward around 500 years to 193 AD and we arrive in the Roman Empire to the first ever incident of financial fraud.

The Praetorian Guard were an elite group of loyal soldiers who protected the emperor at the time, Pertinax.  But his reign was not meant to be as Pertinax was assassinated by his so-called loyal bodyguards.  The Praetorian Guard then announced that the throne to the Roman Empire would be sold to the man who would pay the highest price.

Enter a man named Julianus, with an astronomical bid of 250 pieces of gold for every soldier in the army – the equivalent of around £1 billion today.

However, the guards had sold something that didn’t belong to them, effectively having committed financial fraud.  Julianus was never recognised as emperor and was quickly disposed of, killed in the palace by a soldier in the third month of his reign.  This led to a period of civil war in the empire and a period of time that has come to be known as the ‘year of the five emperors’.

The prince and the property fraud

One of the first attempts at property fraud and swindling innocent buyers out of their hard earned cash, can be traced back to 1821.  The perpetrator was Gregor Mcgregor, a Scottish General in the army, who was ‘legitimately’ famous for his impressive war achievements.  However, he also became famous for conquering a small island named Poyais and being crowned its ‘Cazique’ or prince.

The land in question was completely made up, as was his title. General McGregor conned investors into thinking he was building lavish homes on a paradise island that he ruled.  People flocked to him, with many buying houses that didn’t exist and some even exchanging their Sterling for his own fabricated currency.

True Louvre

In 1911, Argentinian Eduardo de Valfierno paid an anonymous Lourve employee to steal the world’s most famous painting, Leonardo Da Vinci’s Mona Lisa.

Eduardo had no use for the painting and never wanted it.  He just needed people to know it was missing to be able to sell his fakes to underground collectors, and it worked.

Falling for a Ponzi investment

Fraudulent investment scams, famously known as Ponzi schemes, have been taking place for years, but the original Ponzi scheme was executed in 1920.

An American named Charles Ponzi discovered that he could purchase postal vouchers in his home country, ship them abroad and make a modest 5 per cent profit. However, when selling to investors he over exaggerated this margin, promising a 50 per cent profit return. Investors jumped at the opportunity queuing up to give him their money.  Ponzi paid his early investors back with the money from his newer, more recent ones.  When the scam was finally discovered, Ponzi had made $10million dollars and had fled the country.

Over the last 15 years or so, fraud has exploded across industries and borders, with the cost of fraud now in the trillions.  Advances in technology make life a little easier, for example, enabling people to get access to services online quickly and safely.  But, so are advances in ways to commit fraud at every stage of that journey.

Organizations will continue to invest in new technologies that help the fight against fraud, but there are some simple things that individuals can do themselves.

  1. Shred any documents that contain personal information, rather than just throwing them away.
  2. Don’t give too much away on networking websites that could enable someone to guess your password.
  3. Redirect mail through the Post Office if you move house.
  4. Registering to vote at your current address. If you don’t, thieves could use your previous address details to open new credit accounts, and run up debts in your name.
  5. And finally check your credit report for any unusual activity.